Q3 2025 Fund Commentary

Market commentary

North American economies showed mixed signals in the third quarter. Canada’s economy remained under pressure from U.S. tariffs. U.S. growth was supported by steady consumer spending. Manufacturing activity weakened in both countries given trade uncertainty.

The Bank of Canada lowered its key interest rate to 2.50%, citing a softer labour market and fading inflation pressures. The U.S. Federal Reserve Board cut its federal funds rate to a target range of 4.00% to 4.25% given slowing job growth and mostly contained inflationary pressures. Canada’s unemployment rate ended the quarter at 7.1%, while the U.S. rate was 4.3% in August 2025.

Equity markets in both countries rose. The S&P/TSX Composite Index gained 12.5%, led by the materials, information technology and materials sectors. In the U.S., the S&P 500 Index rose 10.5%, with information technology and communication services outperforming on continued enthusiasm for artificial intelligence. The energy sector performed largely in line with both markets, pressured by weaker oil prices and margin compression.

Performance

The Fund’s relative exposure to Alphabet Inc. and Johnson & Johnson contributed to performance. Alphabet’s stock rose after it released strong quarterly results and received a better-than-expected ruling in its search antitrust remedies case. Johnson & Johnson benefited from easing fears around future health care policies from the U.S. administration. It, and other pharmaceutical companies building manufacturing plants in the U.S., will not be subject to tariffs.

Exposure to Intact Financial Corp. and lack of exposure to Shopify Inc. detracted from the Fund’s performance. Intact Financial’s share price fell despite strong results, as downward revisions to earnings expectations disappointed investors. Shopify performed well, its stock seeing a significant price increase.

At the sector level, stock selection within communication services and consumer staples contributed to the Fund’s performance. Underweight exposure to industrials also contributed to performance. Underweight exposure and stock selection in materials detracted from performance, as did selection within information technology.

Portfolio activity

The Toronto-Dominion Bank was increased based on its competitive advantages and valuation. The sub-advisor believes the company can move past its anti-money laundering issues. Open Text Corp., Alphabet and Royal Bank of Canada were reduced for valuation reasons.