Equity markets in North America provided strong returns during the first half of 2026. The market’s narrow focus on large capitalization technology companies and their investment in AI (artificial intelligence) is abating. Instead, there has been a partial rotation out of the technology sector into more attractively priced sectors of the market.
The growth and impact of the capital investments being directed to AI continues to gather attention. The level of spending on data centre capacity and the further development of AI is enormous, rushed and fiercely competitive. To fund these investments, the large technology companies (hyperscalers) have utilized most of their discretionary free cash flow. In many cases, they have gone beyond this by borrowing, issuing equity, and undertaking “vendor financing” with their suppliers. It is also notable that when a sector is hot and attracting too much capital, accounting standards can easily slip.
We do believe in the advent of AI and anticipate that it will be both disruptive and impactful on the global economy. However, it remains early days, with no clear indication of who the industry leaders will be. So far, there has been no measurable return generated by this fevered pace of investment. Furthermore, the valuations of the public companies driving this technology are “stretched”. Over the past two years, the concept of risk in this sector has generally become too relaxed.
We view the recent reallocation of equity capital positively and are buoyed by the prospects for the companies in our portfolios. These companies continue to have strong fundamentals and, more importantly, are trading at reasonable valuations. For example, the energy sector has performed well due to the prolonged conflict in the Persian Gulf. The financial sector is enjoying a very strong period of growth and profitability. Growth oriented utilities are attracting investment, while consumer and healthcare companies enjoy long-term opportunities tied to health and wellness and an aging population.
We believe that if this sector rotation continues, it will work well with our long-held strategy to maintain diversified portfolios that feature soundly managed companies across multiple sectors. We will continue to seek steady returns coupled with minimized volatility.
Second Quarter 2026
Equity markets in North America provided strong returns during the first half of 2026. The market’s narrow focus on large capitalization technology companies and their investment in AI (artificial intelligence) is abating. Instead, there has been a partial rotation out of the technology sector into more attractively priced sectors of the market.
The growth and impact of the capital investments being directed to AI continues to gather attention. The level of spending on data centre capacity and the further development of AI is enormous, rushed and fiercely competitive. To fund these investments, the large technology companies (hyperscalers) have utilized most of their discretionary free cash flow. In many cases, they have gone beyond this by borrowing, issuing equity, and undertaking “vendor financing” with their suppliers. It is also notable that when a sector is hot and attracting too much capital, accounting standards can easily slip.
We do believe in the advent of AI and anticipate that it will be both disruptive and impactful on the global economy. However, it remains early days, with no clear indication of who the industry leaders will be. So far, there has been no measurable return generated by this fevered pace of investment. Furthermore, the valuations of the public companies driving this technology are “stretched”. Over the past two years, the concept of risk in this sector has generally become too relaxed.
We view the recent reallocation of equity capital positively and are buoyed by the prospects for the companies in our portfolios. These companies continue to have strong fundamentals and, more importantly, are trading at reasonable valuations. For example, the energy sector has performed well due to the prolonged conflict in the Persian Gulf. The financial sector is enjoying a very strong period of growth and profitability. Growth oriented utilities are attracting investment, while consumer and healthcare companies enjoy long-term opportunities tied to health and wellness and an aging population.
We believe that if this sector rotation continues, it will work well with our long-held strategy to maintain diversified portfolios that feature soundly managed companies across multiple sectors. We will continue to seek steady returns coupled with minimized volatility.