Sun Life Granite Funds - Q4 2025 CIO views

So our base case is that the economy will continue to be strong, through the course of 2026. And while some market participants and investors are a little bit concerned about valuations being relatively high, certainly given the great run that markets have had over the last couple of years, one of the key factors is that we still expect the Fed to be leaning on the dovish side of things, potentially cutting rates a couple of more times this year.

That's going to help keep valuations kind of across asset classes elevated, ultimately with that lower rate backdrop. So, will there be bouts of volatility? Certainly, one of our themes that we talked about is that we're expecting kind of a K-shaped dynamic to many economic series. So, you're going to see certain parts of the economy that look like they're doing exceptionally well and others that are beginning to deteriorate.

So, labour for example, we see trending lower at the same time, markets heading higher is supporting, sort of higher income or those segments of the consumer who own stocks ultimately. So, they're feeling a lot more confidence continuing to, to spend and kind of having this dynamic feed back where stronger markets are leading to a stronger economy.

Will there be bouts of volatility at the same time? With that K-shaped dynamics, we are likely to get some economic data through the course of the year that may cause, some sell-offs just cause some concerns. And I think those will be important to take advantage of from a tactical perspective.

Fixed income in 2026

So, our base case is that the economy will continue to perform relatively well this year. Central banks across the world are facing somewhat divergent paths. So, the Bank of Canada, the European Central Bank for example, we expect to be on hold through the course of this year. Unless there's some really unexpected downside risk that materializes. The Federal Reserve in the U.S., on the other hand, looks likely to cut rates a couple more times, and with a new Fed chair coming in, around the midway point of the year, it's likely to have a little bit more of a dovish bias as well. So that argues for lower rates. But at the same time, with a still robust economy, we don't expect those lower rates to necessarily translate to lower bond yields further out the curve.

That means your bond allocation in the portfolio, not necessarily going to benefit from falling yields in the base case, but still a very strong income play. So, our base case is that the bond allocation and portfolio will be a great income play this year, but it's still insurance against a downside risk that is not really in the base case.

But if the economy does deteriorate more than expected, then you could expect those bonds to perform quite well with some price appreciation as well. And then again, providing that offset to the riskier parts of the portfolio. 

Granite outlook

So, the Granite portfolios have benefited from broad global diversification, certainly over the last year, where more regions of the global equity market have began to perform well and actually outperform the U.S. for the first time in many years.

So that broad diversification has been a significant benefit to the portfolios. Looking forward into this year from a tactical perspective, we continue to hold a tactical position in gold. We see that to be a theme that continues to provide a risk offset in a world that's beginning to, really continuing to see some of the institutions and some of the norms of the prior decades, begin to be challenged.

We've seen more and more investors flock towards gold and precious metals more broadly. We think that's still going to be an excellent tactical play within the portfolio. Commodities more broadly, as well as another allocation that we added strategically to the portfolios. Again, with your precious metal allocation that we've already spoken to, getting some base metal exposure, things like copper have done exceptionally well, with further electrification of the economy, having energy exposure again with geopolitical risk.

We've seen energy has been a good, a good hedge against geopolitical risks, just broadly that commodity exposure. Again, if inflation risks were to play out again, we find that that's, beneficial within the portfolio, as well. Looking forward through the course of the year, again, even though we have, expectations that it's going to be a reasonable year for markets and for the economy, there are likely, given we're sitting at all time highs, valuations are not cheap by any means.

We're likely to have a few bouts of volatility, as the year progresses, can be very important to have the ability to take advantage of those of those tactical opportunities. But we'll wait for them to come to us.

Navigating markets through the noise

So, the noise certainly causes concern for investors when it's geopolitics. I mean, historically, it's important to remember that geopolitical risk is often that sort of risk that we talk about, markets tend to climb the wall of worry. Rarely do the geopolitics play out in that most negative fashion.

So, it's important to be cognizant of those risks, it’s great to hedge with assets like gold that tend to perform well when geopolitical risks are elevated. But it's also important to remember that this change of the world order to something that's more multipolar in nature, has actually opened up more investment opportunities as well. An example, last year, with again, with a more of a multipolar view to the world, we saw, for example, in Europe, defense stocks performed exceptionally well, actually outperforming AI stocks in the U.S. and Canada.

You had, base metals stocks, gold stocks performing exceptionally well, actually outperforming AI stocks in the U.S. So, this change in the world order is actually unlocking investment opportunities. So, it's important for investors to be well diversified globally because what's actually happening is some unloved areas of the market are discovering some new investors.