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Commentary

Q1 2025 Fund Commentary

Market Commentary

Global equities declined in the first quarter of 2025 while global bonds posted a modest gain (all returns in Canadian-dollar terms on a total return basis). Trade and policy changes from the new U.S. presidential administration raised concerns about a potential recession in the U.S.

The implementation of several tariffs by the U.S. affected key trading partners, including Canada, China and Mexico. Anticipation of retaliatory tariffs, which were to be enacted after the quarter-end, also weighed heavily on investor sentiment. As a result, the U.S. equity market posted a mid-single-digit loss, with the consumer discretionary sector performing weakly.

In contrast, Canadian equities gained, with the materials sector leading. Europe, Australasia, and the Far East (EAFE) equities also gained, outperforming both Canadian and U.S. equities, and driven by strong performances from Spain and Italy.

Emerging markets equities also rose but lagged their developed market peers, with notable gains from South Korea and Brazil.

The FTSE Canada Universe Bond Index gained 2.0%. Government bond prices rose as sovereign yields declined, outperforming corporate bonds, which also posted gains. However, corporate bond prices were impacted by widening credit spreads (the difference in yield between corporate and government bonds).

Within the corporate sector, infrastructure bonds saw the largest increase. High-yield bonds posted gains but underperformed investment-grade corporate bonds.

Global bond yields declined over the quarter, leading to an increase in global bond prices. The Bank of Canada, European Central Bank and Bank of England lowered their policy interest rates. The U.S. Federal Reserve Board maintained its rates, while the Bank of Japan raised its policy interest rate.

The yield on 10-year Government of Canada bonds fell by 25 basis points, from 3.22% to 2.97%, mirroring the decline in U.S. yields. In contrast, sovereign yields in the U.K., Germany and Japan increased.

Performance

Relative exposure to Roche Holding AG had a positive impact on the Fund’s performance. Roche’s existing pharmaceutical products continued to gain traction, and margins remained stable. Roche may also benefit from an ongoing commitment to research and development, supporting longer-term growth.

The Fund’s relative exposure to Orkla ASA was also positive. Orkla’s core consumer packaged goods business continued improving, it sold a non-core asset to simplify its business, and cash returns increased for a second consecutive year.

The Fund’s relative exposure to several of last year’s top performers had a negative impact on performance as market sentiment weakened. Communication agency Publicis Groupe SA and technology and advertising platform Alphabet Inc. had a negative impact.

At the sector level, stock selection in financials and parts of the information technology sector had a positive impact on performance. Stock selection in the industrials and communication services sectors had a negative impact on performance.

Portfolio Activity

The sub-advisor purchased Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world’s largest semiconductor chip foundry. TSMC has significant cost advantages and a compounding learning curve in process technology, which makes it a market leader in chips. The sub-advisor believes the increasing technological gap between TSMC and its competitors allows it to have pricing power with a reasonably attractive return potential.

The sub-advisor also purchased Medpace Holdings Inc., a founder-led, fast-growing contract research organization (CRO) focused on full-service outsourcing for U.S. small biopharmaceutical firms. CROs help pharmaceutical companies manage clinical trials. Medpace handles clinical trials from end to end for smaller biopharmaceutical customers that don’t have the functional capabilities to do this work themselves.

The sub-advisor sold S&P Global Inc., a data and benchmark provider to capital and commodity market participants. The company remains strong, in the sub-advisor’s view, but its valuation is expensive.

The sub-advisor also sold Match Group Inc., an online dating app maker. Match Group’s key asset, Tinder, had slowed its user declines to some extent but not entirely. The sub-advisor assessed the probabilities of different business paths and concluded this decline is a long-term issue. Match Group’s other rising assets, primarily Hinge, haven’t been able to offset the challenges at Tinder.

Outlook

The most significant development so far in 2025 was the escalation in trade tensions, which suggests a major shift in the structure of global markets. The tariff-driven economic slowdown and weaker business sentiment have led to downward gross domestic product revisions. However, the latest activity data suggests a more resilient economy than initially anticipated.

The current global equity correction has similarities with past episodes where inflation and restrictive trade policies led to weakness before markets eventually stabilized. The sub-advisor believes 2025 should be a year of slower but positive growth, with opportunities emerging as policy uncertainty clears.

Given the stronger-than-expected escalation in trade tensions, the sub-advisor is lowering expectations for U.S. equities. The sub-advisor is adjusting positioning accordingly but recognizes the potential for recovery once macroeconomic concerns ease. History suggests volatility driven by trade concerns often resolves once underlying economic data stabilizes.

With the ongoing market uncertainty, the sub-advisor has emphasized sector diversification to limit exposure to market declines while keeping long-term exposure to recovery opportunities. Despite the uncertainty, the sub-advisor has a positive long-term stance on equities.

The sub-advisor believes the current environment underscores the importance of a globally diversified investment strategy that remains focused on long-term objectives.

Disclaimer

The commentaries on the company specific information and purchases and sales were provided by the fund manager. Canada Life Investment Management Ltd. will not be liable for any loss, or damages whatsoever, whether directly or indirectly incurred, arising out of the use or misuse of errors or omissions in any information contained in this commentary. The data provided in this commentary is for information purposes only and, except where otherwise indicated, is current as of Mar. 31, 2025.

The views expressed in this commentary are those of fund manager as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their Advisor for advice based on their specific circumstances.

The content of this commentary (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

This document may contain forward-looking information which reflect our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of Mar. 31, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

There can be no assurance that the Fund’s return or volatility targets will be met, or met over any particular time horizon. Targeted returns and volatility should be evaluated over the time period indicated and not over shorter periods. Targeted returns are not actual performance and should not be relied upon as an indication of actual or future performance.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

Counsel mutual funds are managed by Canada Life Investment Management Ltd., a wholly owned indirect subsidiary of The Canada Life Assurance Company (“Canada Life”). Canada Life is a wholly owned subsidiary of Great West-Lifeco Inc. (TSX: GWO) and a member of the Power Corporation Group of companies.