Q4 2025 Fund Commentary

Commentary and opinions are provided by ClearBridge Investments.

Market commentary

Despite global trade uncertainty, Canadian equities rose, with the S&P/TSX Composite Total Return Index rising 6.3%. Eight out of 11 sectors rose during the fourth quarter of 2025, led by the materials, consumer discretionary and financials sectors, which returned 11.9%, 11% and 10.5%, respectively. The weakest sectors were real estate (-5.8%), communication services (-1.7%) and industrials (-1.4%).

The materials sector benefited from rising commodity prices, particularly from gold and copper. The consumer discretionary sector rebounded after softness in the previous quarters as trade-related uncertainties started to ease. The financials sector outperformed as Canadian banks delivered strong quarterly results, supported by capital markets activity and an easing interest-rate backdrop.

The real estate sector was affected by higher long-term bond yields, pressuring financing costs and capitalization rates. In the communication services sector, telecommunications companies faced price competition that weighed on growth and raised investors’ focus on leverage and dividend sustainability. The industrials sector underperformed, driven by weakness in Canadian railway companies and persistent tariff and trade uncertainty.

Performance

The Fund’s overweight exposure to Headwater Exploration Inc., underweight exposure to Enbridge Inc. and lack of exposure to WSP Global Inc. contributed to performance. Overweight exposures to Open Text Corp. and Franco-Nevada Corp. detracted from performance, as did no exposure to Barrick Mining Corp.

At the sector level, security selection in the utilities and energy sectors contributed to the Fund’s performance. Overweight exposure to the consumer staples sector also contributed to performance. Stock selection in the materials and information technology sectors detracted from performance. Underweight exposure to the materials sector and overweight exposure to the industrials sector detracted from performance.

Portfolio activity

Holdings in Thomson Reuters Corp. and Wheaton Precious Metals Corp. were added to the Fund. Thomson Reuters stock fell, which allowed the sub-advisor to add the holding at a good share price. Wheaton Precious Metals was added after the sub-advisor reassessed the company’s valuation and underlying business quality in a higher gold price environment.

Fund holdings in FirstService Corp., Constellation Software Inc., Thomson Reuters, Descartes Systems Group Inc. and CGI Inc. were increased. In the sub-advisor’s view, these are durable, high-quality businesses with strong competitive positions and resilient cash-flow profiles.

The Fund’s holding in Saputo Inc. was sold as the sub-advisor believes the company’s recent achievements are largely priced into the company’s current share value. A holding in Nutrien Ltd. was sold based on its valuation. In the sub-advisor’s view, the company’s current share price fully reflects its underlying fundamentals. Holdings in The Bank of Nova Scotia and The Toronto-Dominion Bank were reduced after strong share price performance.

Outlook

The sub-advisor believes that uncertainty driven by shifting U.S. policies, Canada-United States-Mexico Agreement negotiations, and the risks and opportunities tied to AI highlights the need to focus on long-term fundamentals. In the sub-advisor’s view, the largest risk facing the market is elevated valuations. The sub-advisor seeks to avoid short-term volatility and to act deliberately as risks and opportunities evolve.