Q3 2025 Fund Commentary

Market commentary

Equity markets rose during the third quarter of 2025, with several U.S. equity indexes reaching record highs. The rebound was supported by the artificial intelligence (AI) boom and growing expectations of monetary easing.

In September, the U.S. Federal Reserve Board (Fed) cut interest rates by 0.25% to address softening labour market conditions, which outweighed concerns over persistent inflation. The Fed also projected the potential for two additional interest-rate cuts in 2025. Following the announcement, mortgage applications rose as homeowners sought to capitalize on lower borrowing costs, while housing starts declined. Toward the end of the quarter, information technology stocks slightly declined amid renewed concerns about a potential AI-driven market bubble.

The U.S. finalized trade agreements with several key partners and the U.S. administration’s fiscal package dubbed the One Big Beautiful Bill Act was officially approved. Information technology stocks led market gains, supported by optimism surrounding AI, strong corporate earnings and the resumption of chip exports to China. Weaker-than-anticipated employment data further fueled expectations for a potential interest-rate cut despite persistent inflation. By August, progress in trade negotiations, rising manufacturing activity and a second-quarter gross domestic product growth rate of 3.8% bolstered business confidence.

The Canadian economy contracted by 1.6% in the second quarter and unemployment rose to 7.1% in August, driven by a 27% decline in exports. The contraction led to lower manufacturing in September because of high input costs, tariff uncertainty and weak demand from the U.S. To manage the economic slowdown, the Bank of Canada cut its policy rate to 2.50% in September, in tandem with a dip in inflation.

The S&P/TSX Composite Index gained 12.5%, with materials, information technology and energy the top-performing sectors. Performance was supported by corporate profits and demand in these sectors, while industrials lagged. Small-capitalization stocks outperformed large-capitalization stocks, while value stocks led growth stocks.

Performance

The Fund’s relative exposure to Agnico Eagle Mines Ltd., Pan American Silver Corp. and AbbVie Inc. contributed to performance. Agnico Eagle Mines posted record revenues and earnings amid rising gold demand and cost efficiencies, and announced acquisition of a stake in Maple Gold Mines Ltd. It announced CAD$200 million in dividends, CAD$100 million in share buybacks and repayment of CAD$550 million in debt.

Relative exposure to Thomson Reuters Corp., Tourmaline Oil Corp. and Waste Connections Inc. detracted from performance. Thomson Reuters’ conservative growth forecast for 2025 and the impact of its capital outlay on agentic AI on its profit margins were concerns for investors.

At a sector level, security selection and underweight exposure to consumer discretionary contributed to performance, as did selection within health care. Stock selection in information technology and industrials detracted from performance. Underweight exposure to materials and overweight exposure to industrials and health care also detracted from performance.

Portfolio activity

There were no significant trades made during the period.

Outlook

The sub-advisor has a positive outlook for the Canadian market, supported by strength in financials, gold and industrials, and signs of a stabilizing economic backdrop. The Canadian federal government has made progress on strategic projects that should bolster long-term growth. Canadian banks continue to deliver solid results, with resilient loan books and limited credit concerns. The price of gold remains elevated amid geopolitical uncertainty, U.S. dollar weakness and ongoing central bank buying.

The Canadian equity market trades at a notable discount to the S&P 500 Index, with improving earnings growth and foreign inflows contributing to strong performance. The sub-advisor expects further foreign investment into Canada through the end of the year.

Interest rates have eased, which should benefit consumers, though housing remains stagnant and represents a near-term drag on growth. Overall, attractive valuations, resilient earnings, supportive policy initiatives and favourable macroeconomic trends underpin a positive outlook for Canadian equities.