Q3 2025 Fund Commentary

Market commentary

After equities fell in early April following the U.S. administration’s tariff announcement, equities recovered in the third quarter of 2025. 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. Overall, the S&P 500 Index rose 10.3% led by information technology, communication services and consumer discretionary performance.

Recent data indicates the U.S. economy may be slowing as job market strength shows signs of weakening. In response, the U.S. Federal Reserve Board cut its policy rate in its September meeting and forecasted more cuts before the end of the year.

Performance

The Fund’s relative exposure to eBay Inc., Cummins Inc. and NetApp Inc. contributed to performance. eBay released positive earnings results, with revenue up 6% and merchandise volume up 4%, driven by its U.S. business, which was not affected by tariffs. Cummins posted positive earnings despite challenges in the trucking industry because of profitability in its power systems and distribution segments. NetApp reported results in line with forecasts on revenue, margins and earnings per share.

Relative exposure to Elevance Health Inc., Comcast Corp. and Amdocs Ltd. detracted from performance. Elevance reported that higher medical cost trends for both Medicaid and the Affordable Care Act in the U.S. will affect its margins in 2025. Comcast was affected by the highly competitive media environment, reporting earnings down 1% in residential broadband and 31% for studios. Despite positive results, Amdocs investors were focused on its AI capabilities, which are not yet a key part of the business.

At a sector level, stock selection in consumer discretionary and industrials contributed to performance. Selection and underweight exposure to information technology detracted from performance. Stock selection in communication services, materials, health care and financials detracted from performance, as did overweight exposure to health care and financials.

Portfolio activity

The sub-advisor increased Chubb Ltd. and PPG Industries Inc. A holding in eBay Inc. was reduced.

Outlook

Growth stocks, particularly those associated with AI, drove U.S. market returns, but concentration risk remains elevated. The top seven companies by market capitalization on the S&P 500 Index now account for almost one-third of the entire index. The sub-advisor is positive about the potential of AI but cautious amid many unknowns about how these tools will drive efficiency and productivity. The Fund has exposure to AI through Applied Materials Inc. and Amdocs Ltd., companies that operate in and outside of AI.

After the extreme disruption brought on by tariffs in the second quarter, businesses are adapting to the results of those levies. This uncertain economic and investment environment could spur volatility in markets, and the sub-advisor will monitor holdings and will aim to take advantage of market turbulence.