Q4 2025 Fund Commentary

Commentary and opinions are provided by ClearBridge Investments.

Market commentary

The rise in metals prices, both precious and industrial metals, was a dominant theme for Canadian small-capitalization equities over the fourth quarter of 2025. Gold, silver and copper ended the quarter just below record highs after double-digit gains. For the year, gold rose 64%, copper rose 41% and silver rose 141%, marking a historic period for metal prices.

Metals and mining grew from just over 25% of the S&P/TSX Canadian Small Cap Total Return Index at the start of 2025 to roughly 36% by year-end. Precious metals alone accounted for about 25% of that. This drove a strong index performance, with total returns of 50.2% for the year and 10.2% for the quarter. Quarterly leadership was narrow as only the materials and energy sectors matched or exceeded index returns. Outside of resources, performance was mixed.

Performance

The Fund’s overweight exposure to Enerflex Ltd. contributed to performance. Out-of-benchmark exposures to Lundin Mining Corp. and Hudbay Minerals Inc. also contributed to performance. Relative exposures to OR Royalties Inc. and FirstService Corp. detracted from performance, as did overweight exposure to Propel Holdings Inc.

At a sector level, stock selection in the energy and health care sectors contributed to the Fund’s performance, as did underweight exposures to the health care and consumer discretionary sectors. Stock selection in the materials and industrials sectors detracted from performance. Underweight exposure to the materials sector and overweight exposure to the information technology sector also detracted from performance.

Portfolio activity

A holding in Lumine Group Inc. was added to the Fund. The sub-advisor believes that the company’s leading position in its markets and proven acquisition model provide defensive characteristics amid technology disruption.

Fund holdings in Triple Flag Precious Metals Corp. and OR Royalties were increased. These reflect the sub-advisor’s preference for asset?light, diversified royalty or streaming models. The sub-advisor increased several cyclical holdings that have lagged the market. These increases were made to Pet Valu Holdings Ltd., Propel Holdings, Descartes Systems Group Inc., ATS Corp. and Topaz Energy Corp. In each case, the company’s lower stock price was an opportunity to increase exposure at better valuations.

The Fund’s holding in Sandstorm Gold Ltd. was sold after the company was acquired by Royal Gold Inc. A holding in Transcontinental Inc. was sold as the company’s stock approached the sub-advisor’s assessment of intrinsic value.

Fund holdings in Brookfield Wealth Solutions Ltd., Enerflex and Headwater Exploration Inc. were reduced to manage holding size and use the proceeds for other investments.

Outlook

The sub-advisor’s focus is on businesses that pair prudent capital allocation with competitive advantages, strong balance sheets and the ability to compound value over time. In 2026, the sub-advisor expects Canadian small-capitalization equities to contend with continued event risk, including the review of the Canada-United States-Mexico Agreement. The market will have to contend with questions around the durability of artificial intelligence-related capital expenditures and an oversupplied energy market. After a volatile 2025, the sub-advisor expects dispersion to remain high, which should create investment opportunities.

Resource prices should be a key determinant of benchmark returns given the S&P/TSX Small Cap Index’s composition. Materials and energy sector companies represent nearly two?thirds of the Canadian small-cap index. The path of gold, silver, copper, oil and natural gas prices should, therefore, have a large influence on overall market direction.