Portfolio returns: Q2 2025
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. July 12, 2013 |
IG Core Portfolio – Income F | 0.33
| 0.80
| 2.02
| 6.15
| 4.62
| 2.40
| 2.57
| 2.76
|
Quartile rankings | 1 | 1 | 2 | 2 | 2 | 2 | 1 |
IG Core Portfolio – Income Series F
Portfolio commentary
Q2 2025
Highlights
① The portfolio gained over the quarter as the Canadian yield curve steepened, and investors navigated geopolitical uncertainty and tariff-related volatility.
② Exposures to mortgages contributed most to portfolio performance.
③ Short-term bonds outperformed amid uncertainty in the period.
Portfolio Overview
The second quarter of 2025 opened with markets leaning into the disinflation narrative and the prospect of global rate cuts. But that momentum proved fragile. Sticky core inflation, mixed data, and geopolitical noise kept central banks on the sidelines and left rate curves more reactive than directional.
In fixed income, inflation breakeven spreads widened and term premiums were volatile as markets digested a collision of geopolitical volatility and macro recalibration. The 10-year U.S. Treasury yield moved in a wide 60bps range during the quarter, peaking around 4.60% in mid-May before catching a duration bid in the back-half of the quarter. The 2-year yield dipped below 3.50% after “Liberation Day”, rebounding toward 4.00% and then 3.75% by quarter-end. A growing sense that the U.S. Federal Reserve would need to cut rates sooner rather than later helped support the front end into June.
In Canada, the macro narrative continued to diverge. The Bank of Canada’s April 16 Monetary Policy Report presented scenario analysis around ongoing tariff uncertainty, while reiterating downside growth risks in worst-case trade outcomes. The Bank of Canada continued to stress household debt sensitivity and cumulative tightening effects, but held its policy rate steady in both April and June.
Canadian yields declined across the curve, particularly in the front end. The 2-year yield fell to 2.25% early in the quarter before rebounding toward 2.60%, while 10-year yields ended around 3.25%. The Canada-U.S. 10-year spread narrowed, moving from -125bps at the start of the quarter to approximately -95bps by the end, in line with our long-held view of spread narrowing. Both curves steepened over Q2 2025, but rising issuance expectations in Canada meant a long-end underperformance.
The IG Mackenzie Mortgage and Short Term Income Fund was the largest weighted allocation in the portfolio and the largest contributor to performance. The fund’s overweight allocation to mortgages contributed to performance.
The IG Mackenzie Canadian Money Market Fund was the second-largest weighted allocation in the portfolio and a positive contributor to performance. The Bank of Canada maintained its policy rate throughout most of the period, helping to anchor short-term yields and support the market.
During the period, the fund’s exposure to the Mackenzie – IG Canadian Corporate Bond Pool remained consistent at 15.2%. The fund’s allocation to the IG Mackenzie Canadian Money Market Fund ended the period at 18.2%. The fund’s allocation to the IG Mackenzie Real Property Fund remained consistent at 7.9%. The fund ended the period with a 3.0% allocation to the Mackenzie High Quality Floating Rate Fund.
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: Bank of Canada near end of easing cycle, room for modest cuts remains
Barring a sharp deterioration in domestic activity, the Bank of Canada appears close to the end of its easing cycle. Our stance is slightly more dovish than market pricing, but only moderately so. With the overnight rate at 2.75%, the midpoint of the Bank of Canada’s neutral range, we believe there is room to cut further toward 2.25%, though the timing isn’t urgent. A more aggressive U.S. Federal Reserve could give the Bank of Canada cover for one or two final moves to round out its cycle.
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