Q3 2025 Fund Commentary

Market commentary

Global equity markets rose in the third quarter of 2025, with the MSCI ACWI returning 9.7% (in Canadian dollar terms). Global investment-grade bonds, represented by the Bloomberg Global Aggregate Bond Index, rose a more modest 2.6% (in Canadian dollar terms). Gains were supported by easing trade tensions, momentum in artificial intelligence (AI), and expectations for near-term interest rate cuts.

North American equities led performance, with the Russell 2000 Index gaining 14.6%, followed by the NASDAQ Composite returning 13.6%. Emerging market equities rose, with the MSCI Emerging Markets Index gaining 12.8%. (All returns are in Canadian dollar terms.)

In the U.S., inflation rose to 2.9% year-over-year in August and the U.S. economy grew at an annualized rate of 3.8%. Consumer spending remained strong, and businesses restarted their investment plans, particularly for projects centered on AI infrastructure. However, July labour market data raised concerns as revisions to May and June non-farm payroll figures showed slower employment growth.

The U.S. Federal Reserve Board (Fed) cut its interest rate by 0.25% in September, bringing the federal funds rate to 4.00%–4.25%, while the Fed chairperson warned that cutting interest rates too aggressively could risk keeping inflation above the 2% target.

Against this backdrop, ten of the eleven MSCI ACWI sectors rose, led by information technology, communication services and materials. Consumer staples was the only sector to post a negative return.

Performance

The Fund’s relative exposure to the Fidelity Emerging Markets Fund, Fidelity Global Innovators Investment Trust and Fidelity Canadian Disciplined Equity Fund contributed to performance. A short position in Russell 2000 Index Equity futures detracted from performance.

Within equities, overweight exposure to emerging markets equities contributed to performance, as did selection in emerging markets and international equities. Exposure to Canadian equities and underweight exposure to U.S. equities detracted from performance.

Within fixed income, underweight exposure to global and Canadian investment-grade bonds contributed to performance. Exposure to U.S. investment-grade bonds detracted from performance.

Portfolio activity

The sub-advisor increased exposure to emerging market, Canadian and international equities. U.S. equity exposure was reduced, as was exposure to global investment-grade bonds.

Outlook

Economic activity is supportive, but concerns about U.S. policy uncertainty has strengthened the case for equity diversification outside of the U.S. The sub-advisor believes U.S. equity markets are increasingly crowded given the rise of AI.

While labour markets have cooled, consumers remain resilient. The Fed has resumed interest rate cuts, but the sub-advisor believes further cuts might be limited because of inflation risks. The sub-advisor is concerned that additional stimulus could raise the risk of rising inflation and larger budget deficits.

The Fund has overweight exposure to equities, with a bias toward international and emerging market equities and commodity-related assets. The Fund has underweight exposure to U.S. equities and a neutral stance on Canadian equities.

The sub-advisor’s outlook for Canadian assets is positive given the federal government’s focus on infrastructure, natural resources development and lowering interprovincial trade barriers. However, Canada faces economic challenges with productivity-related issues.

Within fixed income holdings, the Fund has underweight exposure to Canadian and global investment-grade bonds in favour of credit-spread assets and inflation-protection debt.