Q2 2026 Fund Commentary

Commentary and opinions are provided by Dixon Mitchell Investment Counsel Inc..

Market commentary

Easing geopolitical tensions in the Middle East during the quarter, including progress toward a ceasefire between the U.S. and Iran and improved stability in the Strait of Hormuz, contributed to a reversal in energy markets. After strong performance in the first quarter of 2026, the energy sector declined 5.7% in the second quarter, and materials fell 10.75%.

Inflation data surprised to the upside, with the U.S. Consumer Price Index exceeding 4%, prompting a shift in market expectations from interest-rate cuts to a higher-for-longer interest-rate outlook. The repricing pressured interest rate-sensitive holdings. Meanwhile, continued acceleration in AI-related capital expenditure remained a key market driver, with semiconductor and memory chip-related equities significantly outperforming as microchip and memory chip stocks rose 148% on average, ranging from 17% for NVIDIA Corp. to 263% for SanDisk Corp.

Performance

TFI International Inc. contributed to the Fund’s performance, adding 84 basis points (bps) as the company’s stock returned 35% in the quarter. In the sub-advisor’s view, an improving freight market following a severe freight recession, alongside cost and network synergies and aggressive share repurchases, drove a material re-rating. Texas Instruments Inc. contributed to performance, adding 92 bps on a 57% return, supported by demand for power management and voltage regulator chips used in data centres. The Toronto-Dominion Bank contributed to performance, adding 66 bps on a 34% return, as diversified earnings streams across capital markets, wealth management and insurance overcame earlier concerns about tariff impacts and credit performance.

An underweight allocation to the energy and materials sectors contributed to performance as both sectors declined sharply. An underweight allocation to bonds also contributed to performance.

Intercontinental Exchange Inc. detracted from the Fund’s performance because loosening U.S. Commodity Futures Trading Commission oversight legitimized perpetual futures and on-chain venues as competitors to the regulated futures franchise, while higher rates pushed out a mortgage origination recovery. Wheaton Precious Metals Corp. detracted from performance, with share price weakness tied to a pullback in precious metals rather than execution. Boyd Group Services Inc. detracted from performance because same-store sales growth of 1.7% came in below the company’s medium-term guidance of 3% to 5%.

An underweight allocation to the information technology sector detracted from performance, primarily because of underexposure to semiconductor chips, which cost roughly 200 bps in the quarter. An overweight allocation to U.S. equities also detracted from performance, as the Fund’s U.S. holdings underperformed the broader U.S. market amid strong momentum in AI-linked beneficiaries.

Portfolio activity

The sub-advisor increased the Fund’s bond allocation from 20% to 24% while reducing corporate weight within bonds and improving liquidity, preserving dry powder for future opportunities. The sub-advisor added Berkshire Hathaway Inc. on defensiveness and valuation. The sub-advisor added HEICO Corp. after improving margins in its Electronic Technologies Group segment helped the company’s stock rally 30% over the quarter. The sub-advisor added Domino’s Pizza Inc. because the company continues to grow, expand margins and take market share while trading at its lowest earnings multiple since 2012.

The sub-advisor sold Lowe’s Cos., Inc. and reduced Alphabet Inc.

Outlook

In the sub-advisor’s view, U.S. inflation has remained sticky, and the market’s expected path for the U.S. Federal Reserve Board has shifted from interest-rate cuts to higher-for-longer interest rates, while Canada looks comparatively constructive as growth has reaccelerated and core inflation has drifted closer to target. The sub-advisor is positioning the Fund toward businesses whose earning power may be resilient across a range of interest-rate and growth outcomes.

Within the Fund’s balanced mandate, the sub-advisor modestly reduced equity risk and moved bond exposure higher as yields have become more competitive. Bond duration remains shorter than the benchmark, reflecting the sub-advisor’s view that longer-dated yields could continue to carry elevated term premium. Within equities, the Fund remains underweight in the energy and materials sectors, and underweight in the most valuation-stretched parts of the market. In Canada, the financials and industrials sectors remain the sub-advisor’s largest areas of conviction, supported by improving credit conditions and a more constructive domestic growth trajectory.

Key uncertainties the sub-advisor is monitoring include the durability of U.S. inflation, the pace of Bank of Canada policy adjustments, the risk of renewed energy-price volatility from geopolitical events and the sustainability of AI-related capital spending.