Q2 2026 Fund Commentary

Commentary and opinions are provided by Picton Mahoney Asset Management.

Market commentary

Canadian and global equity markets posted gains during the second quarter of 2026, though breadth was narrow. Artificial intelligence (AI) remained a dominant theme, drawing capital into technology, parts of the industrials sector and power infrastructure while leaving utilities and several commodity-linked areas behind. Corporate earnings were strong, with roughly 82% of companies beating estimates on both revenue and earnings per share, and guidance on earnings held up well. Toward quarter-end, optimism around the reopening of the Strait of Hormuz and the prospect of a ceasefire in the Middle East conflict began to drive rotation into lagging areas, including European equities and cyclicals, while oil prices and interest rates both declined.

Performance

The Toronto-Dominion Bank and Royal Bank of Canada were the two largest individual contributors to the Fund’s performance during the quarter, as Canadian bank stocks broadly benefited from multiple expansion. National Bank of Canada also contributed to performance as a top performer within the sector.

Stock selection in the materials and utilities sectors contributed to performance. An underweight allocation to the energy sector and an underweight allocation to the materials sector also contributed to performance.

Canadian Natural Resources Ltd. detracted from the Fund’s performance because the company’s stock pulled back alongside lower oil prices, which were pressured by optimism around the reopening of the Strait of Hormuz. The Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce also detracted from performance, reflecting the sub-advisor’s preference for other companies within the financials sector.

Stock selection in the financials and industrials sectors detracted from performance. An underweight allocation to the financials sector and an overweight allocation to the consumer staples sector also detracted from performance.

Portfolio activity

The sub-advisor added Bank of Montreal on the basis of an improving U.S. outlook for its business. The sub-advisor increased Teck Resources Ltd. because of the sub-advisor’s view that copper has a structural supply story following years of underinvestment and labour scarcity. The sub-advisor sold Manulife Financial Corp. because of weakness in its Asian and asset management businesses. The sub-advisor reduced Royal Bank of Canada because valuations of Canadian banks are near historic highs despite limited credit-cycle improvement and still-challenged lending conditions.

Outlook

In the sub-advisor’s view, the near-term setup for equities is less attractive heading into the second half of 2026. Markets absorbed several shocks in the first half of the year, including policy, tariff and geopolitical pressures, but the sub-advisor believes the underlying economy has taken on a K-shaped character, with stronger spending among large asset holders and more pressure on lower-income households from inflation and a softening employment picture. Concentration and valuation are the risks the sub-advisor is watching most closely, as a small group of large AI-linked stocks now represents a substantial share of the overall market at elevated valuations, and equity risk premiums have fallen to levels the sub-advisor considers low by historical standards.

A shift in U.S. Federal Reserve Board (Fed) policy has, in the sub-advisor’s view, removed much of the monetary easing support markets had anticipated. The Fed’s posture as of the end of the quarter was more hawkish than expected, with less forward guidance and a path that pointed to a hold or a potential interest-rate hike rather than interest-rate cuts. The sub-advisor believes this raises rate volatility and may pressure the most highly valued, most crowded areas of the market. In response, the sub-advisor is looking to broaden exposure beyond the largest index constituents toward cyclicals, materials, energy infrastructure and inflation-linked real assets, with pricing power as a key filter in portfolio construction. Even within AI, the sub-advisor expects market investors to continue discriminating between companies generating returns and those spending heavily without proven results.