Q2 2026 Fund Commentary

Commentary and opinions are provided by Mackenzie Investments.

Market commentary

Canada’s economy stayed under pressure in the second quarter as trade uncertainty continued to weigh on business confidence, though the labour market showed signs of stabilizing. Employment picked up in May, and the unemployment rate eased to 6.6%. Inflation accelerated, with the annual pace rising to 3.2% in May from 2.8% in April, as higher gasoline prices linked to the conflict in the Middle East pushed up energy costs. Core inflation measures held closer to 2%.

The Bank of Canada (BoC) held its policy rate at 2.25% at both its April and June meetings, its fourth and fifth consecutive holds. The BoC said it was looking through the temporary effect of higher energy prices while watching for signs that price pressures were becoming more persistent, and it pointed to risks on both sides from the trade dispute with the U.S. and the energy shock.

The Canadian fixed income market rose over the second quarter. The yield on the 10-year Government of Canada bond eased late in the period, falling below 3.40% by late June, its lowest level in more than three months, as contained core inflation supported expectations that the BoC would leave rates unchanged. Government bond prices firmed as yields declined. Corporate bonds were broadly stable, and energy-sector issuers benefited from firm oil prices early in the quarter. High-yield bond prices were choppy but finished the quarter higher.

Performance

Overweight exposure to corporate bonds and selection within government bonds contributed to performance. U.S. Government (2.375%, 2055/02/15) contributed to performance through stronger treasury performance and coupon income amid concerns over slowing growth. The holding provided diversification during periods of market volatility.

Currency management detracted, as did futures positioning that was used to manage duration (interest rate sensitivity). Government of Norway (1.75%, 2027/02/17) detracted from performance as elevated inflation and increased government bond supply kept yields higher. Norwegian currency also weakened against the Canadian dollar.

Portfolio activity

Government of Canada (GoC, 3.5%, 2057/12/01) was added for its high-quality long-duration exposure at an attractive yield. The bond should perform well if slower growth or moderating inflation lowers long-term interest rates, though its price will remain sensitive. CU Inc. (4.085%, 2044/09/02) was increased to gain income from a highly rated regulated utility. Predictable cash flows, supportive regulation and disciplined financing underpin its long-term credit profile.

Province of Ontario (4.6%, 2055/12/02) was sold to take profits and reduce the Fund’s provincial exposure. Rising borrowing requirements and a weaker near-term fiscal outlook for Ontario made federal bonds more attractive. GoC (3.25%, 2035/06/01) was reduced as part of a yield curve repositioning. Exposure was shifted from the 10-year segment to the long end, where higher yields offered higher income.