Q1 2026 Fund Commentary

Commentary and opinions are provided by Fidelity Investments Canada ULC.

Market commentary

The Canadian equity market entered 2026 on a strong note, supported by gold-related companies and energy company stocks. That strength paused at the end of February as heightened volatility driven by geopolitical tensions led to bond yields rising amid firmer inflation expectations. At quarter-end, defensive and commodity-linked exposures led, with the energy sector outperforming amid higher oil prices while interest-rate-sensitive and growth sectors lagged.

Real gross domestic product declined in the fourth quarter of 2025 as businesses drew down inventories after building them up in the prior quarter. Stronger exports, household spending and government investment helped soften the decline. Canada’s annual inflation slowed to 1.8% in February, largely reflecting base effects from last year’s tax holiday, though the impact of the Middle East conflict hadn’t yet shown up in the data. The unemployment rate rose to 6.7% in February as sharp declines in full-time employment extended the recent weakening trend.

The Bank of Canada (BoC) held its benchmark overnight interest rate at 2.25%, in line with earlier guidance. Heightened uncertainty from trade policy and geopolitical risks pushed energy prices higher, creating upside risks to inflation. The BoC signalled it would look through near-term energy-driven inflation but stands ready to act if price pressures become persistent. Five of the 11 sectors in the market posted positive returns during the quarter, led by energy and utilities, while information technology and health care lagged.

Performance

5N Plus Inc. contributed to the Fund’s performance because of strong demand in specialty semiconductor and space/renewable end markets, combined with a favourable product mix and pricing strength. The company also benefited from margin expansion and high backlog visibility carried over from 2025, which supported earnings. Franco-Nevada Corp. contributed to performance, driven by strong gold and silver prices, which flowed directly through the company’s high-margin royalty and streaming model. Agnico Eagle Mines Ltd. contributed to performance as strong gold prices flowed through to company earnings, amplified by the company’s low-cost asset base and steady production.

Stock selection in the materials sector also contributed to performance.

An underweight position in Enbridge Inc. detracted from the Fund’s performance as investors rotated into defensive, high-yield infrastructure companies amid macroeconomic uncertainty. Onex Corp. detracted from performance as investors reassessed near-term earnings visibility across the company’s diversified investment platform. Boyd Group Services Inc. detracted from performance because of margin pressure and weaker earnings quality, driven by integration-related costs and limited organic growth.

Stock selection in the health care sector also detracted from performance.

Portfolio activity

The sub-advisor did not make any changes to the Portfolio during the quarter.

Outlook

In the sub-advisor’s view, Canadian equities entered 2026 in an environment shaped by evolving expectations for growth, monetary policy and geopolitical developments. Investor sentiment remained sensitive to incremental changes in economic data and policy guidance, with asset prices increasingly influenced by positioning and capital flows rather than short-term changes in fundamentals.

Market dynamics reflected elevated volatility and dispersion, with pronounced price reactions to corporate earnings results, analyst actions and policy developments. In Canada, leadership continued to extend beyond the largest constituents, with interest spanning select cyclical, industrial and mid-capitalization companies. The sub-advisor remains focused on valuation discipline, balance sheet strength and businesses with resilient economics across a range of market conditions.