Q3 2025 Fund Commentary

Market commentary

Global equity markets rose in the third quarter of 2025, with the MSCI ACWI returning 9.7% (in Canadian dollar terms). Global investment-grade bonds, represented by the Bloomberg Global Aggregate Bond Index, rose a more modest 2.6% (in Canadian dollar terms). Gains were supported by easing trade tensions, momentum in artificial intelligence (AI) and expectations for near-term interest-rate cuts.

North American equities led performance, with the Russell 2000 Index gaining 14.6%, followed by the NASDAQ Composite returning 13.6%. Emerging market equities rose, with the MSCI Emerging Markets Index gaining 12.8%. (All returns are in Canadian dollar terms.)

In the U.S., inflation rose to 2.9% year-over-year in August and the U.S. economy grew at an annualized rate of 3.8%. Consumer spending remained strong, and businesses restarted their investment plans, particularly for projects centered on AI infrastructure. However, July labour market data raised concerns as revisions to May and June non-farm payroll figures showed slower employment growth.

The U.S. Federal Reserve Board (Fed) cut its interest rate by 0.25% in September, bringing the federal funds rate to 4.00%–4.25%, while the Fed chairperson warned that cutting interest rates too aggressively could risk keeping inflation above the 2% target.

Against this backdrop, ten of the eleven MSCI ACWI sectors rose, led by information technology, communication services and materials. Consumer staples was the only sector to post a negative return.

Performance

The Fund’s relative exposure to Alibaba Group Holding Ltd. and Prosus NV contributed to performance. Alibaba benefited from increased investment in AI infrastructure development while Prosus reported strong revenue growth.

Exposure to Pandora AS detracted from performance because of the impact of global tariffs and slowing sales. A lack of exposure to a U.S. information technology company detracted from performance as the company reported growth through new products and increased investment.

At a sector level, stock selection in consumer discretionary and financials as well as underweight exposure to financials contributed to performance. Stock selection in and overweight exposure to materials and underweight exposure to information technology detracted from performance.

Portfolio activity

There were no notable transactions made during the period.

Outlook

In recent years, equity markets were driven upwards by the notion of U.S. exceptionalism and the promise of AI. This led to divergence between U.S. and international markets, with U.S. market valuations reaching all-time highs at the end of 2024. Because of this, the sub-advisor positioned the Fund with a bias toward international equities over U.S. equities.

In the sub-advisor’s view, the emergence of Chinese multinationals should bring competition into the global landscape by going toe-to-toe with U.S. multinationals for market leadership. Chinese multinationals would be able to compete on cost, offering comparable quality to their U.S. counterparts at a lower price. The sub-advisor has also looked at companies that should benefit from a reacceleration in Europe. Some of these opportunities include companies in the construction, homebuilding and infrastructure spaces, which could see growth following potential conflict resolution in Ukraine.