Market Commentary
In the second quarter of 2025 (Q2), the Bank of Canada held its policy rate steady at 2.75%. With the unemployment rate rising to 7.0% in May and expected to reach 7.1% in June, the Bank exercised caution following its pre-emptive cuts in Q1. It opted to pause while awaiting signs of inflation pass-through from U.S. tariffs, particularly given the vulnerabilities of Canada’s export-driven, open economy amid a broader trade war.
The U.S. Federal Reserve (Fed) also kept the Fed funds rate unchanged throughout Q2, maintaining the range of 4.25% to 4.75%. The earlier 100 basis points of cumulative cuts since September 2024 had already triggered sharp increases in long-term yields, potentially deterring further action. The Fed has indicated that any additional easing would likely depend on a sustained rise in unemployment—which has yet to materialize—and remains skeptical of inflation risks stemming from tariffs, viewing them as a one-time adjustment.
Despite the Administration’s aggressive tariff stance, markets showed signs of desensitization as implementation timelines shifted and rates evolved. On July 8, President Trump extended the trade negotiation deadline from July 9 to August 1 and threatened to double tariffs from 10% to 20%. Only two trade deals have been finalized—one with the U.K. and another with Vietnam. While a framework with China has been announced, a formal agreement remains distant. The Vietnam deal, which imposes 20% tariffs on direct exports and 40% on transshipped goods, now serves as a template for other Asian exporters such as Bangladesh and Cambodia.
Since April 8, U.S. equity markets have rallied sharply. The S&P 500 rose 24.5%, while the S&P 500 Information Technology Sector ETF surged 41.2%. Major U.S. indices repeatedly hit new record highs, despite a generally soft economic backdrop. This divergence has been driven by several factors:
- U.S. corporations’ global revenue exposure
- Massive deficit spending (currently ~7% of Gross Domestic Product)
- Ongoing corporate share buybacks
- A weaker U.S. dollar supporting multinational earnings
The U.S. now represents 46% of global market capitalization but only 26% of global GDP— highlighting a significant disconnect between equity valuations and economic fundamentals.
Canadian equities also advanced to record highs, supported by rising commodity prices and anticipated fiscal spending in infrastructure and defense.
Looking ahead, tariffs are expected to act as a supply shock in the U.S., potentially pushing prices higher and creating shortages. In contrast, for Canada, the impact will likely take the form of a demand shock, as reduced exports weigh on business activity and employment. The Bank of Canada may soon resume its rate-cutting cycle amid ongoing economic weakness and concerns surrounding housing markets—particularly in major cities like Toronto.
Fund Positioning
The Tactical Sovereign Bond Fund underperformed its benchmark in Q2 2025, delivering a return of -1.88% compared to the benchmark’s -0.82%. As of quarter-end, the Fund’s Effective Duration stood at 7.1 years.
Although the Fund benefited from tactical bond trading during the quarter, overall performance lagged the benchmark. In response to shifting market sentiment, the Fund exited its long U.S. dollar position, which had previously contributed positively to returns.
While capital preservation remains a key tenet of the Fund’s strategy, the Fund benefits from its ability to capitalize on evolving market dynamics within bond and currency markets.
1Series F, total return CAD terms
2Duration is a measure of the sensitivity of the price of a bond to a change in interest rates. A fixed income security (or fund) with a higher (longer) duration would indicate a higher sensitivity to interest rates and thus, higher interest rate risk.
Standard performance as at June 30, 2025.
| Company | 1 Year | 3 Year | Since Reorganization3 (August 27, 2018) |
5 Year | Since Inception (July 25, 2016) |
|---|---|---|---|---|---|
| Caldwell Tactical Sovereign Bond Fund Series F | 3.8% | 3.2% | 1.5% | 0.5% | 0.8% |
| S&P Canadian Sovereign Bond Total Return Index | 4.8% | 3.2% | 1.4% | -0.6% | 0.8% |
3The Fund, following a security holder vote, changed its fundamental investment objective August 27, 2018 and also reclassified former Series I units to the current Series F. For more information refer to the Simplified Prospectus of the Fund.
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. Rates of returns, unless otherwise indicated, are the historical annual compounded returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
Publication date: July 10, 2025.