Q2 2026 Fund Commentary

Commentary and opinions are provided by Portfolio Solutions Group, Mackenzie Investments, Beutel, Goodman & Company Ltd..

Market commentary

Global financial markets spent the second quarter looking past geopolitical uncertainty and refocusing on corporate earnings. Early in the quarter, conflict in the Middle East raised concerns about global energy supplies and renewed inflationary pressures. As tensions eased and the risk of a prolonged disruption to energy flows through the Strait of Hormuz diminished, investor sentiment improved. Markets quickly concluded that the geopolitical shock was unlikely to derail the global earnings cycle. Attention returned to resilient corporate earnings, continued investment in artificial intelligence (AI), and a global economy that, while moderating, continued to expand. All returns are in Canadian-dollar terms and on a total-return basis.

Global equities generated strong returns, with the MSCI World Index gaining 15.6%, significantly outperforming the FTSE Canada Universe Bond Index, which returned 2.0%. Improving investor confidence and a stronger earnings outlook supported equity markets as concerns over an extended energy shock faded. Continued investment in AI infrastructure remained a powerful driver of returns, supporting companies across the semiconductor, software and data centre ecosystem.

Regional performance reflected differing sector exposures and economic fundamentals. U.S. equities led developed markets on the back of resilient earnings growth and continued strength in technology and industrials. Emerging markets were the strongest-performing region, returning 26.1%, as Taiwan and South Korea benefited from sustained demand for AI-related semiconductors and advanced technology hardware. Canadian equities gained 7.0%, supported by strong advances in financials and industrials, although weakness in the energy and materials sectors limited broader market performance.

Fixed income delivered positive, though more modest, returns. Lower oil prices reduced concerns about a sustained inflation shock, but resilient economic data tempered expectations for significant interest rate cuts. Corporate bonds outperformed government bonds as credit spreads narrowed and investor confidence improved.

The second quarter reinforced an important lesson for investors. Financial markets can recover quickly from geopolitical shocks when the long-term drivers of earnings remain intact. That does not mean the underlying challenges have disappeared. Trade uncertainty, elevated equity valuations and the need for continued earnings growth remain important considerations. While the immediate risks have eased, that distinction is likely to remain important through the second half of the year.

Performance

The overweight allocation to equities and underweight allocation to fixed income contributed to performance. The off-benchmark allocation to High Yield Fixed Income also contributed.

Active manager selection in North America detracted from performance. Counsel Canadian Value underperformed because of asset allocation to and security selection in the consumer discretionary, information technology and health care sectors.

Portfolio activity

Mackenzie U.S. High Yield Bond Index ETF and Mackenzie Canadian Aggregate Bond Index ETF were added to replace the eliminated ETFs. IPC Private Wealth Visio Core Fixed Income was increased to reposition the portfolio closer to its policy asset mix.

Eliminated positions included iShares Broad USD High Yield Corporate Bond ETF, iShares J.P. Morgan Emerging Markets Corporate Bond ETF and BMO Aggregate Bond ETF to move into the Mackenzie ETFs, which were offered at lower fees.

Outlook

The third quarter of 2026 begins with markets having moved quickly from crisis pricing to relief pricing, as the immediate risk of a severe energy shock has faded following a fragile U.S.-Iran agreement and reduced concern over prolonged disruption through the Strait of Hormuz. Relief is warranted, but not complacency. Energy systems take time to normalize, with tanker positioning, insurance markets, inventories, production capacity and Qatari natural gas supply still working through the after-effects of the shock. Lower oil prices should help headline inflation and ease some pressure on central banks, but inflation pass-through may still appear with a lag in areas such as airfares, electricity, food and fertilizer. As a result, central banks remain cautious: the Bank of Canada is likely boxed into a hold given weak growth but persistent wage and productivity pressures, while the U.S. economy has not yet made a convincing case for U.S. Federal Reserve Board rate cuts.

Against that macroeconomic backdrop, earnings remain the key source of market validation, and AI continues to dominate the investment narrative. The AI buildout is real, supporting capital spending, semiconductors, data centres, power infrastructure, hardware, software and parts of global trade, particularly in Asia. However, the quality of reported earnings deserves more scrutiny. Some recent earnings strength may reflect unrealized mark-to-market gains on AI-related equity stakes rather than recurring operating profits, creating the risk of a circular feedback loop between public valuations, private valuations and reported earnings. We remain constructive but more selective: favouring U.S. equities while avoiding excessive concentration in the narrowest AI leaders, staying underweight Canada and developed international equities, and maintaining selective exposure to emerging markets tied to the AI supply chain.

Fixed income duration remains useful as a stabilizer. Credit requires caution, and alternatives continue to play an important role in providing diversification, liquidity and flexibility as markets test whether AI strength, lower inflation and easier energy conditions can justify already elevated expectations.