Q1 2026 Fund Commentary

Commentary and opinions are provided by Picton Mahoney Asset Management.

Market commentary

Canadian equities had a challenging first quarter of 2026 as stability in the opening months of 2026 gave way to energy-driven volatility in March. Canadian equities benefited from lower index concentration in the information technology sector as global investors rotated out of mega-capitalization technology companies amid earnings scrutiny, fading artificial intelligence (AI) optimism and rising inflation risk.

Canada’s gross domestic product (GDP) slipped in the fourth quarter of 2025 because of a business inventory drawdown and a mismatch between rising imports and modest export gains. Labour market softness continued as the unemployment rate rose to 6.7% and employment declined. The manufacturing purchasing managers’ index expanded during the first two months of 2026 but fell into a neutral zone by March. Inflation continued its descent, with headline Consumer Price Index easing to 1.8% in February, helped by favourable base effects and a slowdown in food inflation. The Bank of Canada held its policy interest rate unchanged at 2.25% in March, acknowledging that near-term growth was likely to come in weaker than anticipated. Policymakers also warned that renewed volatility in global energy markets has amplified uncertainty.

The Canadian equity market gained during the quarter as the energy and materials sectors, which outperformed during the quarter, represent a large share of the Canadian market than peers. A sharp rise in crude oil prices in March, driven by disruptions in global shipping lanes, supported energy-related stocks. Energy, utilities and materials were the strongest-performing sectors, while information technology, health care and real estate lagged. Small-capitalization stocks outperformed large-capitalization stocks, and value stocks outpaced growth stocks.

Performance

Suncor Energy Inc. contributed to the Fund’s performance. The company increased annual share repurchases and outlined a multi-year improvement plan targeting higher production, lower costs and stronger cash flow. Sprott Inc. contributed to performance, benefiting from surging precious metals prices, with gold and silver reaching record highs during the quarter. Hudbay Minerals Inc. contributed to performance as the copper miner extended operational lifespans and improved multi-year production outlooks, lifting confidence in future output.

Stock selection in the financials sector contributed to performance. An underweight allocation to the information technology sector and an overweight allocation to the utilities sector also contributed to performance.

Capstone Copper Corp. detracted from the Fund’s performance after the miner delivered weaker-than-expected 2026 guidance, pointing to lower grades and operational challenges at its mines. The Goldman Sachs Group Inc. detracted from performance because of concerns about the impact of the ongoing Middle East conflict on economic growth and inflation, as well as market concerns around private credit. Premium Brands Holdings Corp. detracted from performance after the company announced margin pressures from higher input costs and customers trading down to lower-value products.

Security selection in the industrials sector detracted from performance. An overweight allocation to the financials sector and an underweight allocation to the energy sector also detracted from performance.

Portfolio activity

The sub-advisor added to the Fund holdings in CAE Inc., Cargojet Inc., Ovintiv Inc., Kraken Robotics Inc. and MDA Space Ltd.

The sub-advisor sold the Fund’s holdings in Kinaxis Inc., Element Fleet Management Corp., Tourmaline Oil Corp. and Atkinsrealis Group Inc.

Outlook

In the sub-advisor’s view, Canada’s economic outlook for 2026 remains cautiously constructive, with modest GDP growth expected despite geopolitical uncertainty and trade tensions that continue to strain business sentiment. While household debt and trade dependence pose risks, domestic resilience may be supported by real wage gains and positive wealth effects, though labour market conditions remain weak. The energy sector benefits from elevated oil prices, which may support a favourable fiscal policy stance.

The sub-advisor remains focused on AI innovation and commodity demand in resource-heavy areas of the market. The sub-advisor maintains a disciplined approach, focusing on sectors with earnings momentum and identifying emerging leaders. The sub-advisor believes market pullbacks may provide opportunities to build exposure to longer-term growth trends.