Q1 2026 Fund Commentary

Commentary and opinions are provided by Mackenzie Investments.

Market commentary

Canada’s economy navigated a challenging first quarter as trade uncertainty continued to weigh on business confidence and manufacturing activity. Employment fell in January and February before stabilizing in March, when the economy added 14,000 jobs and the unemployment rate held steady at 6.7%.

The Bank of Canada (BoC) held its policy rate at 2.25% at both its January and March meetings. Canada’s inflation rate eased to 1.8% in February, the softest reading in several months. The Bank noted that near-term growth was likely to be weaker than anticipated and that the energy price shock following the outbreak of the conflict in the Middle East posed upside risks to inflation in the near term.

The Canadian fixed income market delivered mixed results in the first quarter as geopolitical uncertainty and rising oil prices complicated the investment landscape. The yield on the 10-year Government of Canada bond rose from 3.43% at the start of the quarter to 3.47% by quarter-end, reaching a high of 3.58%, putting downward pressure on government bond prices, particularly late in the quarter. Corporate bonds showed resiliency, but underperformed government bonds with credit spreads widening slightly. High-yield bonds were relatively volatile as the late-quarter decline in risk appetite weighed on lower-rated issuers, though energy-linked names broadly outperformed.

Performance

The Fund’s government bond exposure contributed to performance during the quarter. Allocation to maturities across the Canadian yield curve also contributed as Canada’s economic outlook diverged from the U.S. Economic fragilities became more evident, prompting markets to reassess the BoC’s policy outlook following weaker growth and a cooling labour market. While Canadian yields moved higher, the Fund’s positioning benefited from relative value opportunities and curve positioning during the period.

The Fund’s corporate bond exposure detracted from performance. Royal Bank of Canada (4%, 2030/10/17) detracted from performance as bonds within the financials sector came under pressure during the period.

Portfolio activity

The sub-advisor added TransCanada Pipelines Ltd. (5.125%, 2056/08/20) during the quarter, participating in a new issue. TransCanada Pipelines is a core Canadian energy infrastructure provider with a diversified portfolio of regulated and contracted pipeline assets. In the sub-advisor’s view, the company has strong credit fundamentals and the bond enhances the Fund’s diversified exposure within the energy sector.

Hydro One Inc. (4.25%, 2035/01/04) was increased. In the sub-advisor’s view, this high-quality issuer demonstrates resilient fundamentals and offers a favourable yield profile given its predictable long-term contracted cash flows and stable credit metrics.

The sub-advisor sold Bank of Montreal (7.325%, 2082/11/26), a Limited Recourse Capital Note (LRCN), because of its long-dated structure and extension risk.

Government of Canada (3.25%, 2034/12/01) was reduced to align the Fund’s duration and asset allocation objectives.