Q2 2026 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

Global equity markets advanced strongly during the second quarter of 2026, supported by resilient corporate earnings, continued enthusiasm around artificial intelligence (AI)-related investments and improving investor risk appetite. Gains were accompanied by renewed inflation and economic growth concerns, as Middle East tensions, higher energy prices and rising bond yields contributed to a period of volatility. Global investment-grade bonds also posted positive returns, though gains were more modest.

Globally, central banks generally maintained a cautious policy stance as persistent inflation pressures and energy-market volatility delayed the path toward easing monetary policy. The European Central Bank and the Bank of Japan were notable exceptions, with both raising policy interest rates during the quarter because of renewed inflation risks. In China, policymakers introduced additional measures to support economic growth amid softer domestic demand.

The U.S. economy grew at an annualized rate of 2.1% in the first quarter of 2026, rebounding from 0.5% growth in the fourth quarter of 2025. Despite the pickup in economic activity, prices remained elevated, with headline inflation rising 4.2% year over year in May and core inflation rising 2.9%. The unemployment rate stood at 4.2% in June 2026. At its June meeting, the U.S. Federal Reserve Board (Fed) held the federal funds rate unchanged in a range of 3.50% to 3.75%, maintaining a cautious stance amid persistent inflation pressures. New Fed Chair Kevin Warsh struck a more hawkish tone, with policymakers’ projections shifting toward the possibility of rate hikes rather than cuts. By quarter-end, 10 of the 11 GICS sectors posted positive returns, led by information technology, industrials and financials, while energy lagged.

Performance

Holdings in Fidelity Global Innovators, Fidelity Emerging Markets and Fidelity U.S. All Cap funds contributed to performance.

Security selection in U.S. equities contributed to performance. A lower-than-benchmark allocation to global and Canadian investment-grade bonds also contributed to performance.

MSCI emerging markets equity futures, MSCI EAFE equity futures and Russell 2000 equity futures detracted from performance.

An out-of-benchmark allocation to commodity-related assets detracted from performance. An out-of-benchmark allocation to U.S. investment-grade bonds and security selection in, and an out-of-benchmark allocation to, liquid alternative strategies also detracted from performance.

Portfolio activity

The sub-advisor increased Canadian investment-grade bonds, U.S. equities and emerging markets equities. The sub-advisor reduced global investment-grade bonds and international equities.

Outlook

In the sub-advisor’s view, global economic activity remains broadly supportive, though geopolitical conflict reflects a structural shift toward a multipolar, deglobalizing world that may be more prone to recurring inflation shocks. In this environment, the Fund maintains a moderate overweight allocation to equities.

In the sub-advisor’s view, U.S. policy developments continue to undermine the country’s historical exceptionalism, reinforcing the case for diversification beyond U.S. markets. The sub-advisor remains cautious on broad U.S. equity beta risk, while select opportunities may persist in AI-driven U.S. large-capitalization growth stocks. The Fund has been overweight in Canadian equities and the Canadian dollar since the third quarter of 2025, the first such positioning in more than a decade, reflecting Canada’s position as a reliable producer of resources in an environment of heightened geopolitical uncertainty. Domestic conditions remain soft, though the sub-advisor believes the period of maximum cyclical pain may be passing as interest-rate reset challenges fade and commodity-driven capital investment accelerates. Themes such as energy, infrastructure, AI, defence and broader nation-building align with Canada’s evolving opportunity set.

Within fixed income, the sub-advisor maintains for the Fund an underweight duration (interest-rate sensitivity) position, favouring inflation-linked and real assets over traditional investment-grade bonds. This reflects a structural view that inflationary shocks, which may pressure equities and bonds simultaneously, could recur as globalization retreats and inflation becomes less anchored. Commodities are held across the Fund as a hedge against inflationary stress and a source of diversification beyond the traditional 60/40 construct. Currency positioning reflects a constructive view on the Canadian dollar, as the link between commodity prices and the Canadian dollar may reassert itself amid diverging interest-rate expectations.