Manulife Canadian Core Equity
Mandate commentary
Q2 2025
Highlights
① After a poor start, with equities plunging in April owing to the tariff announcement, Canada’s stock market recovered to deliver a solid return in the second quarter. Equities subsequently recovered after U.S. President Donald Trump enacted a 90-day pause, while expectations of further interest-rate cuts by the Bank of Canada also provided support.
② Equities staged a sharp V-shaped recovery after tariff reversal.
③ Investors look ahead to trade-policy clarity.
Mandate overview
In the quarter, the strategy outperformed its benchmark, the S&P/TSX Composite Index. Sector allocations and stock selections added value to relative returns.
Mandate: Manulife Canadian Core Equity SMA
Performance contributors
On a sector level, the top positive contributors were an overweight position in information technology and an underweight position in energy. This was partially offset by negative contributions from overweight positions in the communication services and real estate sectors. The top individual stock contributors to relative performance over the quarter were the strategy’s overweight positions in an industrial equipment dealer and an engineering and construction company.
Performance detractors
The top individual detractors from performance were underweight positions in a uranium miner and a software company.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | SINCE INC. (FEB. 18, 2025) |
MANULIFE CANADIAN CORE EQUITY | 9.28%
| 8.06%
|
Mandate repositioning
The portfolio management team purchased shares of a major Canadian bank, which were largely funded by reductions in two other banks, mainly because of a more attractive relative valuation and lower credit risk. Also, the purchased bank’s financial performance should continue to be good going forward as management is focused on improving return on equity (ROE) by cross-selling fee-generating products to its customers (rather than just lending) and avoiding large expensive acquisitions that don’t create value for shareholders. The portfolio management team also sold a major freight transportation company for better risk/reward opportunities after the company reported surprisingly weak results that put into question the operational execution of the company. Part of it is the ongoing freight recession that is dragging on longer than historical cycles. The portfolio management team redeployed the position into other attractively valued opportunities with less uncertainty around the cash flows.
Market overview: volatility gripped global markets during "Liberation Day" fallout
The second quarter of 2025 served as a stark lesson in the market’s ability to absorb sharp, politically driven shocks. The period was dominated by the U.S. administration's chaotic trade policy, beginning with the April announcement of sweeping tariffs, which sent global equities into a tailspin. The S&P 500 Index plunged into correction territory, marking its most significant retreat since March 2020.
This initial panic sent investors fleeing to safe havens, a move clearly reflected in the 5.7% surge in gold prices this quarter. However, the administration’s subsequent and rapid reversal of the policy triggered an equally dramatic V-shaped recovery. The initial fear that gripped the market evaporated, and major equity indices charged back into positive territory
Throughout this turbulence, central banks remained on the sidelines. The U.S. Federal Reserve (the Fed) and the Bank of Canada (BoC) held rates steady, caught between the inflationary threat of tariffs and the risk of a corresponding economic slowdown.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
The world is rarely free of turmoil. Over the past five years, the world economy has faced a global pandemic, multi-decade inflation highs, aggressive interest rate hikes and significant international conflicts. Yet, despite these challenges, markets have demonstrated resilience as businesses adapt, consumers adjust, and economies discover new pathways to growth.
Looking ahead, trade policy clarity and its influence on corporate earnings will be key drivers of market sentiment. Attractive equity valuations and the potential for mid-teens earnings growth provide reasons for optimism, though uncertainty around policy and geopolitical risks remains a headwind. Central banks are expected to shift toward more accommodative monetary policy, with rate cuts anticipated in some regions. This could support economic growth while stabilizing markets, particularly in fixed income.
Persistent volatility may weigh on sentiment in the near term, especially in areas more exposed to trade tensions. However, as these risks moderate, the outlook should improve, with opportunities emerging in sectors poised to benefit from easing uncertainty. It’s important to remember that volatility, while challenging, can also create opportunities.
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