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%.

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.

At a sector level, stock selection in Canadian communication services, consumer staples and energy sectors contributed to the Fund’s performance. Selection among the U.S. health care, industrials and financials sectors contributed to performance. Selection among international equities in the industrials, health care and information technology sectors contributed to the Fund’s performance.

Stock selection in and underweight exposure to Canadian materials stocks detracted from the Fund’s performance as the price of gold rose. Stock selection in Canadian financials and information technology sectors detracted from performance, as did overweight exposure to the financials and information technology sectors.

In U.S. equities, stock selection in the consumer staples, communication services and consumer discretionary sectors detracted from the Fund’s performance. Overweight exposure to the consumer staples sector detracted from performance, as did underweight exposures to the communication services and consumer discretionary sectors.

Among international equities, selection in the consumer discretionary sector detracted from the Fund’s performance, as did underweight exposures to the financials and consumer discretionary sectors. No exposure to the utilities sector also detracted from performance.

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., Boyd Group Services Inc., Canadian Apartment Properties REIT, Canadian Pacific Kansas City Ltd., CGI Inc., GFL Environmental Inc. and Loblaw Cos. Ltd. The sub-advisor increased holdings in Manulife Financial Corp., Nutrien Ltd., Restaurant Brands International Inc., Rogers Communications Inc., Tourmaline Oil Corp., Kimberly-Clark, Flowserve and PPG Industries Inc., 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.

Equity markets in the Europe, Australasia and the Far East (EAFE) region rose in 2025 because of interest in select sectors and Japanese stocks. EAFE markets also benefited from a recognition that some of the largest and most profitable stocks can be found outside the U.S. However, valuation gaps between EAFE and U.S. stocks remain.

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.