Q4 2025 Fund Commentary

Commentary and opinions are provided by Beutel, Goodman & Company Ltd..

Market commentary

Global equities rose during the fourth quarter of 2025. Despite positive equity performance in 2025, market leadership in the U.S. was narrow, with the majority of gains coming from a small set of mega-capitalization stocks exposed to artificial intelligence (AI).

International equity markets also rose. Stock-level drivers were more varied than in the U.S., with contributions from information technology stocks and strength in European pharmaceuticals, international banks, and defence and industrials companies. Japanese markets rose to record highs through governance reforms, better capital discipline and an improving domestic backdrop.

The S&P/TSX Composite Index was up 6.2%, the S&P 500 Index (in Canadian dollars) was up 1.1% and the MSCI EAFE Index (in Canadian dollars) rose 3.3%. The FTSE Canada Universe Bond Index was down 0.32%.

Performance

The Fund’s relative exposures to Merck & Co. Inc., Amgen Inc. and Flowserve Corp. contributed to performance. Merck reported better-than-expected sales and provided a pipeline update of 80 active phase-3 trials, with 15 initiated in 2025. Amgen delivered positive growth and profitability results, and showed success with several late-stage assets in oncology and inflammatory diseases. Flowserve posted higher sales and earnings for the quarter.

Relative exposures to Kimberly-Clark Corp., Harley-Davidson Inc. and NetApp Inc. detracted from the Fund’s performance. Kimberly-Clark’s announced purchase of Kenvue Inc. from Johnson & Johnson was not well received by the market. Harley-Davidson’s stock fell because of lower consumer spending and the announcement of a deal to reshape the company’s finance arm. NetApp reported good results, but investors were concerned about its margins in 2026 as memory prices have risen.

Within equities, stock selection in Canadian communication services, consumer staples and energy sectors contributed to performance. Selection among the U.S. health care, industrials and financials sectors contributed to performance. Selection among international equities in the industrials and information technology sectors contributed to the Fund’s performance, as did overweight exposures to the health care and information technology sectors.

Stock selection among Canadian materials stocks detracted from performance. Underweight exposure to the industrials sector and overweight exposure to the real estate sector also detracted from performance. In U.S. equities, stock selection in the consumer staples, communication services and consumer discretionary sectors detracted from performance. Overweight exposure to the consumer staples sector also detracted from performance. Among international equities, underweight exposure to the financials sector and selection in the consumer discretionary sector detracted from performance. No exposure to international utilities also detracted from performance.

In fixed income, the Fund’s duration (interest rate sensitivity) contributed to performance. Overweight exposure to corporate bonds contributed to performance. Security selection in corporate bonds detracted from performance because of the choice of lower-credit-risk corporate securities.

Portfolio activity

The sub-advisor added to the Fund a holding in Canadian Natural Resources Ltd. for the company’s track record of capital allocation, strong balance sheet and operational performance. The company’s stock fell relative to peers, which led the sub-advisor to add the holding.

A large number of holdings were increased, including AltaGas Ltd., Canadian Apartment Properties REIT, Canadian Pacific Kansas City Ltd., CGI Inc., GFL Environmental Inc. and Loblaw Cos. Ltd., among others. A holding in The Interpublic Group of Cos Inc. was sold after it was acquired. Holdings in Canadian National Railway Co., Sun Life Financial Inc., Amgen, Merck and GSK PLC were reduced.

Outlook

The U.S. represents over 70% of the MSCI Index. In the sub-advisor’s view, the thematic concentration around AI that has characterized U.S. markets adds to concentration and valuation concerns. Whether international markets have more room to run is not yet clear. But historically, one region can outperform the other for long stretches, and, according to the sub-advisor, 2025 could mark the beginning of a reversal of recent trends.

Despite the uncertain macroeconomic environment in 2025 and ongoing tariff threats, the Canadian financials sector rose in the fourth quarter because credit provisions eased and valuations expanded. In the sub-advisor’s view, this reflects expectations for economic improvement in 2026. Materials stocks followed gold prices higher, but, in the sub-advisor’s opinion, this pricing was driven by speculative buying in exchange-traded funds. Energy stocks rose, which may have been partly because of a positive outlook on energy investment and increasing oil and gas production by the Canadian federal government.

In fixed income, the sub-advisor’s outlook is sensitive to the durability of domestic growth and trade uncertainty, including the upcoming Canada-United States-Mexico Agreement renegotiation. From an interest rate perspective, the sub-advisor believes that muted growth and contained inflation should keep the Bank of Canada on hold. The Fund has a quality bias, with the sub-advisor favouring higher-rated issuers in less cyclical sectors.