Q3 2025 Fund Commentary

Market commentary

Canada’s economy faced challenges in the third quarter as trade tensions with the U.S. continued. This weighed on trade activity and the manufacturing sector. Household spending demonstrated resiliency despite a slowing labour market and economic uncertainty.

The Bank of Canada (BoC) lowered its key interest rate to 2.50%, citing a weaker labour market and easing inflation. The BoC emphasized a cautious approach to balancing growth and price stability. Canada’s unemployment rate was 7.1%, the highest since 2021, with youth unemployment rising sharply.

The S&P/TSX Small Cap Index rose 20.9% in the third quarter, reaching record highs. Smaller domestic-focused firms in the industrials and information technology sectors outperformed, supported by strong fundamentals and demand related to artificial intelligence (AI). Mid-cap resource stocks benefited from rising gold and base metals prices, while energy names faced pressure from weaker oil prices.

Performance

Relative exposure to Aritzia Inc., Badger Infrastructure Solutions Ltd. and CES Energy Solutions Corp. contributed to the Fund’s performance. Aritzia recovered from tariff concerns to see higher sales and earnings performance. Badger Infrastructure reported positive earnings and outlook aided by AI, data centres and power demand. CES performed well in a difficult energy market.

The Fund’s underweight exposure to Celestica Inc. and lack of exposure to Bombardier Inc. detracted from performance. Celestica benefited from expectations of rising AI infrastructure investment and expanded hyperscaler capital expenditure.

At the sector level, exposure to materials contributed to performance, driven by strength in gold equities. However, underweight exposure to materials detracted from performance. Exposure to industrials also detracted from the Fund’s performance, as did selection within information technology, as software companies held were affected by AI concerns.

Portfolio activity

The sub-advisor added Lumine Group Inc., Hammond Power Solutions Inc. and Exchange Income Corp. for their growth outlooks. Vitalhub Corp. was added through participation in an equity issue to fund the company’s consolidation strategy. A better backdrop for real estate transactions and lower interest rates led the sub-advisor to increase Colliers International Group Inc. A better outlook for the second half of 2025 led to an increase in Element Fleet Management Corp.

Computer Modelling Group Ltd. and North American Construction Group Ltd. were sold in favour of other investments. InterRent REIT was sold after its takeout offer from Carriage Hill Properties Acquisition Corp. Stantec Inc., Atkinsrealis Group Inc. and Definity Financial Corp. were reduced after strong performance. ARC Resources Ltd. and Nuvista Energy Ltd. were trimmed given risks related to oil supply and demand.