Sun Life ETF+ Portfolios quarterly update
Rising volatility and geopolitical concerns weighed on markets in Q1.
Anthony Wu, CFA, Portfolio Manager, Multi-Asset Solutions, SLGI Asset Management Inc.
What happened in the quarter?1
Global markets started the first quarter (Q1) on stable footing. For the first couple of months of the year, equities continued to outperform bonds, but leadership within equities became more selective by focusing on sectors that are supported by the economy rather than spending. Excitement around AI faded, and investors’ focus shifted from broad spending to return on investment. This led to bigger differences in performance across technology-related sectors.
This shift supported a rotation away from the largest AI-driven U.S. technology companies and toward more cyclical and value-oriented areas of the market. International equities outperformed U.S. equities during the quarter. Canada, in particular stood out due to its attractive equity valuations and greater exposure to industries, like resources, which benefitted from a cyclical upswing.
Late in the quarter, the prevailing trend of equities outperforming bonds and international equities outperforming U.S. equities flipped as rising tensions between Iran and the United States became the single largest macro shock. This geopolitical escalation moved market attention toward supply risk and related concerns. The disruption to the Strait of Hormuz, which carries about one-fifth of global oil and liquefied natural gas flows, pushed oil prices sharply higher and raised the risk of renewed inflation and potentially more restrictive interest rate policy for central banks. Gold and the U.S. dollar initially benefitted from safe-haven demand though they moved unevenly as markets swung between escalation fears and hopes for a ceasefire.
1Effective December 8, 2025, the Sun Life Tactical ETF Portfolios were renamed the Sun Life ETF+ Portfolios, they adopted changes to their investment strategies to include exposure to physical commodities, and their management fees were reduced for mutual fund accounts. Management fee reductions are not available for ETF portfolios held in segregated fund contracts. The new names of the product suite and individual ETF portfolios will not be implemented for segregated fund contracts until Spring, 2026.
Overall, Q1 positioning remained anchored to three pillars: relative valuation, economic regime fit, and emerging leadership, resulting in a defensive core with inflationary sensitive sectors. These sectors have relatively outperformed the U.S. sector rotation sleeve's benchmark, the S&P 500.
| Top contributors/detractors | |
|---|---|
+ Overweight to energy, materials, and consumer staples added value |
- Overweight to healthcare detracted value |
What changes did we make?
Throughout Q1, the U.S. sector rotation sleeve maintained consistent exposure to consumer staples, healthcare, and materials—a defensive posture against potential inflation pressures. However, we tactically rotated exposures as market conditions evolved: January blended defensiveness with cyclical upside via consumer discretionary; February shifted to energy as commodity-linked sectors emerged as market leaders; and March moved to real estate to capitalize on early recovery signals after prolonged underperformance.
Overall, Q1 positioning remained anchored to three pillars: relative valuation, economic regime fit, and emerging leadership, resulting in a defensive core with inflationary sensitive sectors. These sectors have relatively outperformed the strategy's benchmark, the S&P 500.
Q1 sector heatmap – Our positioning at a glance
What’s next?
Looking ahead, the most important driving force to the market will be the evolution of the U.S.-Iran conflict. With oil back above U.S. $100 a barrel2 and shipping through the Strait of Hormuz likely to continue being disrupted, the real risks are rising and sticky inflation. This may keep pressure on consumers and complicate the path for central banks.
On the bright side, AI is still a powerful growth driver, yet the story is starting to shift from excitement around buildout toward a more important question: which companies can turn spending into lasting profits? This likely means the next phase of the AI theme may be narrower, with leadership moving to firms that can show clearer monetization, solid earnings, and consistent cash-flow.
Looking ahead, the global economic growth and inflation outlook likely hinges on the outcome of the U.S.-Iran war. Diversification into inflation resistant assets such as real assets and commodities could play a very important role in the portfolio.
Based on our outlook, we enter Q2 2026 overweight in gold and oil as inflationary hedges, particularly against the backdrop of the ongoing U.S.–Iran conflict. At the same time, we have tactically added to equities in the near-term, as we believe upside potential on improving news flow is now greater than downside based on adverse headlines. While the conflict will likely remain a key market driver, the path toward resolution could create selective opportunities. In line with our systematic investment approach, we will continue to capitalize on short-term market dislocations as they arise.
2As of March 31, 2026.
View fund performance (Series F)
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