Q2 2026 Fund Commentary

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

Market commentary

Canadian equities delivered another strong quarter. Performance was led by the financials sector, as the banks continued to benefit from generally solid earnings supported in part by strength in capital markets and wealth management. The energy sector declined as oil prices retreated to roughly USD$70 per barrel, largely reversing the geopolitical risk premium that had built earlier. The pullback reflected improving prospects for a Middle East ceasefire agreement and optimism around a potential reopening of the Strait of Hormuz. The materials sector was the weakest over the period, declining roughly 12%, as gold prices fell roughly 14%.

U.S. equities staged a recovery in the quarter against a backdrop of easing tensions in the Middle East, generally resilient corporate earnings and support from the artificial intelligence investment cycle. A resurgent information technology sector led the rebound, driven by semiconductor and hardware companies.

Performance

In the Canadian equity component, underweight allocations to the materials and energy sectors contributed to performance. In the U.S. equity component, stock selection in the consumer discretionary sector and a zero weighting to the energy sector contributed to performance.

The main individual contributors to performance included Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal. Toronto-Dominion Bank beat expectations with accelerating return on equity and strong operating leverage, driven by momentum in its wholesale and wealth divisions alongside disciplined expense growth. Royal Bank of Canada delivered adjusted earnings per share up 25% year over year and ahead of consensus, supported by broad-based growth across capital markets, wealth management and core banking. Bank of Montreal posted adjusted earnings per share up 40% year over year and ahead of consensus, with return on equity improving to 13.5%, reinforcing progress toward its 15% fiscal 2027 target.

Stock selection in the industrials sector and consumer discretionary sectors detracted from performance in the Canadian equity component. Stock selection and an overweight allocation to the financials sector, and stock selection and an overweight allocation to the health care sector, detracted from performance in the U.S. equity component.

Boyd Group Services Inc., Suncor Energy Inc. and Rogers Communications Inc. detracted from performance. Boyd Group Services Inc. detracted as same-store sales growth, although positive for a third consecutive quarter, came in below market expectations, and underlying results showed improving margins and contributions from recent acquisitions. Suncor Energy Inc. weakened alongside a broader reversal in energy sentiment tied to optimism around supply normalization through the Strait of Hormuz. Rogers Communications Inc. weakened alongside Canadian and U.S. peers following reports that SpaceX is exploring a direct-to-consumer wireless offering and discussing mobile partnerships with U.S. cable operators.

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., Masco Corp. and Union Pacific Corp.

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., Amgen Inc., Applied Materials Inc., Comcast Corp., Cummins Inc., eBay Inc., Elevance Health Inc., Gen Digital Inc., Kimberly-Clark Corp., Merck & Co., NetApp Inc., Omnicom Group Inc., Sysco Corp. and Westinghouse Air Brake Technologies Corp.

Outlook

In the sub-advisor's view, the portfolio continues to reflect a dual focus on both value and quality, trading at attractive discounts on an earnings and cash flow basis while offering solid quality traits through high returns, low leverage and strong dividend support. Despite recent market narrowness and momentum, the sub-advisor believes that a research process focused on identifying high-quality stocks trading at discounts to their intrinsic value, combined with a long-term horizon, could lead to smoother portfolio outcomes and solid risk-adjusted returns over time. The portfolio is comprised of resilient, high-quality businesses and shows strong defensive traits.