Q2 2026 Fund Commentary

Commentary and opinions are provided by Beutel, Goodman & Company Ltd..

Market commentary

Global developed market equities advanced in the second quarter as the prospect of a U.S.-Iran agreement to reopen the Strait of Hormuz edged closer, alongside the tailwind of the artificial intelligence (AI) investment cycle boosting the information technology sector. Global equities modestly lagged U.S. markets. Information technology dominated, driving index returns by a wide margin.

Performance

In the Canadian equity component, underweight positions in materials and energy contributed to performance. In the U.S. equity component, stock selection in consumer discretionary and a zero weight in energy contributed to performance. In the international equity component, stock selection in energy and a zero weight in utilities contributed to performance. In the fixed income component, duration contributed because of tactical duration positions amid interest rate volatility. An overweight position in the mid-term part of the curve contributed, as did an overweight position in corporate bonds. Overweight exposure to mid-term corporate bonds outperformed longer-dated corporate bonds, and the selection of hybrid securities and high-yield bonds contributed to performance.

NetApp Inc., QUALCOMM Inc. and Applied Materials Inc. contributed to performance. NetApp Inc. shares reached all-time highs on strong year-end and fiscal fourth-quarter results. QUACOMM appreciated despite lacklustre smartphone results, as management forecast improved second-half results and announced a major AI data centre win with a hyperscaler customer. Applied Materials delivered a record fiscal second-quarter earnings beat in May, with leading-edge logic demand and the memory chip shortage remaining favourable.

In the Canadian equity component, stock selection in industrials and consumer discretionary detracted from performance. In the U.S. equity component, stock selection and overweight positions in financials and health care detracted from performance. In the international equity component, stock selection and underweight positions in information technology and financials detracted from performance.

Amdocs Ltd., Comcast Corp. and Medtronic plc detracted from performance. Amdocs' second-quarter results were a modest beat, but guidance came in below consensus, and software has continued to lag other information technology sub-sectors amid AI disruption concerns. Comcast reversed after a first-quarter earnings beat as structural concerns about broadband competition and subscriber losses reasserted themselves. Medtronic delivered improved revenue growth, although earnings didn't follow given known disruption around tariffs and new product launches, reflecting a broader MedTech pullback.

Portfolio activity

Intact Financial Corp., AutoZone Inc. and Royal Caribbean Cruises Ltd. were added. The sub-advisor increased Brookfield Corp., Canadian Natural Resources Ltd., Franco-Nevada Corp., Metro Inc., Suncor Energy Inc., Becton, Dickinson and Co., Cencora Inc., Flowserve Corp., Marsh & McLennan Cos. Inc., Masco Corp., Union Pacific Corp., Capgemini SE, dormakaba Holding AG, GSK plc, Heidelberg Materials AG, ITV plc, Kering SA, Koninklijke KPN NV, Novartis AG, Shionogi & Co. Ltd., Smith & Nephew plc and Unilever plc.

Open Text Corp. was sold. The sub-advisor reduced AltaGas Ltd., Manulife Financial Corp., Royal Bank of Canada, Sun Life Financial Inc., TC Energy Corp., George Weston Ltd., Cummins Inc., NetApp, Westinghouse Air Brake Technologies Corp., Amgen Inc., Applied Materials, Comcast, eBay Inc., Elevance Health Inc., Gen Digital Inc., Kimberly-Clark Corp., Merck & Co. Inc., Omnicom Group Inc., Sysco Corp., DBS Group Holdings Ltd., Infineon Technologies AG, BASF SE, Roche Holding AG and TGS ASA.

Outlook

Concentration in the MSCI World Index adds risk, with the top 10 holdings accounting for over one quarter of an index of nearly 1,300 constituents. The portfolio continues to reflect the sub-advisor's dual focus on value and quality, trading at attractive discounts on an earnings and cash flow basis while offering high returns, low leverage and strong dividend support.

Despite continued market narrowness, the sub-advisor believes a research process focused on high-quality stocks trading at discounts to intrinsic value, combined with a long-term horizon, could lead to solid risk-adjusted returns over time.

In fixed income, the second quarter of 2026 marked a transition in market conditions, as easing geopolitical tensions helped stabilize sentiment. The partial resolution of the Middle East conflict led to a sharp retracement in oil prices and moderation in near-term inflation expectations. The sub-advisor expects yields to remain range-bound within a higher-for-longer framework. With spreads tight and risk assets elevated, the sub-advisor believes markets may be vulnerable to repricing, reinforcing the importance of preserving liquidity and maintaining flexibility through 2026.