Q4 2025 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

The Canadian equity market, as measured by the S&P/TSX Capped Composite Index, rose 6.3% over the fourth quarter of 2025. Supportive domestic conditions and easing global trade uncertainty helped investor confidence. Commodities drove equity gains, led by strength in gold-related companies. Investor sentiment improved because of progress in global trade negotiations, particularly surrounding the U.S.-China trade agreement.

Canadian investment-grade bonds, as measured by the FTSE Canada Universe Bond Index, returned -0.3%. The Bank of Canada (BoC) held its overnight lending rate at 2.25% in December following a 0.25 percentage-point cut in October, noting that inflation was near target and given economic uncertainty.

Canada’s gross domestic product rose 0.6% in the third quarter of 2025, coming in stronger than expected. Growth was driven by an improving trade balance as imports fell and exports rose. The Canadian labour market showed improvement, with the unemployment rate falling to 6.5% in November. The Consumer Price Index (CPI) rose 2.2% on a year-over-year basis in November. Slower price growth in services related to travel and easing growth in rent prices offset higher prices for goods in the CPI.

Against this backdrop, most sectors provided positive returns, led by the materials and consumer discretionary sectors, while the real estate and communication services sectors lagged.

Performance

The Fund’s relative exposures to Enbridge Inc., The Toronto-Dominion Bank (TD Bank) and Saputo Inc. contributed to performance. Underweight exposure to Enbridge contributed as the company reported lower-than-expected earnings because of higher capital and financing costs. Overweight exposure to TD Bank contributed after the bank posted better-than-expected capital markets revenue and activity and volume growth in Canadian banking. Overweight exposure to Saputo was another contributor. The company reported improved operating momentum, rising profitability and higher-than-expected earnings.

Relative exposures to Barrick Mining Corp., Franco-Nevada Corp. and Onex Corp. detracted from the Fund’s performance. Underweight exposure to Barrick Mining was a detractor as the company benefited from higher gold and copper pricing and operating momentum. Overweight exposure to Franco-Nevada detracted as the company’s stock was affected by short-term commodity price volatility. Overweight exposure to Onex was another detractor as investors reassessed the company’s near-term earnings visibility.

At a sector level, exposures to the consumer staples and communication services sectors contributed to the Fund’s performance. Underweight exposures to the materials and financials sectors detracted from performance, as did selection in the materials sector.

Portfolio activity

There were no notable transactions made in the Fund during the quarter.

Outlook

While Canadian equities rose, in the sub-advisor’s view, the market is still highly sensitive to shifts in expectations for growth, policy and the path of interest rates. While long-term yields have been firm, the prospect of interest rate relief and fiscal support has helped improve sentiment, particularly in areas tied more directly to economic momentum.

Within Canada, the sub-advisor observes that market leadership broadened beyond the largest index holdings, with interest in select cyclical and smaller- and mid-sized businesses. There is also better tone in parts of the industrial economy, with signs of stabilization in certain activity indicators, and evidence that corporate spending intentions remain intact in pockets of the market.

Commodities have influenced Canadian equity performance. The sub-advisor sees that initiatives to secure critical supply chains continue to support investment and activity across the metals complex, even as the near-term path could be affected by policy uncertainty. The sub-advisor notes that precious metals have attracted investor attention and that rapid price moves can reflect a more speculative tone. In the sub-advisor’s view, this environment shows the importance of disciplined exposure sizing and a focus on business fundamentals.

In the energy sector, global supply dynamics and geopolitical developments could affect pricing and longer-term investment decisions, in the sub-advisor’s view. The implications of trade relationships and North American policy negotiations could influence competitiveness and market access across the region. Given the uncertainty, the Fund is focused on businesses with what the sub-advisor views as resilient economics.

The sub-advisor’s view of the economic backdrop is that it is positive enough to support earnings growth, though returns may become more tied to fundamentals as valuations normalize. The sub-advisor will monitor the policy environment, the trajectory of inflation and interest rates, and changes in trade dynamics.