In an environment shaped by economic uncertainty, inflationary pressures and market volatility, investors are increasingly seeking alternative investments to strengthen their portfolios. 1

The traditional 60/40 portfolio: 60% equities and 40% fixed income, has long served as a foundation of conventional investment strategies. However, current economic conditions have exposed its limitations. High inflation, a shortage of reliable safe-haven assets and rising geopolitical tensions have diminished the effectiveness of the traditional balanced approach. Through a disciplined and forward-looking investment process, Portfolio Solutions Group (PSG) integrates alternative investments that may help improve diversification, manage risk and unlock new sources of return.

Alternatives enhance diversification by providing exposure to non-traditional asset classes (e.g., real estate) and strategies (e.g., managed futures). They may help reduce overall portfolio risk through lower correlations with traditional assets, improved inflation protection and stronger downside risk mitigation. Alternatives can also capture new sources of return through access to unique income streams or illiquidity premiums in private markets. When properly diversified, these exposures can improve risk-adjusted returns, either by raising returns at similar levels of risk or lowering risk for the same level of return.

PSG takes a strategic, differentiated approach to alternatives. These investments are incorporated based on their characteristics and their intended role in the portfolio. PSG classifies them into three categories:

• Core alternatives: These include direct real estate and commercial mortgages, which may provide stable income and inflation protection. PSG’s real estate exposure includes Canadian assets managed by GWL Realty Advisors and U.S. properties through Sagard Real Estate.
• Diversifying alternatives: This category includes strategies like private credit, which may provide income from unique sources, reduce volatility and offer downside protection. PSG’s private credit exposure is currently managed by Northleaf Capital Partners.
• Growth alternatives: These include liquid alternative strategies with higher return potential, although they also involve more complexity and model risk. PSG has recently introduced two liquid alternative mandates managed by PanAgora Asset Management Inc. 

This flexible framework allows PSG to customize alternative allocations to different investor needs. Conservative portfolios tend to focus on core alternatives for stability, while growth-oriented mandates may include more advantageous strategies.

Given their complexity and potential illiquidity, alternatives require strong oversight. Illiquid investments such as real estate may carry valuation and liquidity risks. For private market funds like private credit, qualitative factors become increasingly important. Manager experience, research capabilities and the ability to analyze businesses effectively, particularly in opaque markets, are all critical to portfolio success. A few individual holdings can meaningfully impact outcomes.

Canada Life’s Investment Management Research (IMR) team and PSG conduct thorough due diligence before adding any alternative strategy. PSG also applies forward-looking asset allocation models and stress testing to assess potential market and liquidity risks.   

Post-investment, PSG and the IMR team continuously monitor each alternative holding to evaluate performance, assess risk exposure and ensure each position aligns with its intended role in the portfolio.

Alternatives play a vital role in enhancing portfolio resilience. For example, when both equities and bonds declined in early 2022, directly held real estate provided stable income and private credit delivered double digit returns through a combination of income and capital appreciation. ²

In a world where traditional models are under strain, alternatives offer a powerful mechanism for adapting portfolios for market conditions. PSG’s thoughtful use of real assets, private credit and liquid alternatives is helping build portfolios that are more diversified, more resilient and better prepared for the future.

Portfolio Solutions Group is a division of Canada Life Investment Management Ltd. Canada Life Mutual Funds are managed by Canada Life Investment Management Ltd. The funds are distributed by Quadrus Investment Services Ltd., IPC Investment Corporation, and IPC Securities Corporation, and may also be available through other authorised dealers in Canada. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. 

The content of this material (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.   

This material may contain forward-looking information that reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of Sept 24, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. Canada Life and design and Canada Life Investment Management and design are trademarks of The Canada Life Assurance Company.