Q3 2025 Fund Commentary

Market commentary

U.S. economic activity was resilient in the third quarter. Growth was supported by steady consumer spending. However, manufacturing faced pressures from trade uncertainty. Inflation was above the U.S. Federal Reserve Board’s (Fed) 2% target. At its September meeting, the Fed lowered its federal funds rate to the 4.00% to 4.25% range.

The U.S. unemployment rate was 4.3% at the end of August 2025. Job growth slowed, but wage gains and consumer demand were supportive. The Fed signaled two additional rate cuts by year-end, balancing inflation risks with employment concerns.

The U.S. equity market rose, with the S&P 500 Index gaining 10.5%. Information technology and communication services outperformed, driven by enthusiasm for artificial intelligence (AI). Financials and materials also posted gains. The consumer staples sector declined over the quarter.

Technology stocks continued to lead U.S. equity market gains. NVIDIA Corp. posted record quarterly revenue, driven by strong demand for AI infrastructure and chips. Amazon.com Inc. and Microsoft Corp. delivered solid earnings, supported by cloud growth and rising capital investment in AI. The “Magnificent 7” remained central to market momentum.

Performance

The Fund’s relative exposure to Alphabet Inc. and Amphenol Corp. contributed to performance. Alphabet benefited from a milder antitrust ruling than expected and promising integration of AI into core products. Amphenol reported strong second-quarter earnings because of AI enthusiasm. A lack of exposure to Salesforce Inc. also contributed to performance.

Relative exposure to Roper Technologies Inc. detracted from the Fund’s performance. Its stock fell because of concerns around AI disintermediation. A lack of exposure to Celestica Inc. detracted from performance.

At the sector level, underweight exposure to information technology contributed to the Fund’s performance. Stock selection within information technology and overweight exposure to consumer discretionary detracted from performance.

Portfolio activity

The sub-advisor added Synopsys Inc. for its earnings growth prospects. Oracle Corp. was increased for its long-term earnings growth prospects as a key enabler in AI. Broadcom Inc. was increased based on its cash flow growth and stable growth trajectory.

Gartner Inc. was sold because of concerns that its earnings growth could be affected as corporate budgets are relocated toward AI. IDEXX Laboratories Inc. was sold because of lower demand for veterinary services amid reduced consumer spending. Mastercard Inc. and Netflix Inc. were reduced because of their high relative valuations.