Q2 2026 Fund Commentary

Commentary and opinions are provided by Mackenzie Investments,Brandywine Global Investment Management,Keyridge Asset Management.

Market commentary

The global economy steadied in the second quarter after the energy shock that dominated the start of the year. Crude oil prices stayed high through much of the quarter before retreating late as tensions in the Middle East eased and shipping through the Strait of Hormuz began to resume. The pullback in oil lowered input costs for energy-importing economies and helped cool fears of a broader inflation shock.

Major central banks stayed cautious. The U.S. Federal Reserve Board (Fed) and the Bank of Canada both held interest rates unchanged, and the Fed signaled that rate increases were possible later in the year. The European Central Bank raised its policy interest rates at its June meeting in response to rising inflationary pressures.

Global equity markets rose in the second quarter. Developed markets gained about 13%, led by a strong rally in the U.S. Japanese equities delivered a strong return, supported by firm economic data and continuing corporate governance reforms, though a weaker yen stayed in focus for policymakers. Emerging markets outperformed, rising close to 23%, led by extraordinary gains in South Korea and Taiwan on demand tied to artificial intelligence (AI) and semiconductors, while Chinese and Indian equities lagged.

Global fixed income markets delivered mixed results in the second quarter. Government bond yields rose in the U.S. as the market priced in the possibility of Fed rate increases, putting downward pressure on bond prices, while Canadian yields eased late in the quarter on contained inflation. Investment-grade corporate bonds showed greater resilience, with energy-sector issuers benefiting from firm oil prices early in the period. High-yield bonds were mixed. Emerging market bonds in oil-importing economies improved as crude prices retreated late in the quarter.

Performance

Stock selection in communication services and underweight exposure to real estate contributed to performance. Relative exposure to Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) contributed to performance. TSMC shares benefited from demand for leading-edge process technologies and AI, reporting rising revenue and earnings.

Stock selection in information technology, financials and industrials detracted from performance. Underweight exposure to Micron Technology Inc. detracted from the Fund’s performance. Micron Technology benefited from accelerating AI-related memory demand, tight industry supply and stronger pricing.

The Fund’s government bond positioning contributed to performance. Duration (interest rate sensitivity) exposure to U.S. and German government bonds contributed to performance as yields fell and prices rose. Japanese government bond exposure detracted from performance as rising long-term Japanese yields pressured its price, with extended duration worsening its underperformance. Yields rose amid persistent inflation, reduced Bank of Japan purchases, fiscal concerns and weak demand at super-long Japanese government bond auctions.

From a sector perspective, stock selection in health care contributed to the Fund’s performance, with ICON PLC, Humana Inc. and CVS Health Corp. among the top performers. An underweight allocation to materials contributed to performance because metals and mining companies had a weak quarter as precious metals prices fell. From a country perspective, selection in Europe contributed to performance.

ON Semiconductor Corp. contributed to performance. The company’s stock rose sharply because of a strong earnings report and research upgrades tied to AI data centre momentum. ICON PLC also contributed to performance after the resolution of an internal accounting investigation revealed minimal overstatements of revenue and no damage to operations or client relationships. Taiwan Semiconductor Manufacturing Co. Ltd. contributed to performance because of continued AI demand.

Underweight allocation to information technology, and to semiconductors and memory companies in particular, detracted from performance because of momentum within the sector. Stock selection in consumer discretionary also detracted from performance, with Open House Group Co. Ltd., Abercrombie & Fitch Co. and Shimamura Co. Ltd. the main detractors. From a country perspective, underweight allocation to the U.S. detracted from performance because mega-capitalization technology companies dominated.

A lack of exposure to Micron Technology Inc. detracted from performance because the company’s stock rose sharply amid record demand for memory chips. Zoetis Inc. detracted from performance because consumers are deferring spending on their pets amid higher inflation and a complex economic backdrop. The Kroger Co. detracted from performance because of lower same-store sales and concerns about its acquisition of Giant Eagle Inc.

Portfolio activity

The sub-advisor added U.S. Government (1.125%, 2030/10/15) to the Fund to add high-quality duration, liquidity and potential capital appreciation. Microsoft Corp. was added as the sub-advisor believes the company could be a significant beneficiary as AI develops. The sub-advisor continued to build software and software-as-a-service positions, adding Accenture PLC.

The sub-advisor decreased NVIDIA Corp., Alphabet Inc., Apple Inc., Taiwan Semiconductor Manufacturing Co. Ltd., Amazon.com Inc. and Microsoft Corp.

Alibaba Group Holding Ltd. was sold in favour of Tencent Holdings Ltd. In the sub-advisor’s view, Chinese internet stocks are inexpensive, and the market provided an opportunity to exit exposure to Chinese consumer spending in favour of what the sub-advisor considers a stronger business.

The sub-advisor also reduced Bank Rakyat Indonesia (Persero) TBK.

Outlook

In the sub-advisor’s view, the main challenge during the quarter wasn’t a breakdown in the broader thesis, but an extreme, momentum-driven market. The sub-advisor notes that momentum has reversed twice in the past six quarters, and both reversals produced notable relative gains for the Fund.

The Fund’s positioning remains aligned with several trends the sub-advisor has anticipated for some time. These trends include a narrowing of the valuation gap between U.S. and non-U.S. stocks, weaker leadership from the largest U.S. technology companies and better performance from value compared with growth. In the sub-advisor’s view, the momentum factor is at levels seen only one other time in the past 80 years, just before the technology bubble burst in early 2020.

The sub-advisor reports in quarters but invests on a three-year horizon. In the sub-advisor’s view, the recent period may be followed by a stronger environment for the strategy, as has occurred after similar periods in the past.