Portfolio returns: Q3 2026
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jan 30, 2023) |
IG Graduation Portfolio F | -0.55
| -0.79
| 0.77
| 1.16
| 5.29
| 4.17
| ||
Quartile rankings | 2 | 3 | 2 | 2 | 1 |
IG Graduation Portfolio Series F
Q3 commentary 2026
Highlights
① The portfolio outperformed its benchmark during a difficult quarter for Canadian short-term fixed income.
② An underweight to federal bonds and modestly shorter duration supported relative performance, as yields rose.
③ Provincial and corporate positioning, five-year Canada bond futures and currency forwards partially offset those benefits.
Portfolio Overview
The portfolio maintained a significant overweight to corporate credit and an underweight to government bonds. Corporate exposure averaged 67% during the quarter versus 31.6% for the benchmark, ending at 65% versus 31.4%. Government exposure averaged 31.2% versus 68.4% and ended at 34.3% versus 68.6%. Average effective duration was 2.78 years, slightly shorter than the benchmark at 2.82 years.
The underweight to federal bonds was the largest contributor to relative performance. Federal bonds represented approximately 10.2% of the portfolio on average compared with 51.4% of the benchmark. Selected short-maturity financial, real estate and energy holdings contributed positively, along with bank loans and certain derivative exposures. Provincial bonds detracted, particularly Quebec, Alberta and Ontario issues, while the provincial allocation’s longer duration increased its sensitivity to higher yields.
Corporate credit positioning also detracted, led by financials, industrials and infrastructure. Canadian five-year bond futures and currency-forward hedges were additional headwinds. During the quarter, corporate exposure declined from 70.1% to 65%, while government exposure increased from 29.4% to 34.3%. The portfolio remained overweight provincial bonds and underweight federal bonds.
Market overview: earnings growth provided a powerful tailwind for equities
The third quarter showed that the current business cycle still has support, but risks have shifted. Growth held up, earnings improved and corporate investment remained firm, but higher oil prices, persistent inflation and rising long-term yields made the path forward less certain. Equities advanced as earnings provided fundamental support, even as higher rates raised the bar for further gains.
Canadian equities benefited from gains in resources and financials. Higher oil prices supported energy, while precious-metals companies were among the strongest performers. Bank earnings were supported by capital-markets activity, trading income and contained credit costs. U.S. equities also advanced, supported by strong earnings and continued technology investment. Higher yields weighed on more rate-sensitive areas.
International markets remained constructive overall, with parts of Asia benefiting from continued demand across the AI technology supply chain. Fixed income faced greater pressure as rising government bond yields outweighed coupon income, while credit remained comparatively resilient. Across markets, the central tension increasingly became earnings strength versus higher inflation and interest rates.
Market outlook: elevated yields drive cautious positioning for duration and relative-value
The significant rise in yields across developed markets, led by the U.S., has been a defining theme of 2026. Looking ahead to the fourth quarter, the outlook for interest rates will largely depend on whether the factors driving this increase persist, moderate or reverse. Three primary factors have contributed to rising yields: persistently elevated inflation supported by higher energy prices, growing concerns surrounding government debt and fiscal deficits, and substantial corporate bond issuance driven by hyperscalers and continued investment in artificial intelligence infrastructure.
Of these factors, a reversal in energy prices appears to be the most plausible near-term catalyst for lower yields. Investment in artificial intelligence remains a strategic priority for hyperscalers, suggesting that elevated borrowing costs are unlikely to materially constrain corporate issuance. Against this backdrop, the team remains cautious about extending duration, even at current yield levels.
At the same time, higher yields have improved the income potential of corporate bonds, supporting investor demand and keeping credit spreads relatively tight despite an increasingly fragile market environment. As a result, the team continues to favour alternative opportunities to generate carry, including emerging market debt, while emphasizing relative-value opportunities rather than increasing outright duration exposure.
One area of particular interest heading into the fourth quarter is the widening yield differential between U.S. and Canadian government bonds. This spread increased by approximately 30 to 35 basis points during the third quarter across both the 10-year and 30-year maturities, creating potential relative-value opportunities that the team continues to monitor.
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