Market Overview
Global equity markets advanced in June, as risk appetites were buoyed by hopes that the U.S. would adopt a more accommodating stance in its push for higher tariffs and relief that geopolitical risk was abating.
During the month, all eyes were on the U.S., where negotiations with the country’s global trade partners continued. Last month’s strong market rally, which was fueled by optimism that the U.S. would moderate its position on tariffs and thus reduce the potential global economic impact, slowed modestly during June, as the July 9th start date for increased tariffs approached with few significant deals having been reached. Notably, news that negotiations between the U.S. and China had yielded a modest agreement on ancillary issues received a muted response from global markets, which were hoping for a broader trade deal that would ease the friction between the world’s two largest economies.
The potential impact of U.S. tariffs continued to influence the monetary policy decisions of the Federal Reserve. Despite the latest data suggesting that tariffs had yet to have a material impact on domestic price growth, which remained subdued and within its 2% target, the Fed held interest rates steady for the fourth consecutive policy meeting in June. The U.S. central bank justified its cautious approach to signs that the U.S. economy remained strong but also to expectations that U.S. import taxes will lead to a “meaningful increase” in inflation in the months ahead. The world’s most influential central bank left the door open for two rate cuts in the second half of 2025, though it did not firmly commit to such a decision. The yield on the benchmark 10-year U.S. Treasury note ended June at 4.23%, 18 basis points (bps) lower than a month earlier.
While a resilient U.S. economy bought the Fed time to maintain a “wait-and-see” approach to its monetary policy decisions, a completely different dynamic was playing out in Europe. In the eurozone, the European Central Bank (ECB) lowered interest rates for the eighth time in a year with a 25 bp-cut in June in an effort to spur stagnant economic growth across the region and contain the potential impact of U.S. tariffs. The ECB also signalled that its rate-cutting cycle was near an end, as inflation in the common currency bloc had cooled materially and stated that extra government spending on defence and infrastructure will increasingly support growth in the medium term. Several major central banks on the Continent mirrored the ECB’s action: central banks in Switzerland, Sweden, and Norway all delivered 25-bp rate cuts, citing tepid or lower-than-expected inflation and slowing domestic economic growth. Denmark’s central bank, whose monetary policy is pegged to that of the ECB’s, also reduced rates 25 bps. Notably, the latest reduction by Switzerland’s central bank lowered interest rates to zero, and it stated that it had not ruled out additional rate cuts, which would drive borrowing costs into negative territory; and Norway central bank hinted that its rate cut—its first in five years—was the start of a monetary easing cycle. A prominent outlier to all the rate-cutting was found in the U.K., where the Bank of England (BOE) held interest rates steady at its policy meeting in June after lowering them last month, citing a “highly unpredictable” world as justification for its “careful, gradual” pace to cutting borrowing costs. In June, the yield on the 10-year German Bund, Europe’s principal safe-haven asset, rose 10 bps, ending the month at 2.61%.
Meanwhile, in Japan, the Bank of Japan held interest rates steady at its policy meeting in June, as it grappled with the competing pressures of rising core inflation and a fragile economy weighed down by the potential impact of U.S. tariffs. Elsewhere in Asia, China’s central bank left benchmark lending rates unchanged in June despite the latest economic reports suggesting slowing exports, weak credit growth, and intensifying deflationary pressure.
Investors were also confronted with geopolitical risks during the month, as the escalating war between Israel and Iran, which had drawn in the involvement of the U.S. and its military, threatened to destabilize the volatile region and disrupt global oil supplies. In addition to being a major oil producer, Iran is located alongside the Strait of Hormuz, where one-fifth of the world’s crude oil passes. Markets feared that Iran may retaliate by impeding access to the waterway, which could result in a surge in crude oil prices that, in turn, could reignite higher inflation globally. News of a tenuous ceasefire between Israel and Iran late in the month triggered a relief rally.
The conclusion of the latest earnings season provided investors with a mixed picture of how company profits had held up in a challenging macro environment. In the U.S., 78% of the companies in the S&P 500 Index topped consensus estimates, outperforming the long-term average of 67%. The first-quarter earnings growth rate increased 13.3% from a year earlier. In Europe, 51% of the companies in the STOXX 600 Index posted better-than-expected earnings, below the 54% that do so in a typical quarter. The year-over-year first-quarter earnings growth rate contracted 3.6%. In Japan, 55% of the companies in the TOPIX reported positive earnings surprises, which was on par with the beat rate over the past four quarters. The first-quarter earnings growth rate decreased 9.8% from a year earlier. In Hong Kong, 64% of the companies in the Hang Seng Index registered better-than-expected earnings, surpassing the 54% beat rate over the past four quarters. The first-quarter earnings growth rate decreased 2.6% from a year earlier.
Against this backdrop, equity markets in both the developed and developing worlds gained in June, with the latter outperforming the former. In the U.S., the S&P 500 gained and recorded a new record high, as strong earnings, easing trade tensions, and abating geopolitical risks boosted risk appetites. Across the Atlantic, the pan-European STOXX 600 rose but underperformed the broader global index due to partial profit-taking after the index’s strong recent appreciation. In Japan, the TOPIX rose but underperformed on concerns about the impact that U.S. tariffs will have on country’s export-reliant economy. Meanwhile, in China, the Hong Kong-based Hang Seng Index advanced but lagged the broader global index, as concerns about China’s economic woes weighed on risk appetites.
Information technology was the best-performing sector in the month, as the stock prices of several U.S. Big Tech companies linked to artificial intelligence surged. Consumer staples was the worst-performing sector, as shares of U.S. companies came under pressure from concerns that U.S. tariffs will lead to rising costs that will slow consumer spending.
Outlook
Increased uncertainty surrounding the U.S. economic outlook and key policy measures, including tariffs, continue to sow uncertainty in markets and have interrupted what had previously been, in our opinion, a clearer line of sight towards decelerating inflation and strong likelihood of success achieving an economic soft-landing. Our base case expectations for moderate economic deceleration have been further thrown in doubt in recent months as the announced U.S. tariff measures were more punitive than initially anticipated and remain in an on-again, off-again state of flux.
While markets continue to wrestle with considerable uncertainty, we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class. In contrast to businesses and industries where valuation is underpinned primarily by revenue growth and often highly competitive profit margins, critical infrastructure derives considerable valuation support from its high fixed cost of investment and high visibility, high margin cash flows collected over long periods of time [to recoup the initial capital outlay].
This important combination of characteristics tends to lend itself to superior defensive positioning, in our view, against global trade uncertainty, inflationary pressure, economic recession and market volatility. On the risk side of the ledger, however, we include typically above-average levels of balance sheet leverage and sensitivity to interest rates.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by recent tariff and trade uncertainty. Electrification and the growing demand for power serves as an example, in our view. Utilities were a key positive contributor to performance during 2024 and have been a defensive respite thus far in 2025. While we maintain a favourable sector outlook for Utilities and foresee scope for upward earnings revision, valuations have also re-rated higher, and we do not expect the same pace of returns for utilities to continue in the U.S. On the other hand, we continue to find very compelling valuations and opportunities in utilities outside the U.S.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. And while increased uncertainty regarding global trade and the risk of global recession now weighs more heavily on energy prices and the sector earnings outlook generally, the vast majority of the cash flows associated with the portfolio’s midstream holdings are fee-based and enjoy strong support from take-or-pay contracts and spread differentials at key access points.
Elsewhere within the portfolio, we see an abundance of opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
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Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
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Published on July 15, 2025.