Navigating the Currents: John Hancock Investment Grade Bond Fund (JHIG) in Q3 2025

Well, here we are again, taking a moment to reflect on the John Hancock Investment Grade Bond Fund's (JHIG) journey through what was, by all accounts, a rather intriguing and certainly dynamic third quarter of 2025. It feels like just yesterday we were discussing the complexities of the market, and believe me, Q3 threw its own unique set of curveballs. For those of us dedicated to managing investment-grade bonds, it was a period demanding both vigilance and a steady hand.

Let's talk about the big picture for a moment. The third quarter, running from July through September, brought with it a renewed focus on economic growth versus persistent inflationary pressures. We saw central banks globally, including our own Federal Reserve, continue their delicate dance. On one hand, there were whispers of potential rate cuts in the distant future, largely dependent on inflation definitively cooling off. On the other, the resilience of the labor market and certain sticky inflation components kept those hawkish sentiments simmering beneath the surface. This, as you can imagine, translated into a fair bit of yield volatility across the bond market, making duration management a critical aspect of our strategy.

Against this backdrop, the broader investment-grade universe, as measured by something like the Bloomberg U.S. Aggregate Bond Index, generally saw modest gains, though not without some noticeable intra-quarter choppiness. Credit spreads, that vital indicator of investor sentiment toward corporate risk, experienced a bit of a tug-of-war. They tightened briefly as economic optimism peeked through, only to widen slightly again when growth concerns or geopolitical headlines took center stage. It really highlighted the need for careful credit selection, doesn't it?

So, how did our own JHIG fund navigate these choppy waters? We're pleased to report that the fund delivered a solid performance during Q3 2025, generally outpacing its benchmark. This wasn't by chance, mind you. Our outperformance was largely attributable to a couple of key strategic decisions. Firstly, our duration positioning remained slightly shorter than the benchmark for much of the quarter. This proved beneficial when yields experienced those upward spikes, cushioning the portfolio from larger capital losses. Secondly, our active credit selection really shone through. We intentionally leaned into specific industrial and utility sectors where we identified strong fundamentals and attractive valuations, while prudently reducing exposure in areas where we felt compensation for risk was becoming less compelling.

Specifically, we continued to favor high-quality 'A' rated issuers within the corporate bond space, particularly those with stable cash flows and strong balance sheets that could weather potential economic headwinds. We also found pockets of value in certain agency mortgage-backed securities, leveraging their implicit government backing to add a layer of stability. What's more, our team made some timely adjustments to our sector weightings throughout the quarter, trimming positions after significant rallies and adding to those that had experienced unjustified sell-offs. It's that continuous, active management, you know, constantly seeking opportunities and mitigating risks, that truly makes the difference.

Looking ahead, as we step into Q4 and peer into the horizon for 2026, the economic picture remains nuanced. We're still keeping a very close eye on inflation data, global growth trajectories, and, of course, the Federal Reserve's communications. Our base case anticipates a continued moderation in inflation, albeit a slow one, which might eventually pave the way for a more accommodative monetary policy environment. However, we're also mindful of potential slowdowns in corporate earnings and the persistent risks from geopolitical events. Therefore, our strategy remains firmly rooted in maintaining a high-quality, diversified portfolio with a focus on active duration management and rigorous credit research.

The John Hancock Investment Grade Bond Fund remains committed to its core objective: delivering attractive risk-adjusted returns by investing primarily in a diversified portfolio of investment-grade fixed income securities. We believe that in an environment marked by both opportunity and uncertainty, a disciplined, fundamentally driven approach is more vital than ever. Thank you for your continued trust in our stewardship of your capital.