Commentary

Executive Summary
 

Fourth Quarter  

Global equity markets delivered another strong year in 2025, demonstrating resilience despite pronounced volatility driven by U.S. tariff policies and geopolitical tensions during the first half of the year. The Canadian S&P/TSX Composite Index rose 28.2%, marking its strongest annual performance since 2009. In the U.S., equity markets also advanced, with the NASDAQ gaining 20.4% and the S&P 500, 16.4%
in local currency. International markets outperformed the S&P 500 for the first time in several years.

Central banks continued to ease policy in 2025 as inflation pressures moderated and economic growth showed signs of cooling. The BoC lowered rates by a total of 100 basis points in 2025. Looking ahead to 2026, the Bank indicated that the current policy rate is “at about the right level” to maintain inflation near its 2% target while supporting the economy through ongoing structural adjustments. The US Federal Reserve reduced its policy rate by 25 basis points for a third time, bringing the target range to 3.50%–3.75%. The outlook remains less certain, and our
economist expects up to three additional 25‑basis‑point cuts in 2026.

The Model Portfolio increased 2.6% in the fourth quarter and is up 10.8% in 2025. This represents the third consecutive year of strong returns for the Model Portfolio. While the portfolio underperformed its benchmark by approximately 200 basis points for the year—largely due to our lack of exposure to the Materials sector, longer‑term results continue to demonstrate performance superior to its balanced referenced benchmark. Two equity trades were executed within the Model Portfolio during the quarter. First, we switched our position from Brookfield Renewable Corporation (BEPC) to Brookfield Renewable Partners (BEP.UN). In the U.S. portfolio, we deployed a portion of accumulated cash to initiate a position in AbbVie.

Looking back on the outcome of 2025, it is easy to overlook just how turbulent the first half of the year was—and how unlikely positive full‑year returns appeared at the time. Long‑term success is best achieved by the discipline of staying invested and focused on fundamentals and risk management, rather than reacting to short‑term market dislocations. We are actively reviewing client portfolios and, where appropriate, reducing equity exposure to ensure asset allocations remain aligned with each client’s individual risk tolerance, income needs, and investment objectives. We encourage clients to keep us informed of any changes in their financial circumstances that could affect how their portfolio should be managed.

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Investment Checklist

1. Make 2026 RRSP contribution as soon as funds are available. The maximum is 18% of 2025’s earned income to a maximum of $33,810.

2. Make 2026 $7,000 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $109,000.

3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.

4. Take advantage of the new FHSA if you are looking to buy a house for the first time in the future

5. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.

 
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
 

• ¹1 Sources: Bank of Canada, Bloomberg, BMO Capital Markets