Q4 2025 Fund Commentary

Commentary and opinions are provided by JPMorgan Asset Management (Canada) Inc..

Market commentary

The fourth quarter of 2025 saw shifting geopolitical dynamics and market uncertainty. Early optimism from a U.S.-China trade agreement was offset by the U.S. government shutdown in the fall of 2025. The shutdown created data ambiguity and raised concerns over economic growth, tariff impacts and fiscal expansion. In the fixed income market, 10-year U.S. Treasury yields ended December at 4.17%. Ten-year German bund yields and 10-year U.K. gilt yields ended at 2.85% and 4.47%, respectively.

U.S. economic activity showed weakness, with lower manufacturing and services activity, as well as consumer sentiment. Unemployment rose to 4.4% and jobless claims reached their highest level in three years. However, core inflation fell to 2.5% on a year-over-year basis in November, in line with the U.S. Federal Reserve Board’s (Fed) target of 2%. In response to labour market risks in the U.S., the Fed cut the range of its federal funds rate to 3.50%–3.75% in December.

In the eurozone, core inflation remained stable at around 2.4%. Industrial production was volatile, with declines in Germany and Italy offset by gains elsewhere, followed by a modest rebound in September. The European Central Bank left its deposit rate unchanged at 2.00% in December, while upgrading both growth and inflation forecasts. In the U.K., core and services inflation declined. The Bank of England cut its policy interest rate in December, from 4.00% to 3.75%.

In Japan, consumer sentiment improved as households anticipated supportive government policies. Core inflation declined to 2.3% in December, driven by government gasoline subsidies. Government policies helped restrain inflation, though underlying price pressures persisted.

Performance

Overweight exposure to investment-grade corporate bonds and agency mortgage-backed securities (MBS) contributed to the Fund’s performance. Investment-grade bonds were supported by investor demand. Agency MBS were affected by narrowing spreads. Duration (interest rate sensitivity) positioning contributed to performance, with overweight exposure to U.S. duration and underweight exposure to eurozone and U.K. duration. At a regional level, exposure to Italian government bonds contributed to performance.

Inflation-protected treasury bond exposure, held as a hedge against an expected rise in inflation, detracted from the Fund’s performance.

Portfolio activity

The Fund’s U.S. duration was shifted to being underweight versus that of its benchmark with the sub-advisor’s expectation for U.S. interest rates to stay flat. There were conflicting labour market data and other macroeconomic indicators in the U.S. Select U.S. holdings were increased as a hedge against risk. Exposure to agency MBS was reduced to take profits.

Outlook

In the sub-advisor’s view, anticipation of another Fed cut to the federal funds rate and fiscal stimulus measures should sustain economic growth into 2026. Globally, central banks are largely accommodative, and fiscal stimulus should further bolster activity. The sub-advisor expects these factors, along with artificial intelligence-driven productivity gains, to provide a stable environment for markets and economic resilience.

The sub-advisor favours diversified carry-oriented strategies. The Fund has underweight exposure to U.S. duration as interest rates are expected to be stable amid conflicting labour market and economic data. The Fund holds overweight exposure to U.K. duration, with underweight exposure to the eurozone because of a difference in fundamentals and valuations.

The Fund has overweight exposure to agency MBS and investment-grade corporate credit as yields are attractive and earnings have been robust. In eurozone spreads, the sub-advisor favours overweight exposure to Italy versus Germany and France. In currency, the Fund has exposure to diversified emerging markets, funding it through a short euro holding.