Market Update

Momentum is a wonderful thing, and that was seen in abundance in 2025, with global equity markets experiencing their third straight year of strong performance.

Of course it wasn’t all smooth sailing, as we now know that nothing with the current leadership in Washington will be easy. That was made abundantly clear in early April as the barrage of ‘liberation day’ tariffs hit markets resulting in equity markets looking at risk of losing their multi-year winning streak. Yet after one of the stronger rallies on record, we ended December with most markets at all-time highs.

For a year of many positives, it’s sometimes difficult to find what was the most impactful. But after the prior years’ rally being led by only a handful of companies, seeing it broaden out is a development all should cheer on.

The AI revolution continues as a driving force in all our lives and dominates the headlines, yet the story is evolving. Elsewhere in the technology sector, we may finally have seen the end of the dominance of the so called ‘MAG7’ stocks theme, as only two of the seven (Nvidia and Alphabet) beat the S&P500 index.

Real concerns around the financing and profitability of data centres are beginning to pop up, with cracks appearing in the bond market first. The rise and fall of Oracle is one of the high (or low) lights to take note of. Semiconductor companies continue to dominate and will set the tone once again in the new year. We continue to watch for more ways to gain exposure to the AI theme.

In terms of predicting what will be the dominant story for 2026, it’s hard to look past the Federal Open Market Committee (FOMC) and geopolitical threats. The US finally joined the rate cutting party in 2025, and more cuts could be coming, but we need to first find out who will be leading the FOMC going forward. The new Fed chair decision will be one of the most politically driven in history and investors will be watching closely.

Markets hate uncertainty, and there seems to be more of that risk from Washington than ever. What might become the lasting legacy of President Trump is that global investors are finally starting to allocate to other markets to get away from these headlines. Many international markets outperformed the US in 2025, and given their valuation discount, look situated to do so once again. Observers calling ‘the end of American exceptionalism’ are picking up.

These concerns around the US have been most acutely felt in the currency market. The US dollar has been under pressure for the last few years, acting as a great tailwind for real assets. This move helped to super charge the winning trade of the year: precious metals.

A lower dollar, combined with easy money, sticky inflation and increased central bank reserve buying, has driven gold and silver to record levels. Gold was higher by 60% for the year, silver by over 150%. An asset that many had written off as a historical relic, suddenly was leading the pack.

The strength of the materials sector drove the TSX higher by 1.3% during December 2025 and 32.2% for 2025, and brought more attention to the Canadian market. However it wasn’t only resources. It can’t be overlooked that many financial stocks were among the top performing. As several wise market watchers have stated, ‘good things happen when banks lead’.

Much like preview notes looking forward to 2025, earnings growth will be needed to keep the positive momentum. But seeing a market less dependent on a few themes or companies is a massive positive. As rates continue to drift lower and policy remains market friendly the setup for the new year remains healthy. But don’t look for the old leaders to take us higher, this move should see the lagging sectors join in the fun.

Performance

The Pender Alternative Multi-Strategy Income Fund returned 0.6% for the fourth quarter, bringing the 2025 YTD performance to 5.6%¹. The Fund’s blended benchmark returned 1.6% for the quarter and is 9.2% YTD².  Returns for the Fund were largely driven by the Pender Corporate Bond Fund. The Fund owns Pender Corporate Bond Fund for its total return and opportunistic credit approach which was a key factor in its meaningful returns for the year. This fund was up 3.7% for Q4 for a full year return of 13.4%.³

Our long/short credit exposure, the Pender Alternative Absolute Return Fund, is used to dampen volatility and provide downside protection in choppy markets. The Fund was higher for Q4 by 0.9% to finish the year up 2.2%⁴. The market neutral/merger arbitrage exposures (Pender Alternative Arbitrage Plus Fund) was positive by 0.3% for Q4 and finished the year up 5.9%⁵. Last year was a record year for corporate activity in the United States and the environment looks positive for that to continue in the new year.

Portfolio Positioning

We continue to monitor correlations across the different Fund exposures and will introduce additional asset classes or make tactical shifts should opportunities arise. As the market looked in a strong position to move higher into the end of the year, we increased our allocation to the Pender Corporate Bond Fund to near the high end of our limit. As we enter 2026, given the current phase of historically tight credit spreads, we are looking to move towards a more defensive stance and increase our allocation to Pender Alternative Absolute Return Fund. It is widely believed that M&A activity is expected to increase, which should act as a catalyst for Pender Alternative Arbitrage Plus Fund. Cash can be used as a component of the asset mix but is not material at this point in time.

Greg Taylor, CFA
January 23, 2026

¹ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-multi-strategy-income-fund/

² The Fund’s blended benchmark consists of 9% FTSE Canada Universe Bond Index, 25% ICE BofA US High Yield Index, 33% HFRI Credit Index (Hedged to CAD), 33% HFRI ED: Merger Arbitrage Index (Hedged to CAD)

³ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-corporate-bond-fund/

⁴ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-absolute-return-fund/

⁵ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-arbitrage-plus-fund/