Q2 2026 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

U.S. equities delivered a strong performance in the second quarter of 2026, supported by resilient corporate earnings, continued enthusiasm around artificial intelligence (AI) and a broadly firm domestic economy. Risk appetite improved as investors focused on signs of Middle East de-escalation, systematic inflows into U.S. equities and stronger earnings expectations. The U.S. equity market reached new highs during the quarter, although leadership remained narrow and concentrated in mega-capitalization growth, semiconductor and AI-related technology companies.

A strong first-quarter 2026 earnings season reinforced confidence in the profit outlook for equities, while continued investment in AI computing, digital infrastructure and hyperscaler capital expenditure supported sentiment. Enthusiasm became more selective later in the quarter as investors questioned valuations and returns from elevated AI spending, leading to weakness in technology and semiconductor stocks and a rotation towards value, cyclical and defensive stocks. The energy sector lagged as easing geopolitical risks reduced concerns around supply disruption and weighed on oil prices. The U.S. Federal Reserve Board (Fed) left the range of its federal funds rate unchanged but maintained a cautious tone as persistent inflation, higher energy prices and resilient labour market conditions reduced expectations for near-term monetary easing. Economic data remained broadly resilient, with gross domestic product growth revised higher, manufacturing activity expanding, unemployment steady and payroll growth above expectations, though headline inflation rose to 4.2% year over year in May, keeping inflation well above the Fed’s target of 2%.

Performance

Marvell Technology Inc., Western Digital Corp. and Datadog Inc. contributed to the Fund’s performance. In the sub-advisor’s view, Marvell Technology Inc.’s strong performance reflected a technical breakout in April, increasing confidence that earlier concerns related more to communication than structural weakness and a sharp improvement in fundamentals tied to AI infrastructure demand, with the company reporting better-than-expected earnings and projecting a strong growth outlook. Western Digital Corp.’s performance was driven by earnings upside, hard disk drive pricing strength, hyperscaler demand and a valuation re-rating around AI-linked storage demand. Datadog Inc.’s performance reflected first-quarter 2026 results that surpassed analyst estimates, accelerating AI-related demand, broad-based customer strength and a software multiple re-rating, with investors rewarding the company’s positioning as an AI-era observability leader supported by growth in AI-native customers, hyperscaler AI lab wins and higher product adoption.

An overweight allocation to the industrials, real estate and communication services sectors also contributed to performance.

Micron Technology Inc. detracted from performance. In the sub-advisor’s view, the Fund’s lower-than-benchmark exposure to Micron Technology Inc. meant the Fund missed much of the company stock’s upside, which was driven by AI-led memory chip demand, tight industry supply and an earnings-driven re-rating. A lack of exposure to a few other semiconductor companies also detracted from performance.

An overweight allocation to the financials, energy and materials sectors detracted from performance.

Portfolio activity

There were no significant changes to the Fund’s portfolio during the period.

Outlook

In the sub-advisor’s view, U.S. equities continue to be supported by ongoing economic expansion and resilient corporate earnings, though the market environment in 2026 may differ from the broad, momentum-driven gains seen in recent years. The sub-advisor notes that elevated valuations, particularly among mega-capitalization and AI-related companies, suggest that equity market progress may increasingly depend on underlying earnings delivery rather than further valuation expansion. With inflation remaining modestly above policy targets, the sub-advisor believes policymakers appear inclined to balance growth considerations with a measured approach to monetary easing, resulting in financial conditions that remain supportive but not overtly stimulative. The sub-advisor also points to early signs of a gradual broadening in market participation beyond the largest mega-capitalization companies, with a wider range of growth, value and cyclical segments contributing to returns, underscoring the growing importance of company fundamentals such as balance-sheet strength, pricing power and cash-flow sustainability, as well as the role of diversification and risk awareness relative to simple index exposure.