Five Questions into 2026

Ilan Kolet [00:00:05] Our optimism for Canada is rooted in the idea that improving fundamentals have not yet been fully appreciated by the market. Recent economic data has improved markedly with strong GDP growth in the third quarter of last year and an unemployment rate that fell to a recent low. We believe the second quarter of 2025 will mark the trough for economic activity here in Canada. Furthermore, the recent federal budget shows a clear focus on boosting investment and activity which has been a key headwind for the economy for many years. While execution risks remain the combination of planned fiscal spending, a lessening of prior headwinds like mortgage renewals, and improving economic data gives us confidence in the Canadian outlook. While we're constructive on Canada we recognize that we are not fully out of the woods yet. A key risk we are monitoring is the continued deleveraging of household balance sheets which could weigh on growth. There's also significant uncertainty surrounding the scheduled renegotiation of the CUSMA trade agreement which remains a critical variable for the economy. Finally, the success of the government's new pro-growth policies depends on effective execution which is not guaranteed and will take time. A failure to implement these plans effectively or a negative outcome from trade agreements could certainly challenge our more optimistic thesis. Our concerns in the U.S. are really centred on policy shifts that could threaten the U.S. dollar status as the global safe haven. For these risks to lessen we would need to see a clear reversal of these trends. This would involve a demonstrated commitment to the independence and credibility of key institutions like the Federal Reserve and less political interference generally. A shift away from the ongoing trade war and toward more creditor-friendly policies would also be helpful. Essentially, a change in policy direction that reinforces rather than undermines global investor confidence in U.S. assets would be required to reduce the risk premium we see building. While we acknowledge the uncertainty and expensive valuations in the AI space our unique insight comes from our bottom-up research pillar. Our equity analysts across the world and the underlying portfolio managers we partner with continue to report that the market is underestimating the earnings power of these key AI companies over the visible horizon. A core principle of our philosophy is that stocks follow earnings so as long as these companies continue to out-earn market expectations we find it difficult to envision a sustained move lower. This insight informs our decision to remain moderately overweight equities while using diversification and other tools to control our overall risk. So as you mentioned, the paper does not specifically mention Venezuela but I can speak to our broader framework for handling geopolitical events. Our approach is to focus on the impact these events have on asset prices and the economy rather than reacting to the political headlines themselves. One of the pillars of our process is to take advantage of market fears when sentiment becomes overly negative not to indulge it. The core of our strategy is to build diversified, resilient portfolios that can withstand these kinds of shocks over the medium term. Any event, whether in Venezuela or elsewhere, is analyzed through this disciplined, research-based framework to determine its actual impact on our investments.