Market review
The North American equity market rebounded strongly from the lows from early-April ‘Liberation Day’ tariff shocks, driven by resilient Big Technology, AI infrastructure plays and stable corporate earnings. The Federal Reserve’s (Fed) decision to hold rates steady, coupled with signs of slowing inflation, supported risk appetite and led to broad-based gains across equities.
Tariff tensions played a pivotal role in shaping North American equity market dynamics during the quarter. The market reacted swiftly as fears of retaliatory trade measures and supply chain disruptions resurfaced. 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.
US GDP growth for the first half of the year surprised to the upside, driven by strong consumer spending and resilient labour market, which helped support earnings expectations across sectors. Despite headwinds from US-China trade friction and a weakening dollar, investor sentiment stayed strong, aided by better-than-expected earnings and continued share buybacks by major US corporations.
Fund activity
During the quarter, the fund delivered a positive return and outperformed the benchmark. Sector-wise, the strongest contributions came from materials, industrials and consumer staples, though gains were partially offset by underperformance in technology and financials.
At the stock level, overweight positions in Cameco and BWX Technologies were the largest contributors to relative performance, while Graphic Packaging and Alexandria Real Estate were the main detractors.
In terms of portfolio changes, we added Rockwell Automation, an American provider of industrial automation and digital transformation technologies and added new holdings in Marvell Technology and KKR. We sold our holding in Agco Corp, an American agricultural machinery manufacturer, due to potential tariff on US export and unstable farm incomes globally. Meanwhile, we sold Target Corp due to rising competition within the sector and more attractive opportunities emerging. We also sold out of Berkshire Hathaway as we positioned the fund less defensively.
Outlook
We remain cautiously optimistic about the North American market. Strong corporate earnings, easing inflation and stable monetary policy have created a supportive environment for equities, particularly in technology and financial sectors. However, elevated valuations, narrowing market breadth and lingering geopolitical risks, especially around the trade policy and global growth, pose potential headwinds.
Overall, we believe that the market remains resilient but vulnerable to external shocks. In our view, investors should remain selective, with continued interest in quality growth stocks, while any shift in Fed policy could drive volatility.
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. Income from investments may fluctuate. 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.
