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 Canadian fixed income market posted gains. Yields on 10-year Government of Canada bonds finished at 3.18%, slightly lower than 3.27% at the beginning of the quarter. Government bond prices increased, while investment-grade corporate bonds outperformed. High-yield bonds rose, driven by improving risk sentiment and appetite for income.

Performance

The Fund’s relative exposure to U.S. Treasury (2.125%, 2035/01/15) contributed to performance as it benefited from lower yields. Relative exposure to Province of Ontario (4.6%, 2055/12/02) detracted from performance because of its long duration (sensitivity to interest rates).

At the sector level, federal government bond exposure contributed to the Fund’s performance. Exposure to provincial government bonds detracted from performance.

Portfolio activity

The sub-advisor added Pembina Pipeline Corp. (4.8%, 2081/01/25) to add to the Fund’s overweight exposure to the utility and pipeline midstream segment. The sector is supported by the regulatory environment. Bruce Power L.P. (4.27%, 2034/12/21) was increased for its long-term contracts that support cash flow and credit fundamentals. The sub-advisor has a positive view of the company for its defensive profile and high quality.

Bank of Montreal (4.3%, 2080/11/26) was sold to take profits. Cannabist Company Holdings Inc. (9.25%, 2028/12/31) was reduced to rebalance the portfolio and reduce risk.