Q3 2025 Fund Commentary

Market commentary

In the third quarter of 2025, global equities rose as trade tensions eased. Investor enthusiasm for artificial intelligence (AI) benefited growth stocks and the information technology sector. The S&P 500 Index rose 8.1% supported by strong earnings and a resilient economy. The U.S. Federal Reserve Board cut interest rates for the first time since 2024, which also supported equity performance.

European equities lagged, with Germany underperforming, though France and the U.K. saw gains. Asia outperformed, led by Chinese and Taiwanese tech stocks, and Japanese equities benefited from a weaker yen, a U.S.–Japan trade deal and ongoing reforms.

Performance

The Fund’s overweight exposure to Sony Group Corp., Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and Rakuten Bank Ltd. contributed to performance. Sony Group reported positive results, driven by its gaming business, particularly in third-party software sales. TSMC posted a 45% year-over-year increase in U.S. dollar revenue, driven by demand for AI and high-performance computing technologies. Rakuten Bank gained market share because of its product offerings and ability to leverage Rakuten Group’s customer base.

Overweight exposure to Novonesis AS, DSV AS and London Stock Exchange Group PLC detracted from performance. Novonesis stock fell as management commentary around long-term growth and margin potential disappointed investors. DSV was affected by concerns over short-term profitability from a weakening freight market. London Stock Exchange stock fell amid concerns over AI disruption and management comments around increased competition driving pricing pressure.

At a sector level, stock selection in the consumer discretionary and information technology sectors contributed to performance. Stock selection in financials and health care detracted from performance.

At a regional level, selection among emerging markets and the Pacific Rim contributed to performance. Stock selection in the U.K. and continental Europe detracted from performance.

Portfolio activity

The sub-advisor added Prysmian SPA for its exposure to transmission and distribution capital expenditure, a key driver of projected earnings growth from 2025 to 2031. Continued investment in the U.S. grid and data centres should further boost profitability. DSV was increased based on its cost focus and the potential for synergies from the DB Schenker acquisition, which could raise earnings and margins.

Hermes International SA was sold because of concerns around exposure to Chinese consumers amid rising nationalist sentiment, volatility in non-core products and U.S. consumer spending. Air Liquide SA was reduced for valuation considerations.

Outlook

The Fund ended the period with underweight exposures to continental Europe and the Pacific Rim, and overweight exposures to the U.K. and emerging markets. At the sector level, the Fund held underweight exposures to health care and information technology, and overweight positions in industrials and consumer discretionary.

In the sub-advisor's view, (SB) volatility experienced year-to-date is likely to persist. The sub-advisor believes (SB) amid high market concentration, regional diversification is important to the reduce the risk of overdependence on the fortunes of tech and the broad U.S. market. With the implications of U.S. tax and tariff policies on inflation and growth still uncertain, a diversified portfolio is important to protect against volatility.

With valuations above long-term averages, investors are pricing in accelerating growth driven by fiscal stimulus and an AI-induced productivity boom, while inflation remains moderate. While the sub-advisor expects (SB) earnings growth from the U.S. is expected to be resilient, U.S. trade policy uncertainty is leading to delayed investment by businesses and households. Meanwhile, Europe has implemented fiscal support, which could boost growth prospects. Underneath the geopolitics, the sub-advisor believes the global economy is changing, bringing consequences for the distribution of growth and, potentially, inflation.

The sub-advisor expects global profits to rise around 8.6%, with earnings growing across the major industry groups in every region. The sub-advisor believes (SB) the re is a growth gap between growth for the “Magnificent 7” stocks and the rest of the market is narrowing. It is worth noting that U.S. information technology sector valuations still reflect expectations for over 23% earnings growth from the sector. Any company forecast that indicates these expectations may be too high could cause more volatility.