Constructive Outlook for North American Markets
By Bruce Murray, CFA
As we move beyond Canada Day and the 250th anniversary of the American Declaration of Independence, we remain optimistic about the investment outlook for both Canadian and U.S. markets.
While we were disappointed by the U.S. decision not to renew CUSMA, we are far from discouraged. The announcement weighed on Canadian industrial companies with significant export exposure to the United States. However, the agreement includes a 10-year wind-down period, providing ample time for policy to evolve. During that period, the current administration may reverse course, or a future administration may pursue a renewed North American trade agreement similar to NAFTA. We are also encouraged by Canada’s renewed commitment to expanding coastal pipeline infrastructure, which will help diversify our trade relationships and strengthen the country’s long-term economic resilience in a post-NAFTA environment.
At the halfway point of the year, investment in artificial intelligence continues to be one of the primary forces driving global equity markets. As AI infrastructure scales, we are also beginning to see inflationary pressures emerge throughout the supply chain. A growing portion of the hyperscalers’ capital expenditure budgets is now being absorbed by rising costs, driven by shortages of critical components ranging from memory chips and advanced cooling systems to electrical generation capacity required to power these increasingly sophisticated facilities.
The scale of this infrastructure investment is difficult to overstate. A single modern AI data centre can span between 1.5 and 2 million square feet, the equivalent of approximately 35 to 40 football fields under one roof. Individual AI server racks can weigh as much as 10,000 pounds. When hundreds of these racks are deployed within a single facility, the resulting floor loads reach millions of pounds, far exceeding the structural demands typically found in conventional downtown office towers.
Canada has now entered this race in a meaningful way. Meta Platforms has announced plans to develop a 1 GW AI data centre, with Pembina Pipeline leading construction of the associated power generation infrastructure. The project has been designed with the ability to nearly double its initial baseload capacity to approximately 2 gigawatts over time. We hope this represents the first of many similar investments, particularly across Alberta and the Prairie provinces, which are exceptionally well positioned to benefit from North America’s accelerating AI infrastructure buildout.
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Market Outlook
Equity markets paused their advance through June, with the major U.S. indices pulling back modestly from recent highs. The S&P 500 declined approximately 1.1% during the month, despite analysts continuing to raise corporate earnings expectations and many companies issuing constructive guidance ahead of second-quarter reporting season.
Canadian equities proved more resilient. The S&P/TSX Composite Index advanced approximately 0.3% during the month, outperforming its U.S. counterpart as strength in financial services and metals and mining helped support the broader market.
Commodity markets also experienced notable shifts. Crude oil prices moved lower, with West Texas Intermediate (WTI) falling toward the US$70 per barrel level. The decline reflected easing geopolitical concerns following the U.S.-Iran ceasefire agreement and expectations that the Strait of Hormuz would remain open, significantly reducing the supply-risk premium that had developed earlier in the year.
MWG GLOBAL EQUITY GROWTH FUND
The MWG Global Equity Growth Fund Series O returned -1.3% in June, compared with a benchmark return of 1.8% for the month. Year-to-date, the Fund has returned 3.5%, while the benchmark has advanced 13.0%. Performance during the month was supported by Vital Farms (+20%), 3i Group (+13%) and UnitedHealth Group (+13%). The largest detractors were Accenture (-31%), Alamos Gold (-24%) and ServiceNow (-18%).
Portfolio Manager’s Summary
At the halfway point of the year, the Fund has taken a breather after compounding at approximately 27% annually over the previous three years. Our strongest performers have included Hammond Power (+118%), Moderna (+75%), which has since been sold, and Aritzia (+33%), where we trimmed our position by approximately one-third during June.
The recent underperformance can largely be attributed to three areas, all of which are, somewhat ironically, tied to artificial intelligence. While we remain highly constructive on the long-term opportunity AI presents, our portfolio was not positioned in the areas that delivered the strongest returns over this particular period.
First, semiconductor and energy-related companies were among the market’s strongest performers during the first half of the year, but not the specific holdings we owned. While NVIDIA and Broadcom remain two of the world’s premier chip manufacturers and have generated exceptional long-term returns, much of the year-to-date leadership shifted toward companies such as Micron, AMD and Intel as investors broadened their exposure across the sector.
Secondly, information technology and professional services companies experienced renewed pressure. Holdings including Accenture, Aon, Amadeus and ServiceNow underperformed amid concerns that artificial intelligence could disrupt portions of their business models. We take the opposite view. We believe AI will strengthen these businesses by enabling more efficient, higher-value services for their clients. Until that thesis is fully reflected in company results, however, we expect these shares may remain range-bound. It is also worth noting that earnings expectations for these businesses have remained remarkably resilient over the past year. Much of the recent weakness has been driven by lower valuation multiples rather than deteriorating fundamentals.
Third, the hyperscalers that form the cornerstone of our portfolio have faced growing investor concerns that nearly US$1 trillion of cumulative capital investment in AI infrastructure may ultimately fail to generate acceptable returns. We disagree with that assessment. We believe these investments will produce attractive long-term returns while simultaneously strengthening the competitive advantages of the companies making them through greater ownership and control of the underlying infrastructure.
As one example, Microsoft’s earnings estimate for its upcoming fiscal year is approximately 10% higher today than it was one year ago, despite the shares having materially underperformed during that same period. In our view, valuation multiples will fluctuate over time, but earnings growth ultimately drives shareholder returns.
Based on our estimates, the companies held within the portfolio are expected to grow earnings per share by approximately 19% over the next 12 months, compared with an estimated 17% increase for the benchmark. Importantly, we believe the portfolio continues to trade at a lower overall valuation than the broader market, providing an attractive combination of growth and value.
MWG INCOME GROWTH FUND
The MWG Income Growth Fund Series O returned 2.6% in June, outperforming its benchmark return of 0.8% for the month. The Fund also continues to lead on a year-to-date basis, returning 21.7% compared with 11.8% for the benchmark. Performance during June was led by Evertz Technologies (+16%), Kenvue (+14%) and Propel Holdings (+14%). The primary detractors were Telus (-11%), Canadian Natural Resources (-10%) and BP (-9%).
Portfolio Manager’s Summary
After leading the market since March, energy holdings gave back some of their recent gains as oil prices declined following the ceasefire agreement between Iran and the United States. Increased oil flows through the Strait of Hormuz eased supply concerns and reduced the geopolitical risk premium that had supported crude prices earlier in the quarter.
That weakness was largely offset by strong performance from the portfolio’s more interest rate-sensitive holdings. REITs and financial companies performed well during the month, providing an important source of stability and demonstrating the benefits of maintaining a diversified income portfolio.
Energy and power-related companies remained important contributors throughout the first half of the year, but the portfolio’s success has been driven by much broader participation. Twenty-nine of our 31 holdings have generated positive returns year-to-date, highlighting the strength and diversification of the portfolio. Our strongest performers through the first six months of the year have been PHX Energy, Opera and Propel Holdings, each of which has delivered returns in excess of 40%.
We continue to feel validated in our investment in Kenvue, the maker of Tylenol, which we purchased during the fall of 2025 after the shares came under pressure following what we viewed as unfounded allegations directed toward the brand. The stock has since recovered much of that decline, and we look forward to the completion of its proposed merger with Kimberly-Clark.
