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 NVIDIA Corp., AppLovin Corp. and Alphabet Inc. contributed to performance. NVIDIA saw demand for its AI chips rise and announced plans to invest up to USD$100 billion in OpenAI to support data centres and AI infrastructure. AppLovin outperformed because of ad-tech performance, growth in its software platform and demand for its AI-powered AXON engine. Alphabet’s shares rose amid demand for AI products, which boosted quarterly sales, justifying an increase in capital spending.

Relative exposure to Metro Inc., Circle Internet Group Inc. and Teleperformance SE detracted from performance. Metro was affected by weaker online sales growth, tariff-related vendor costs and fears over inflationary pressures. Circle Internet Group underperformed because of insiders selling shares, competition from alternative stablecoin providers, and valuation concerns. Teleperformance saw operational challenges in specialized services, a drop in its revenue outlook and reduced U.S. language services demand.

At a sector level, exposure to information technology and health care contributed to performance. Exposure to investment-grade and high-yield bonds contributed to performance. At a regional level, exposure to the U.S. and emerging markets contributed to performance.

Portfolio activity

There were no notable transactions made during the period.

Outlook

The sub-advisor seeks to lower risk by emphasizing what they believe to be higher-quality companies with lower debt and more consistent profitability. The sub-advisor continues to capitalize on market volatility to invest in AI and connected TV, believing in their strong growth potential.

The economic landscape is dynamic, including evolving trade policies, changes to fiscal and regulatory policies, and pressure for the Fed to continue lowering interest rates. In the sub-advisor’s view, the impact from tariffs remains uncertain and may bring continued volatility to risk markets. Concerns surrounding debt and deficit spending linger following the enactment of the One Big Beautiful Bill. Meanwhile, the Fed has resumed interest rate cuts amid signs of weakening labour markets.

The sub-advisor has increased the Fund’s credit exposure during periods of volatility and will maintain a conservative positioning until there is clarity on trade relations. U.S. Treasury exposure is close to the highest level in the Fund’s history. This could provide a source of funds if there is an opportunity to buy credit sectors.