You are now leaving our website and entering a third-party website over which we have no control.
-
Share:
TD Wealth Asset Allocation Committee Positioning Overview
To close out the third quarter, our portfolio positioning reflected a modest overweight in equities and alternatives, and a modest underweight in fixed income. Below, we outline our rationale for this positioning and provide our outlook for each asset class.
The TD Wealth Asset Allocation Committee convenes monthly to assess evolving market conditions and make strategic adjustments to asset class views as needed.
-
Market Outlook
-
WAAC Current Positioning
-
Current WAAC Members
As autumn unfolds and financial markets continue to shift, the TD Wealth Asset Allocation Committee (“the Committee”, “we”, “our”) remains committed to guiding investors through evolving economic conditions and uncovering new investment opportunities.
This perspective has been especially important in recent months. Equity markets rebounded sharply in the third quarter following April’s volatility spike, which was driven by geopolitical tensions and tariff shocks. Despite these headwinds, we maintained a measured and strategic asset class positioning outlook—an approach we believe has provided solid guidance heading into the fall.
2025 has been a year marked by both significant milestones and remarkable resilience in financial markets. Despite ongoing global uncertainties, shifting trade regulations, and legislative changes, markets have not only absorbed these shocks but have repeatedly reached new record levels, underscoring the enduring strength of the investment landscape.
Over the past 12 months equity markets have delivered robust returns, with the S&P 500 Index up approximately 21%, the S&P/TSX Composite Index up over 28%, and international markets advancing around 18% (Exhibit 1).
In an environment defined by uncertainty, we believe that disciplined asset allocation and global diversification remain essential to long-term success. TD Asset Management Inc., (“TDAM”) continues to emphasize a focus on long-term portfolio metrics— return, risk, and time—over short-term market noise.
Looking ahead, our focus remains on helping investors navigate complexity, seize opportunities, and achieve their financial goals through resilient and forward-thinking strategies.
Exhibit 1: Key Market Returns
Returns as of September 30, 2025 |
3m |
1y |
3y |
5y |
10y |
| S&P 500 Index - C$ | 10.26% | 21.12% | 25.46% | 17.42% | 15.73% |
| S&P/TSX Composite - C$ | 12.50% | 28.60% | 21.31% | 16.68% | 11.82% |
| MSCI EAFE Index (Europe, Australasia, Far East) - C$ | 6.83% | 18.43% | 22.21% | 12.07% | 8.57% |
| MSCI Emerging Markets Index (Emerging Markets) - C$ | 13.13% | 21.71% | 19.31% | 8.39% | 8.83% |
Source: Bloomberg Finance L.P. As at September 30, 2025.
Our latest review highlights four key pillars shaping the investment outlook for 2025 and beyond:
Inflation, Interest Rates, Growth, and Markets.
Risk to the Upside But Otherwise Benign
Inflation has dominated headlines in recent years, but the environment is shifting. While the elevated price pressures of 2022 were driven by fiscal transfers and supply chain disruptions, in our view, these factors are unlikely to repeat. Today, inflation is expected to remain well-contained, though pockets of risk persist—particularly in sectors like agriculture, where reduced immigration and hiring challenges could drive costs higher.
We believe that we are transitioning from a disinflationary regime to one marked by moderate, persistent inflation (Exhibit 2). This is a healthier setting for investors, supporting nominal Gross Domestic Product (“GDP”) growth and corporate earnings, without the runaway inflation seen in the 1970s. Upside risks remain, especially from sectorspecific tariffs and supply chain adjustments, however, inflation is expected to be benign compared to recent years. For investors, this means portfolios should be positioned to benefit from steady growth while remaining vigilant to sector-specific risks.
Exhibit 2: Inflation
Source: TD Asset Management Inc., Bloomberg Finance L.P. CPI monthly as of Aug 31, 2025.
Market Pricing Hinges on Economic Outcomes
Interest rates remain a central theme in the current investment landscape, and their future direction will be determined by the evolving economic backdrop. The path of rates in both Canada and the U.S. is now closely tied to fiscal policy, budget deficits, and the broader growth agenda.
In Canada, expansionary fiscal policy is expected to offset recent economic weakness, while the Bank of Canada (“BoC”) is likely to maintain its policy rate at 2.5% for an extended period to support stability. The anticipated announcement of one of the largest budget deficits in Canadian history will provide additional stimulus, allowing the central bank to stand back and let fiscal measures do the heavy lifting. As a result, further rate cuts may be limited, and the BoC is likely to hold steady until economic conditions warrant a change.
In contrast, the U.S. is on the verge of a significant rate-cutting cycle. The composition of the U.S. Federal Reserve (the “Fed”) is set to change, with new appointments expected to favour looser monetary policy. Over the next 18 months, rates could be lowered by as much as 200 basis points, reflecting a proactive approach to supporting growth and managing inflation. This shift will have important implications for asset prices and currency markets, as lower rates typically boost equities and compress yields across fixed income.
Ultimately, the trajectory of interest rates will hinge on how economic outcomes unfold. If fiscal stimulus succeeds in driving growth, central banks may be able to maintain accommodative policies without stoking runaway inflation. Conversely, if growth falters or inflation re-emerges, policymakers may need to adjust course. For investors, this means staying attuned to macroeconomic developments and recognizing that interest rate decisions are no longer isolated—they are deeply intertwined with fiscal policy, global trade dynamics, and the evolving structure of the central banks.
Policy Risks, Fundamentals, and the Need for Stimulus
While the underlying fundamentals of the economy remain robust, policy risks continue to cast uncertainty over the overall outlook. Governments worldwide are shifting toward pro-growth agendas, but the path is not without obstacles. Regulatory reforms, such as Bill C5, are streamlining investment processes and accelerating project approvals, but these moves also raise questions about the long-term balance between regulatory oversight and economic expansion.
Globally, the pledge by non-U.S. NATO countries to increase defense spending to 5% of GDP by 2035 represents a significant policy shift, equating to an additional estimated $1.7 trillion USD in spending. While this is bullish for nominal growth and equity markets, it also introduces new risks related to fiscal sustainability and geopolitical stability.
Against this backdrop, stimulus measures are not just helpful—they are essential. Fiscal stimulus directed toward growth-related projects, infrastructure, and domestic investment will be crucial in sustaining momentum and mitigating the impact of policy uncertainty. The risk is that policymakers may overdo it, swinging too far in one direction before equilibrium is restored. For investors, this means that while strong fundamentals provide a solid foundation, the ability of governments to deliver timely and targeted stimulus will be the key to navigating challenges ahead and unlocking new opportunities for growth.
Continue to Drive Momentum, Global Diversification Can Help Mitigate Risk
Equities: Broadening returns and global opportunities
The equity market story in 2025 is one of broadening returns and renewed optimism. While certain segments of the market may be fully valued, accelerating nominal GDP growth is expected to support earnings and drive strong performance across the board (Exhibit 3). Returns are no longer concentrated in a handful of U.S. companies; instead, gains are emerging from diverse sources, including international markets and Canada.
Exhibit 3: G7 GDP Per Capita
Source: International Monetary Fund, Bloomberg Finance L.P. As of Dec 31, 2024.
We have maintained an overweight to Canadian equities, supported by the strong financial position of the Financials and Resource sectors and expected 2025 earnings growth. Canadian banks have delivered strong earnings and manageable credit risk.
Globally, major fiscal stimulus plans in Germany, political change in Korea, and improving sentiment in other regions have been monitored. Europe has since plateaued, and the outlook is now more neutral across regions. Emerging markets and small-cap equities are seen as potential beneficiaries of rate cuts, provided that global growth remains intact. We continue to hold a modest underweight view to international and emerging markets equities, reflecting our sustained preference for North American markets, as earnings per share growth has remained solid, particularly for S&P 500 Index companies (Exhibit 4).
Exhibit 4: S&P 500 Index Trailing Earnings Per share
Source: TD Asset Management Inc., Bloomberg Finance L.P. As at June 30, 2025
Fixed income: Yield focused
At TDAM, our fixed income portfolios have continued to demonstrate strong performance, supported by resilient corporate fundamentals and persistently tight credit spreads. We have maintained a strategic overweight in corporate credit, which has enabled us to capture incremental yield and deliver compelling income opportunities for our investors. With yields in Canada holding above 3% and spreads remaining compressed, the credit environment continues to reflect a healthy and stable market backdrop (Exhibit 5).
In the context of a moderating growth outlook, we believe that core fixed income strategies—those that balance credit exposure with duration—offer a more prudent approach than pure credit plays, which may be more vulnerable to spread widening. As such, we continue to advocate for diversified fixed income allocations that can provide both income and downside protection.
Amid ongoing macroeconomic uncertainty, fixed income remains a cornerstone of portfolio resilience. Its role in dampening volatility and preserving capital is increasingly vital, particularly as investors navigate a more complex and evolving economic landscape.
Exhibit 5: First Time in Over a Decade That Canadian Yields Are >3%
Note: Real coupon yield = Coupon yield minus annual year-over-year CPI. Source: TD Asset Management Inc., Bloomberg Finance L.P. As of Aug 31, 2025
Real assets and commodities: Diversification and risk management
Alternative investments continue to play a crucial role in investor portfolios by providing diversification and risk management. The Infrastructure sector remains a preferred real asset exposure, offering high single-digit to low double-digit returns and a robust pipeline of global projects. The Committee has maintained its overweight to the Infrastructure sector relative to the Real Estate sector, which continues to face headwinds in the Canadian market. While income growth in the Real Estate sector has been solid, capital appreciation has been limited. We expect this positioning to persist until economic conditions improve.
Mortgages can offer low duration and favourable loss history relative to investment grade credit, making them an attractive strategy for conservative profiles. Alternatives, however, have not kept pace with equities in 2025, but their value becomes evident during periods of heightened volatility, providing consistent returns and cushioning portfolios against market sell-offs.
Commodities have continued to serve as effective portfolio diversifiers. Gold, in particular, has benefited from macroeconomic uncertainty, challenges to central bank independence, and the onset of a rate-cutting cycle. Gold is up approximately 40% this year, while the broader commodities complex has delivered returns comparable to U.S. equities in Canadian dollar (“CAD”) terms.
Currency currents: Positioning for a softer U.S. dollar
The U.S. dollar (“USD”) has entered a period of structural weakness, with multiple internal sources pointing to a sustained downward trajectory. This shift is not merely cyclical—it reflects a deliberate policy stance by the U.S. government aimed at addressing long-standing trade deficits, managing swelling national debt, and revitalizing domestic manufacturing. As a result, the USD is no longer viewed as an untouchable reserve currency, but rather as a tool for economic rebalancing.
Despite recent declines, in our view, the USD remains overvalued by long-term valuation metrics. However, its momentum against the CAD may be tempered by Canada’s relatively weaker growth fundamentals. Investors globally are diversifying away from the USD, attracted by more stable policy environments and better valuations in other developed markets.
Interest rate dynamics are central to the USD outlook. While the Fed is expected to cut rates in response to inflationary pressures—particularly those stemming from new sector-specific tariffs—rising long-term Treasury yields, driven by deficit-expanding tax cuts, may limit the decline in borrowing costs. Tariff uncertainty continues to cloud the U.S. economic outlook, with elevated duties on Chinese imports contributing to inflation and currency volatility.
Looking ahead, modest softness in the USD is expected in the short-term, with currency risk unlikely to significantly impact market performance over the next 12 to 18 months. However, medium-term pressures—including fiscal imbalances, policy shifts, and global diversification—are likely to keep the USD under pressure.
Confidence in the Path Forward
As we look to the remainder of 2025 and beyond, the Committee remains confident in the resilience and opportunity inherent in today’s investment landscape. The combination of disciplined asset allocation and a forward-thinking approach is designed to position our investors for success in a world marked by transformation and disruption. We remain bullish on equities, optimistic about fixed income, and confident in the value of alternatives. The broad range of investment solutions at TDAM are designed to outpace cash, manage risks, and capitalize on emerging opportunities. While challenges remain— from currency risk to geopolitical shifts—the Committee’s commitment to resilience, diversification, and investor-centric solutions ensures that we are well-prepared to navigate whatever lies ahead.
WAAC Current Positioning and Asset Class Outlook
To close out the third quarter, our portfolio positioning reflected a modest overweight in equities and alternatives, and a modest underweight in fixed income. Below, we outline our rationale for this positioning and provide our outlook for each asset class.
The TD Wealth Asset Allocation Committee convenes monthly to assess evolving market conditions and make strategic adjustments to asset class views as needed.
Global equity markets are up year-to-date, as tariff risks appear manageable and earnings trends remain positive. We remain overweight equities; while there could be bouts of volatility as valuations have expanded, government policy is increasingly pro-business, central banks are accommodative, and earnings growth remains positive.
|
Sub Class |
Allocation |
|---|---|
|
Canadian Equities |
Modest Overweight |
|
U.S. Equities |
Modest Overweight |
|
International Equities |
Modest Underweight |
|
Emerging Markets |
Modest Underweight |
As the Canadian economy remains challenged by U.S. policy uncertainty, the Bank of Canada (BoC) has further lowered its policy rate without committing to a specific future policy path. We believe the BoC has sufficient flexibility to respond to a wide array of economic outcomes and, as such, we expect bonds to provide diversification benefits, reduce overall portfolio volatility and preserve capital.
|
Sub Class |
Allocation |
|---|---|
|
Domestic Government Bonds |
Neutral |
|
Investment Grade Corporate Credit |
Modest Overweight |
|
Global Bonds – Developed Markets |
Neutral |
|
Global Bonds – Emerging Markets |
Modest Underweight |
|
High Yield Credit |
Neutral |
We believe that an allocation to alternative assets can benefit diversified portfolios especially when implemented over the long-term. Alternative assets can provide inflation protection and attractive absolute returns, while acting as long-term portfolio stabilizers via their diversification benefits and less correlated income streams. Given the nature of private asset classes as well as the present phase of value adjustment in several markets and asset classes, we believe that this may be an attractive time to increase or consider an allocation to alternative assets.
|
Sub Class |
Allocation |
|---|---|
|
Commercial Mortgages |
Neutral |
|
Private Debt (Universe) |
Modest Underweight |
|
Domestic Real Estate |
Neutral |
|
Global Real Estate |
Neutral |
|
Infrastructure |
Modest Overweight |
|
Commodities |
Neutral |
The USD has declined YTD, and based on our long-term valuation metrics, remains overvalued. Current U.S. policy has led to uncertainty in trade and fiscal deficits. While this has increased the attractiveness of other developed market currencies for diversification, the momentum of USD weakness versus the CAD may moderate near term due to Canada’s weaker growth fundamentals.
|
Sub Class |
Allocation |
|---|---|
|
U.S. Dollar USD |
Modest Underweight |
Chair
TDAM Asset Allocation
TDAM Equities
TDAM Fixed Income
TDAM Alternatives
Epoch
Council Non-Voting Members
The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.
Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future.
FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS. The TD Wealth Asset Allocation Committee (“WAAC”) is comprised of a diverse group of TD investment professionals. The WAAC’s mandate is to issue quarterly market outlooks which provide its concise view of the upcoming market situation for the next six to eighteen months. The WAAC’s guidance is not a guarantee of future results and actual market events may differ materially from those set out expressly or by implication in the WAAC’s quarterly market outlook.
The WAAC market outlook is not a substitute for investment advice. TD Wealth represents the products and services offered by TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
TD Asset Management Inc. is a wholly owned subsidiary of The Toronto-Dominion Bank. All trademarks are the property of their respective owners.
® The TD logo and other trade-marks are the property of The Toronto-Dominion Bank and its subsidiaries.