Q3 2025 Fund Commentary

Market commentary

The Canadian equity market, as measured by the S&P/TSX Capped Composite Index, rose 12.5% despite a weaker macroeconomic backdrop. In spite of trade policy uncertainty and weakening economic landscape, Canadian equities outpaced U.S. equities.

Canadian investment-grade bonds, as measured by FTSE Canada Universe Bond Index, returned 1.5%. Canadian bond yields fell as markets priced in interest-rate cuts by the Bank of Canada. Worsening domestic economic data, trade tensions and a slowing U.S. economy contributed to a weaker outlook.

Gross domestic product declined 0.4% in the second quarter of 2025 following a 0.5% gain in the first quarter. The second quarter contraction was driven by declines in export goods and lower business investment in machinery and equipment. The Consumer Price Index rose 1.9% year-over-year in August, following an increase of 1.7% year-over-year in July, while unemployment rose 0.5% since January. The Bank of Canada cut interest rates by 0.25% in September.

Against this backdrop, most sectors provided positive returns, led by materials and financials, while consumer staples and health care lagged.

Performance

The Fund’s overweight exposure to Agnico Eagle Mines Ltd. and Franco-Nevada Corp. contributed to performance. Agnico Eagle Mines’ stock rose because of higher gold prices and robust operations across its Canadian and Finnish mines. Franco-Nevada benefited from higher precious metals prices and renewed investor appetite for royalty and streaming companies. 5N Plus Inc. also contributed to performance because of progress in its materials segment and long-term supply agreements in the semiconductor and renewable energy markets.

Underweight exposure to Barrick Mining Corp. detracted from performance, as did overweight exposure to Intact Financial Corp. and TMX Group Ltd. Barrick Mining’s share price rose because of higher gold prices and positive sentiment toward large-capitalization producers. Intact Financial’s stock consolidated following a period of strong performance. TMX Group was affected by lower trading activity and equity issuance volumes.

At the sector level, exposure to communication services contributed to performance. Exposure to financials and information technology detracted from performance.

Portfolio activity

There were no trades made during the quarter.

Outlook

While Canadian equities advanced, smaller and cyclical companies were top performers, and high-quality businesses saw relative underperformance. The sub-advisor believes earnings revisions in Canada have begun to stabilize, though growth varies meaningfully across sectors. In the sub-advisor's view, inflationary pressures are moderating, but high borrowing costs and rising unemployment are weighing on consumer activity.

The sub-advisor is reminded of the early 2000s, which saw optimism around new technologies accompanied by mixed economic data and signs of financial strain. In this environment, the sub-advisor has a balanced approach, trimming holdings where valuations have become extended in favour of attractive long-term risk-reward profiles.

The sub-advisor monitors trends in wages, fiscal policy and consumer health on both sides of the border. Household debt and lower savings are creating challenges for the economy, even as defensive segments such as discount retail and consumer staples demonstrate resilience. In the sub-advisor's view, while fiscal and infrastructure spending are supportive, the near-term growth outlook is tempered by uncertainty around global trade and monetary policy shifts.

The sub-advisor is focused on stock selection, risk-aware positioning and diversification.