Points in Time – January 2026 – ISSUE
Scott Blair, CFA
Head Portfolio Manager
Global equity markets have had an incredible run so far this decade – it seems like nothing can keep them down. Not pandemics, generationally high inflation, or even a historic shift in global trade policy by the world’s largest economy. Equity investors who tuned out the noise have been richly rewarded (Figure 1).
Figure 1: Annualized Equity Returns this Decade
Source: FactSet
Canada: S&P/TSX Composite, U.S.: S&P 500, International: MSCI EAFE
All figures in CAD, data from Dec 31, 2019, to December 31, 2025.
Of course, the rapid adoption of technology across every facet of our lives has led the charge (online shopping, social media, streaming, AI etc.). With the U.S. at the forefront of these advancements, it’s no surprise that U.S. stocks have led global returns. An analysis by Bridgewater Associates found that the 15-year period ending December 31, 2024, was the strongest such stretch for U.S. equities in the past 54 years. We’ve been truly living through an abnormally long and strong cycle for equity investors – it’s no wonder people are getting worried that this good run is bound to end.
Climbing the wall of worry
What’s perhaps most unusual about this period has been the relative economic stability we’ve seen globally. There have been pockets of weakness but we haven’t seen a deep recession, at least in North America, since the Global Financial Crisis of 2007-2009. Over 15 years of relatively consistent economic growth have led to corporate earnings growth which, in turn, has driven markets higher. It’s been a virtuous cycle.
Yet many investors have been white knuckling through the gains, obsessed with the many negative headlines and the resulting market noise. All markets climb a wall of worry – as in there is always something negative in the economy and markets to focus on – yet, the wall of worry in recent years has seemed insurmountable. With added societal fatigue, it’s clear why investors are overwhelmed. Sometimes it’s useful to look back in time to gain perspective clarity, and peace of mind.
The 2000 dot-com bubble burst is often cited as the closest parallel to today. There is no doubt there are similarities between the two time periods. Markets aren’t cheap and have been rising for a significant period of time. Technology stocks, in particular, have had an amazing run. It’s impossible to know if a substantial market correction is around the corner, but we remind clients that periodic downturns are a feature – not a bug – of investing in non-guaranteed risk assets. And yes, sometimes those downturns can be nasty. Rather than draw parallels that may not be accurate between today and the dot-com bubble, let’s use that period as a guide to what a prolonged market downturn looks like and how it impacted portfolios.
Demystifying the next bear market
Let’s assume an investor placed $1M in a 60/40 balanced portfolio at the end of 1998 – right before the Dot-Com Burst. 60% are in equities (equally split between Canadian, U.S. and International) and 40% in Canadian Bonds, rebalanced annually (Figure 2).
The portfolio started out well. Although the investor missed most of the previous run up to the peak, 1999 was a good year with strong gains in equity markets and a slightly negative return in bonds. Then, the worm turned. U.S. and International equities saw three consecutive negative yearly returns (2000-2002), while Canada posted positive results in 2000 before posting back-to-back losses. Markets eventually rebounded in 2003 and 2004.
Figure 2: Balanced Portfolio During the Dot-Com Bubble
Simulated returns. Source: FactSet.
Canada: S&P/TSX Composite, U.S.: S&P 500, International: MSCI EAFE.
All figures in CAD. Data from December 31, 1998, to December 31, 2004
What saved this portfolio from deep losses was the diversification that bonds provided. Between 2000-2004, Canadian bond returns ranged from 7-10% annually. While the investor would likely be disappointed to have made very little money by the end of 2002, if they were able to hold on for two more years they would have been left with an annualized return of just under 4% for the six-year period, while never seeing it dip below the original $1M invested. Not bad for a brutal downturn.
Fix your roof before it rains
Psychologists have studied a phenomenon called loss aversion which applies well to the investing world. It’s the tendency to feel the pain of losses much more intensely than the pleasure of gains.
This helps us understand why talk of the next downturn can stir anxiety, even after years of spectacular gains. No one wants to see their portfolio go down – ever.
The dot-com simulation represents one of the worst periods in financial markets this century, yet the diversified investor managed to preserve and even grow their capital by staying invested and not trying to time the market. Of course, the result would vary depending on asset mix and when funds were first invested. An investor who held more equities and less bonds would not have fared as well in the bear market, but would have gone into it with greater gains, especially if they started investing a few years before our simulation.
Every portfolio is different as is every investor. That’s why understanding your risk tolerance is crucial. Generally, taking more risk increases the potential for higher long-term returns, but also raises the possibility of greater losses. For instance, there are more ups and downs along the way with a portfolio geared towards equities which could cause some to panic and sell at the wrong time (like in the brief 2020 pandemic down market).
On the other hand, too little equity exposure and you may not reach your goals or be tempted to jump into riskier assets at the exact wrong time (like 2000) to chase returns that have already happened. It’s important to balance risk with personal goals and objectives.
With today’s economy growing, although slowly, and corporate earnings expectations holding up well, it doesn’t appear that a downturn is imminent. That said, no one can predict when the next one might be. The best preparation is proactive: work with your advisor to ensure your portfolio mix aligns with your goals and understand what drives your outcomes. If you have a big expenditure in the near term, make sure you set aside money outside of the markets for it. This is where an experienced advisor earns their keep – helping you fix the roof before it rains.
Source: FactSet, Bloomberg, Bridgewater Associates
Canadian Equity
Gil Lamothe, CFA
Head of Canadian Equities,
Senior Portfolio Manager
Watching
2025 was a memorable year in Canadian equity markets. Every sector posted gains and the overall market up 32% on a total return basis. Quite impressive given the fears of the ongoing impact of U.S. tariffs and relatively weak economic growth.
Rising gold prices and recent cuts to interest rates by the Bank of Canada have been significant contributors to the strong market of 2025. Canada’s stock market has outsized representation in gold mining companies relative to most other global equity markets, and has a heavy weight in financials – which were up over 35% on average – our stock market has been on a serious roll (see figure 1).
Figure 1: Materials (gold mining) bolster S&P TSX’s overall performance
Source: Bloomberg
Thinking
The obvious question seems to be, “Will the gold rally continue?” Much of this surge has been driven by a partial move away from the U.S. dollar by foreign central banks, exchanging their reserves of U.S. T-bills for gold bullion. No one can say for sure how much longer – and to what degree – this trend may continue. Trying to predict the outcome of a single commodity can be more about speculation than investing.
As investors, we put your capital to work by identifying companies that maximize opportunities through smart decisions and hard work, so you can participate in their growth over time. Though 2025 was a blockbuster year for overall returns, it’s worth noting that industrials – despite being one of the year’s poorest performing sectors – includes some of our top ideas for the long-term.
These Canadian companies are successful throughout North America and beyond. Even though they were largely overlooked in 2025, we believe they’re well positioned to adapt to the new trade reality, and will continue to grow and command attention in the market.
Doing
We adjusted the portfolio in the fourth quarter. Alimentation Couche-Tard pulled away from its second attempt at acquiring Seven & i Holdings, a global convenience store chain. We sold our position as this was likely their best opportunity for further significant growth.
We sold our position in Telus. While the company has been navigating changes in Canada’s telecom sector, it looks like this area will continue to face challenges and better growth opportunities can be found elsewhere. With some of the proceeds, we’ve added to Stantec and Descartes Systems.
Stantec’s stock fell by 13% in Q4 2025, despite reporting strong earnings results and a positive outlook for 2026. We continue to believe that Stantec will benefit from secular themes like reshoring and the need to upgrade aging infrastructure. Given this pullback, we saw it as a good opportunity to add to a high-quality name.
Descartes Systems’ (DSG) stock also finished the year down 26% due to global logistics volumes softening in 2025. Despite this, we remain confident in DSG’s prospects and believe the company can continue achieving their 10-15% growth target over the longterm.
Both Stantec and DSG are examples of portfolio companies that we feel have strong upside potential over the next six to twelve months.
Source: Bloomberg
U.S. Equity
Liliana Tzvetkova, CFA
Senior Portfolio Manager
Watching
2025 was a rollercoaster year for U.S. equities. From almost going into bear market territory earlier in the year to ultimately returning 17% (12% in CAD), the third consecutive annual gain and its seventh double-digit return in the past nine years. Despite persistent concerns around inflation, tariffs, and geopolitics, strong company fundamentals drove the U.S. market higher.
Corporate profits grew by about 12% led by the large technology companies, although companies outside the “Magnificent 7” also posted healthy earnings growth of 9%. Market gains were once again concentrated in technology, but areas such as large-cap banks and financials, construction, and precious metals miners also performed well. Healthcare lagged amid regulatory uncertainty, and energy was weak due to lower oil prices.
Looking ahead, we are monitoring the sustainability of AI-driven spending and its broader economic spillover effects, inflation trends, monetary and fiscal policy, and deregulation. All of these could present both risks and opportunities for our portfolio companies.
Thinking
Large technology companies have delivered strong profit growth in recent years, benefiting both the overall market and our U.S. portfolio. Since the public launch of OpenAI’s ChatGPT in late 2022, their profitability has increased substantially. And while higher earnings are positive, we are also focused on the quality and durability of earnings.
We favour businesses that generate high returns on capital – companies that earn profits without requiring heavy reinvestment simply to sustain operations. High returns on capital enable excess cash generation, which can be returned to shareholders, deployed into high-return growth projects, or used for strategic M&A.
To support recent earnings growth, many large tech companies have sharply increased capital spending, primarily on data centers powering AI applications that many of us are using today (see figure 1).
Thankfully, this investment is currently underpinned by strong customer demand. However, some major users of data center capacity such as OpenAI (private) remain loss-making and reliant on continued capital raising, which raises questions about the long-term sustainability of this customer demand. On the other hand, certain AI applications have demonstrated significant productivity gains, which could lead to some companies capturing a sizable share of future profit pools.
Against this backdrop, we are focused on balancing exposure – protecting the portfolio from potential AI-related slowdowns while selectively owning businesses positioned to benefit from these trends. Fabrinet, a long-time holding, is a good example. The company manufactures optical components used in data transmission equipment found in fiber optic cables in your home, to cellular towers on the street, to data centers outside the city.
Figure 1: AI Company Historical and Forecasted Spending
Fabrinet was historically viewed as tied primarily to telecom, but we long believed it should benefit from secular growth in AI, other automation trends, and customer outsourcing activity, which the market did not fully appreciate.
In 2025, strong demand from customers such as Nvidia and Amazon drove significant growth, making Fabrinet the U.S. portfolio’s top performer. Fabrinet will undoubtedly be affected if AI spending slows, but will be mitigated by the other parts of its business that provide stability and other growth avenues, which is what attracted us to the business in the first place.
While AI will not necessarily dominate markets every year, our broader objective remains unchanged: identifying investments which attract risk-adjusted returns, regardless of the trends of the day.
Doing
During the quarter, we sold Elevance Health and consolidated the proceeds into United Health as part of a tax loss harvesting strategy. Both of these health insurance companies have suffered this year due to regulatory uncertainty. Throughout the year, we have been trimming some of our best performing companies such as Google and NVDIA, and adding to what we deemed as more attractive opportunities such as Pool, Walt Disney, Copart and others.
We will continue recycling capital from areas where potential upside has compressed into names with superior expected returns. However, our process is unchanged: fundamentals-first, valuation-aware, and patient but willing to act when opportunities present themselves. In our view, this is the best way to manage risk while positioning for long-term success.
Sources: Bloomberg, FactSet, Bernstein, JP Morgan
International
Ric Palombi, CFA
Senior Portfolio Manager
Watching
Looking back at 2025, it’s surprising how market indexes plunged in April induced by tariff-related worries. By year end, however, the Stoxx600 (a broad based index of European stocks) bounced back, delivering a 21% return in local currency (about 31% in CAD) – its biggest annual gain since 2021 . Notable leading sectors included Banks and Miners.
Banks saw their largest annual gain since 1997, thanks to strong earnings and shareholder returns (see figure 1), while miners benefited from increased demand for precious metals and record copper prices, both fuelled by increased AI-driven electrification and ongoing geopolitical tensions.
In the east, MSCI AC Asia Index outperformed global peers by almost 5% last year, its best result since 2017. The International Portfolio performed well over the past year, beating its benchmark, with stock selection performance contributors were Antofagasta PLC, Heidelberg Materials AG, Telecom Italia SPA, Intesa Sanpaolo, and Samsung Electronics Co. On the flip side, the biggest detractors were Worldline SA, Prada SPA, Remy Cointreau, Bunzl Plc, and Renault SA.
Figure 1: European Banks’ Earnings Drive Rally
Thinking
Given the unpredictable market environment – especially ongoing geopolitical uncertainty – active stock picking and diversification remain key ways we manage risk and aim for solid returns. At the heart of our investment approach is a steady focus on intrinsic company value and uncovering opportunities where the market reveals inefficiencies. We believe sticking to this disciplined strategy will continue to pay off in today’s ever-changing environment.
Looking ahead, we expect earnings growth to return for European companies driven by a stable economy in the EU, with low inflation, steady interest rates, and consistent employment levels. New stimulus measures from Germany should help boost results. Based on Q3 2025 earnings calls, management teams of our portfolio companies expect the benefits of Germany’s fiscal push to start becoming visible in Q2 2026.
In Asia, Beijing’s push for technological self-sufficiency, along with relatively lower prices for its tech stocks, should benefit Chinese tech companies. Policy divergence will also be a key driver, with China focused on growth while Japan is more concerned with controlling inflation. If demand in China picks up, it could help lift sectors that lagged this year, such as European luxury brands.
We think the CWB McLean and Partner International Equity Pool continues to offer an attractive risk-reward balance with active exposure to these themes.
Doing
Samsung Electronics was our top performer last year, delivering the highest alpha to our portfolio as our investment thesis unfolded. The share price doubled – from KRW 53,000 at the start of the year to about KRW 120,000 by year end. And we believe there’s still room for growth.
Samsung’s share price declined in 2024 due to their lack of competitive High-Bandwidth Memory (HBM) product for AI servers, despite them being the world’s largest memory chip producer. We purchased the stock when trading at just 1x Price-to-Book and 10x Price-to-Earnings, confident that Samsung’s technical expertise and commitment would help them overcome these challenges. If they did indeed fix the problems, we saw a strong upside and limited downside risk.
Our investment thesis was multifold, giving us multiple paths for success:
- Samsung would eventually fix the technical challenges with their HBM memory
- The overall demand for memory would grow rapidly as AI models need large amounts of memory to operate
- Samsung’s fab operations – while lagging that of TSMC – would nevertheless still be useful in a world where chip production capacity is constrained
- A replacement cycle in laptops and smartphones would help to underpin continued earnings growth in the rest of their business
While the valuation is no-longer a bargain at 1.8x P/B and 10.6x P/E, we believe that strong long-term trends (like rising AI memory demand) combined with current production constraints should lead to continued gains in the company’s profits and share price over the coming year.
Source: Bloomberg
Fixed Income
Malcolm Jones, MBA, CFA
Senior Portfolio Manager
Watching
Inflation was a major theme in 2025. Over the year, we saw the inflation rate stabilize with Canadian inflation being at target, and U.S. inflation still somewhat above their target goal.
We’re watching the U.S. administration’s trade and foreign policy changes, as these could slow growth in Canada. To date, we have not seen a substantial impact on Canada’s economy, but we have seen efforts by the Canadian government (and other non-U.S. governments) work to diversify global trade routes away from the U.S.
Currently, the outlook for Canada is steady with moderate growth expected and the Bank of Canada likely to keep interest rates “on hold”. As a result, we don’t anticipate much movement on the yield curve over the course of 2026.
Thinking
Figure 1: Inflation Stabilizes Across U.S., CAD & Europe in 2025
Across the developed world, inflation has come down over 2025 to a more stable level (see figure 1). In Canada and Europe, this suggests there will be limited movement in central bank interest rates. In the U.S., inflation has settled above their 2% objective, and it’s still too soon to fully understand how recent tariffs will impact prices, and how much of the effect will be permanent versus transitory. There is room for the U.S. central bank to lower its rates, but we need to see the tariff effect clarified.
For many decades, the U.S. Treasury market has been viewed as a safe-haven investment due to its size, liquidity, minimal government intervention, respect for the rule of law, and backing by a government with a large military. However, recent actions and comments from the current U.S. administration have weakened some of these characteristics. As a result, U.S. Treasuries are now a bit less attractive as a safe asset, making alternatives like bonds from non-U.S. developed nations, cash, and precious metals look more appealing.
While we do not anticipate a wholesale abandonment of U.S. Treasuries, we expect some investors may re-allocate their money elsewhere. This could add volatility to the U.S. bond market and could offer slight upwards price adjustment to Canadian bonds.
Currently, spreads on Canadian credit bonds are near the low end of their historical range. This trend has been steady over the past year and we will likely continue for the next few months. We don’t anticipate a sharp economic contraction (which would cause spreads to widen) nor do we anticipate a significant economic surge (which would cause spreads to narrow). We see spreads at low levels, but without a significant catalyst to push them higher. So, while corporate bonds still offer some extra yield relative to government bonds, there will probably be limited opportunities for consequential capital gains.
Throughout 2025, the spreads between 10-year yield and 2-year yield bonds rose by about 40 basis points, to its current level of around 85 basis points. In simple terms, the yield curve has returned to its typical long-term shape. This means markets are pricing in normal inflation and economic growth over both the short and long term, indicating limited need for central bank intervention. As a result, investors can earn some extra yield by holding longer term bonds, but there will be limited opportunities for consequential capital gains.
Doing
Over the course of 2025, our Fixed Income strategy took on a bit more duration and had overweight exposure to credit to earn extra income – which proved to be an effective strategy for 2025. Looking ahead, we expect 2026 to have a similar outcome. While there may be volatility associated with news headlines, we anticipate that most of the year’s returns will be driven by collecting interest. The Fund will be positioned to capture higher interest rates, but major capital gains are unlikely.
Sources: Bloomberg
National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under licence by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA).