Portfolio returns: Q4 2025
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jan 30, 2023) |
IG Graduation Portfolio F | -0.23
| 0.39
| 4.12
| 4.12
| 4.99
| |||
Quartile rankings | 3 | 2 | 1 | 1 |
IG Graduation Portfolio Series F
Q4 commentary 2025
Highlights
① The portfolio posted a positive return over the quarter, as short-term bonds outperformed longer-term bonds.
② Performance during the period was driven by corporate bond exposure.
③ Short-term bonds posted a positive performance.
Portfolio Overview
The final quarter of 2025 unfolded amid a complex environment, heavily influenced by a U.S. government shutdown that left a data-dependent Federal Reserve effectively “driving in the fog”. The absence of timely economic releases introduced significant uncertainty, which was only partially resolved when the shutdown ended in November. For markets more broadly, the quarter marked a pivotal moment, as the monetary easing that had provided a tailwind for risk assets began to fade.
In Canada, the narrative was one of surprising economic strength. The Bank of Canada (BoC) held its target overnight rate at 2.25% in December, signalling that the current policy rate was appropriate. This decision was supported by a string of robust data. Third-quarter GDP expanded at a solid 2.6% pace, while the labour market showed improvement. After a period of rising unemployment, the rate fell to 6.5% in November, its lowest level in 16 months, as the economy added over 50,000 jobs per month for three consecutive months.
With CPI inflation slowing to 2.2% in November, the BoC appears comfortable observing the impact of global uncertainty and trade-related pressures on the domestic economy. The Canadian yield curve also steepened, but more dramatically than in the U.S. Yields on two-year, 10-year, and 30-year government bonds rose by 12, 25 and 23 basis points, respectively. The FTSE Canada Universe Bond Index recorded a modest loss of -0.32% in Q4 2025 but still delivered a 2.64% return for the full year. The FTSE Canada Short Term Bond Index returned 0.33% for the quarter, ending the year at 3.88%.
The portfolio’s allocation to investment-grade corporate bonds positively impacted its performance. Specifically, holdings in corporate bonds within the financial and energy sectors contributed to the gains during this period.
The fund ended the period with an overweight allocation to corporate bonds at 65.1% and an underweight allocation to government bonds at 31.4%. During the period, the fund decreased its allocation to the infrastructure sector and increased its allocation to the energy and industrial sectors.
Market overview: global growth strengthened, inflation eased, policy supportive
Markets ended the fourth quarter of 2025 on a strong note, capping a year defined by resilience and broad-based gains. Equities led performance, as investors looked beyond policy noise and focused on improving fundamentals. Global markets advanced, supported by steady corporate earnings, easing inflation pressures and a clear shift toward lower interest rates. Canada outperformed most developed peers, driven by strength in materials and financials, while European and Asian markets rebounded on firmer trade activity and renewed investor confidence. In the U.S., equity performance remained positive, led by technology and communication services, with improving breadth across sectors signalling a healthier market foundation.
Fixed income delivered modest but positive returns, as central banks continued to ease policy. Government yields declined on the short end while longer maturities remained stable, allowing coupon income to drive returns. Credit conditions stayed firm, underscoring the strength of corporate balance sheets entering 2026.
Market outlook: potential for policy accommodation in Canada
Looking ahead to 2026, we are maintaining a neutral duration stance, nuanced by our geographical views: overweight in Canada and underweight in the U.S. In the U.S., we believe expectations for rate cuts may be too optimistic, given underlying economic strength. Conversely, in Canada the potential for softer growth, primarily due to significantly lower immigration and housing weakness, suggests a path of least resistance characterized by prolonged policy accommodation. We remain cautious on the back end of the curve, due to fiscal deficit concerns, and therefore our Canadian exposure is concentrated in the front end of the curve (around five years).
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