Sun Life Granite Target Date Funds - Q4 2025 CIO views

So, it has been a strong couple of years for the market. And with elevated valuations often investors begin to question, is this a year where markets start to sell off? Now our base case is that the economy is going to continue to remain relatively strong, which should support equity markets. At the same time, even with a strong economy, central banks like the Bank of Canada, the European Central Bank look to be on hold.

But the Federal Reserve in the U.S., which is really the most important central bank globally, looks set to cut rates a couple more times. And with the new Fed chair coming in mid-year, we expect perhaps an even more dovish tilt. Those rate cuts from the fed are likely to keep valuations elevated. So, provide a little bit of a floor, under those elevated valuations helping to support equity markets.

On the rates side of the equation, specifically the bond side of the portfolio, with a still strong economy, even though you'll see some rate cuts from the U.S., bond yields won't necessarily react to those further out the curve. So, the bond allocation in your portfolio remains one. That's much more in the base case around income generation, but providing an insurance in case that base case I talked about upfront in terms of a strong economy, if the economy were to deteriorate, the bonds side of the portfolio does have room for yields to fall, prices to appreciate, and that traditional offset of the bond portfolio to the riskier part of your asset allocation to come through to provide some of a hedge.

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, 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.

Granite TDF

So, the allocation to commodities to the Target Date funds has already been a positive contribution. We've seen certainly precious metals, gold and silver, end the year very strongly. Base metals like copper for example, continue to benefit from the electrification theme and energy markets as well have been on a little bit of run here early in 2026.

So, the commodity allocation already providing a benefit. And we think that it's going to be a great diversifier over the long term as well. Again, if inflation risk were to pop out a little bit outside of expectations, we certainly expect the commodity allocation to provide some downside protection there. In terms of the real estate allocation, still early days, but happy to say that over the course of the fourth quarter, we have been called on roughly a third of our allocation to our global direct real estate fund. So that would become a more meaningful contributor to the portfolio as we grow that allocation.

Optimized glidepath 

So, the glidepath for our Granite Target Date funds have been designed and stress tested across multiple metrics that measure both their success in the accumulation phase as well as the decumulation phase. So, in accumulation, we're balancing the trade off between return and risk, specifically drawdowns closer to retirement, as well as looking at the total wealth accumulated for a typical plan member. And then we flip the page and sort of stress test the story through the decumulation. How reliable is the income generation and the spend down resilience of the retirement portfolio. And then look at an overall metric around income replacement as a way of measuring the success of the retirement journey.

So we look at that on an annual basis. We update our long-term expectations for asset class returns within the portfolio. And on an annual basis, we stress test that glidepath and make any adjustments to help better that trade-off between those accumulation metrics and decumulation metrics, an ongoing process for us that we reevaluate each and every year for the Granite Target Date funds.