Q1 2026 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

The U.S. equity market declined during the quarter amid heightened volatility. Two distinct phases shaped performance. The early part of the year saw improved market breadth as investors rotated away from crowded mega-capitalization growth names because of valuation concerns, artificial intelligence (AI) disruption risks and geopolitical uncertainty. This rotation favoured infrastructure and physical supply-chain beneficiaries of AI investment, including utilities, power equipment, memory-focused semiconductors and select industrials.

Rapid advances in generative AI heightened disruption risks across software and knowledge-based sectors, shifting investor preference toward hard assets and defensively positioned sectors including energy, materials, communication services and consumer staples. Value stocks outperformed growth and small- and mid-cap stocks outperformed large-cap stocks. Markets weakened sharply in March as the Middle East conflict drove energy prices higher and reignited inflation concerns. The U.S. dollar strengthened on safe-haven demand. The U.S. Federal Reserve Board held rates steady, adopting a wait-and-see stance amid upside inflation risks and moderating growth.

Performance

The Fund is sector-neutral, with sector weights kept close to the benchmark. Security selection is the primary driver of performance. Information technology and financials exposure contributed to performance, while health care, communication services and utilities exposure detracted from performance during the quarter.

Western Digital Corp. contributed to performance because of strong operating performance, better-than-expected earnings, stronger guidance and AI/cloud demand, supported by nearline hard-disk-drive demand from cloud customers. Exxon Mobil Corp. contributed to performance because of rising crude oil prices following the Middle East conflict and the company's structural cost reductions and investment in higher-margin projects. Marvell Technology Inc. contributed to performance after the company issued positive revenue guidance, supported by record data centre revenue and a constructive outlook, with sentiment strengthened further after NVIDIA Corp. announced a USD$2 billion equity investment in Marvell.

Boston Scientific Corp. detracted from performance because of concerns about slowing growth across several key businesses, softer-than-expected 2026 guidance and mixed clinical trial data related to the Watchman FLX heart implant. ServiceNow Inc. detracted from performance because of slowing growth and valuation compression, compounded by broader AI fears in software. Johnson & Johnson's strong share price during the quarter meant the Fund's lack of exposure detracted from performance.

Portfolio activity

There were no notable trades made in the Fund during the quarter.

Outlook

The sub-advisor notes that U.S. equities continue to be supported by ongoing economic expansion and resilient corporate earnings, while cautioning that the market environment in 2026 may differ from the broad, momentum-driven gains seen in recent years. The sub-advisor observes that elevated valuations, particularly among mega-cap and AI-related companies, suggest that equity market progress may increasingly depend on underlying earnings delivery rather than further valuation expansion. With inflation remaining modestly above policy targets, policymakers appear inclined to balance growth considerations with a measured approach to easing.

The sub-advisor also points to early signs of a gradual broadening in market participation beyond a narrow group of large-cap technology names, with a wider range of growth, value and cyclical segments contributing to returns. This underscores the growing importance of company fundamentals such as balance-sheet strength, pricing power and cash-flow sustainability.