Q3 2026 Fund Commentary

Commentary and opinions are provided by Portfolio Solutions Group.

Market commentary

Global equities gained over the third quarter of 2026 and outperformed global bonds. Resilient economic activity, strong corporate earnings and continued investment in artificial intelligence (AI) supported markets, offsetting rising inflation pressures and higher interest rates. Investors looked through higher energy prices and further central bank monetary tightening, helped by stable labour markets and continued consumer spending.

Regional performance varied. Japanese equities led, helped by strong corporate earnings, share buybacks and ongoing corporate governance reforms. U.S. equities advanced on favourable earnings growth, while European markets lagged amid concerns about energy costs, higher interest rates and weaker earnings momentum. Canadian equities posted a modest gain, supported by the information technology, materials and energy sectors. Emerging markets equities declined because weakness in semiconductor-related industries weighed on returns.

The Canadian bond market posted a negative total return. Higher energy prices renewed concerns about inflation, and resilient growth reduced expectations for interest rate cuts, so investors anticipated further monetary policy tightening and bond yields rose. Elevated borrowing requirements and increased debt issuance also pressured government bond yields. Shorter-term bonds held up better than longer-duration bonds because they're less sensitive to rising rates, and corporate bonds generally held up better than government bonds on stable credit fundamentals.

Performance

Allocations to Private Credit, Unconstrained Fixed Income, Global Multi-Sector Bond and Canadian Fixed Income contributed to performance. Allocation to Counsel Multi-Factor Canadian Equity also contributed.

Counsel Multi-Factor Canadian Equity contributed because of allocation and selection within the financials, materials, industrials and energy sectors. In fixed income, exposure to commercial mortgages contributed. Within global bonds, unhedged foreign debt denominated in euros and yen also contributed because those currencies strengthened relative to the Canadian dollar.

Allocations to American Growth, Global Small-Mid Cap and Emerging Markets detracted from performance. An off-benchmark allocation to Canada Life Global Opportunities+ Fund also detracted.

U.S. Growth Equity detracted from performance, and allocation and selection within the information technology, industrials, financials and materials sectors were the largest detractors. Canada Life Global Opportunities+ Fund also detracted. It's a diversified trend-following strategy that invests mainly in global equities and fixed income, commodities, currencies, cash and cash equivalents, and its diversified nature held back returns.

Portfolio activity

The sub-advisor added Picton Canadian Growth Equity, U.S. Value, U.S. Growth and Emerging Markets (Mackenzie) mandates, and increased Counsel Multi-Factor U.S. Equity. The sub-advisor sold Canadian All-Cap Growth, U.S. Dividend, U.S. Disciplined Value, American Growth and Emerging Markets (Putnam) mandates, and reduced International Value, International Opportunity and Counsel Multi-Factor International Equity.

Outlook

The third quarter of 2026 reinforced the resilience of the global economy but highlighted a growing imbalance between strong market performance and more constrained policy flexibility. In the sub-advisor's view, AI-related investment supported growth, earnings and capital spending, which helped offset higher energy costs and trade uncertainty. Elevated valuations, concentrated market leadership, rising corporate financing needs and tighter monetary policy have, in the sub-advisor’s view, reduced the margin for error. Economic activity remains firm, though households, businesses and governments may become more sensitive to higher borrowing costs.

In this environment, the sub-advisor's focus remains on balancing participation with risk management. The sub-advisor maintains diversified exposure to global growth opportunities while recognizing that the AI investment cycle appears more mature than earlier in the year. In the sub-advisor’s view, broad diversification across regions, sectors, investment styles and fixed income remains an important tool for reducing reliance on a narrow group of market leaders. The sub-advisor retains a modest preference for equities over fixed income and favours U.S. assets relative to Canada, though with lower conviction than earlier in 2026.