Market overview
The global equity market experienced powerful divergence in Q2 2025. US stocks surged, driven by strong technology earnings, increasing AI enthusiasm, solid consumer data and robust corporate buybacks, with some indices hitting record highs.
This came in the wake of a sharp April correction as the US rolled out sweeping tariffs under its Liberation Day initiative, and heightened geopolitical volatility. Nonetheless, many of the risks stemming from these events began to subside towards the end of the quarter. For example, the US showed more leniency towards tariffs and began exploring trade deals with individual countries, including China, which had been most affected, helping ease fears of a wider trade war.
Despite continued challenges caused by tariffs, the Chinese market rallied in Q2, led by financials and healthcare. Supportive policies measures, including rate cuts, a reduction in the reserve rate and proactive fiscal easing, have helped to revive investor sentiment. With trade tensions cooling, it seems likely that there will be further upside into late 2025.
Meanwhile, European equities performed well as investor sentiment improved significantly following fiscal support.
Fund activity
During the quarter the fund delivered a positive return that slightly outperformed the benchmark. In sector terms, the strongest contributions came from materials, consumer staples and industrials, though gains were partially offset by underperformance in consumer discretionary and communications. At the stock level, overweight positions in Cameco and BWX Technologies were the largest contributors to relative performance, while Alibaba and Graphic Packaging were the main detractors.
In terms of portfolio changes, we added a position in Airbus SE, a pan-European aerospace company. We also added a position in Marvell Technology, an American developer and producer of semiconductors and related technology, and added a new holding in private equity firm KKR. We sold out of Target Corp due to rising competition within the sector and more attractive opportunities emerging. We also sold out of Agco Corp, an American agricultural machinery manufacturer, due to potential tariffs on US export and unstable farm incomes globally. With passenger demand declining on rural networks, we also sold our holding in East Japan Railway.
Outlook
We expect the global equity market to maintain momentum but with greater dispersion across regions and sectors. We believe that large-cap technology and AI-driven stocks will continue to outperform, supported by resilient earnings and potential US Federal Reserve rate cuts. China is expected to maintain its recovery momentum, supported by continued policy easing, improving investor sentiment and growing interest in the domestic AI and technology sectors.
However, elevated geopolitical risks such as Middle East tension and tariff uncertainty could trigger pockets of volatility, which investors will be monitoring closely.
Important Information
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Currency fluctuations can also affect performance.
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the literature section.
