Q3 2025 Fund Commentary

Market commentary

Following disruption from U.S. tariffs in the second quarter of 2025, the global economy adjusted to the new trade environment during the third quarter. The trade war led Canadian exports to decline significantly in the second quarter.

The S&P 500 Index reached new highs, with growth stocks leading fueled by artificial intelligence (AI) investment. NVIDIA Corp. became the largest company in history by market capitalization after surpassing USD$4 trillion in valuation. The U.S. administration announced a 15% tariff on goods from the European Union and levies of 50% for both Brazil and India.

Despite tariff uncertainty, the S&P/TSX Composite Index was up 12.5%, while the S&P 500 Index (in Canadian dollars) was up 10.3%.

Performance

The Fund’s relative exposure to Bank of Montreal, Royal Bank of Canada and The Toronto-Dominion Bank (TD Bank) contributed to performance as the banks outperformed. Bank of Montreal reported better-than-expected credit and improvement in its impaired provision for credit. Royal Bank beat its earnings estimates, driven by capital markets and improved credit. TD Bank delivered better-than-expected earnings driven by lower credit provisions and Canadian and wholesale banking results.

Relative exposure to CGI Inc., Metro Inc. and ATS Corp. detracted from performance. CGI’s earnings came in ahead of expectations but sluggish organic growth and potential disruption from AI led the stock to fall. Metro reported lower same-store sales in food. ATS reported lower results in August amid a slowdown in bookings and declining backlog in its life sciences division.

At a sector level, stock selection in Canadian financials, communication services and utilities contributed to performance. Selection among the U.S. consumer discretionary and industrials sectors contributed to performance.

Stock selection and underweight exposure to Canadian materials stocks detracted from performance as the price of gold rose. Stock selection in Canadian consumer staples and information technology detracted from performance, as did overweight exposure to consumer staples and industrials. In U.S. equities, selection and underweight exposure to information technology detracted from performance, as did selection in communication services, materials, health care and financials. Overweight exposure to health care and financials also detracted from performance.

Portfolio activity

The sub-advisor added Canadian Apartment Properties REIT for its track record of maximizing occupancy and mark-to-market rent opportunities that should drive margin expansion. Alimentation Couche-Tard Inc., Boyd Group Services Inc., CGI Inc., Element Fleet Management Corp., Tourmaline Oil Corp., Chubb Ltd. and PPG Industries Inc. were increased. CAE Inc., Royal Bank, RB Global Inc., TD Bank and eBay Inc. were reduced.

Outlook

Despite a redefinition of Canada’s trading relationships and exports to the U.S. down, Canadian equities performed well, up 23.9% year-to-date. Tariffs remain a challenge, with a 50% levy on steel, aluminum and copper, and a 25% tariff on automobiles, damaging important Canadian industries. The United States–Mexico–Canada Agreement is scheduled for review in 2026 and maintaining its provisions are crucial for Canada’s exports and overall economy.

The outperformance of international equities over U.S. equities has been a notable feature of 2025. This was impressive in a positive year for U.S. equities, particularly those benefiting from AI investment. The S&P 500 Index’s growth was mostly AI-related, which has led to higher concentration risk, but is less of an issue with international indices.