Q4 2025 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

Global equity markets rose in the fourth quarter of 2025, with the MSCI ACWI returning 1.8% (in Canadian-dollar terms). Global investment-grade bonds, represented by the Bloomberg Global Aggregate Bond Index, fell 1.2% (in Canadian-dollar terms). International markets outpaced U.S. markets, and value-tilted segments showed strength. Corporate earnings momentum held, and monetary policy expectations supported markets.

In the U.S., inflation rose to 2.7% on a year-over-year basis in November, and the U.S. economy grew at an annualized rate of 4.3%, the strongest pace in two years. Growth was driven by consumer spending, rebounding exports and government spending. The U.S. unemployment rate remained elevated, rising to 4.6% in November. On trade, headlines turned incrementally supportive as the U.S. and China announced a one-year trade truce. The U.S. Federal Reserve Board (Fed) cut the range of its federal funds rate, ending December at 3.50%–3.75%.

Against this backdrop, eight of the 11 MSCI ACWI sectors rose, led by the health care, materials and financials sectors. The real estate, consumer discretionary and consumer staples sectors lagged.

Performance

The Fund’s relative exposures to Alphabet Inc., Eli Lilly and Co. and Micron Technology Inc. contributed to performance. Alphabet posted better-than-expected revenue growth because of advertising and business driven by artificial intelligence (AI). Eli Lilly’s performance was driven by strong demand for its weight-loss drugs, Mounjaro and Zepbound. Micron Technology shares rose because of rising demand for high-bandwidth memory tied to AI data centre growth.

Relative exposures to Meta Platforms Inc., Microsoft Corp. and Oracle Corp. detracted from the Fund’s performance. Meta Platforms was affected by investor expectations for higher expenditures in AI infrastructure, data centres, microchips and server expansion, which led the company’s shares to fall. Microsoft’s stock fell because of AI spending on infrastructure for foundational models. Similarly, Oracle was impacted by reliance on debt to finance AI data centre expansion.

At a sector level, within equities, exposure to the health care and information technology sectors contributed to the Fund’s performance. Exposures to the consumer discretionary and communication services sectors detracted from performance.

At a regional level, exposure to European and U.S. equities contributed to the Fund’s performance. Exposure to Asia (excluding Japan) detracted from performance.

In fixed income, exposure to U.S. investment-grade bonds detracted from the Fund’s performance.

Portfolio activity

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

Outlook

The sub-advisor is focused on capital preservation, selecting equities with appealing risk-reward profiles that should be less affected by the current macroeconomic uncertainty. According to the sub-advisor, opportunities often arise during periods of market volatility. From a growth perspective, the sub-advisor aims for long-term capital growth by taking advantage of uncertainty.

The sub-advisor believes that we’re in a stock-picking environment and stresses the importance of diversification. The sub-advisor recently capitalized on market volatility to invest in AI and connected TV, believing in their strong growth potential.

With respect to fixed income, the impact of tariffs remains uncertain given the fragmented progress on trade negotiations. In the sub-advisor’s view, this may increase volatility in riskier markets. Concerns surrounding U.S. debt-to-gross domestic product and deficit spending linger. Meanwhile, the Fed cut interest rates amid signs of weakening U.S. labour markets.

Despite market volatility, riskier assets delivered strong performance, underpinned by credit fundamentals and prospects for more interest rate cuts. While the sub-advisor has increased the Fund’s credit exposure during periods of volatility, the Fund is conservatively positioned. The sub-advisor awaits clarity on trade relations or valuations that better reflect market risks. U.S. Treasury exposure remains high, which, in the sub-advisor’s view, may be used as a source of funds if the market presents an opportunity to buy credit sectors.