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Commentary

Q1 2026 Fund Commentary

Commentary and opinions are provided by Brown Advisory

Market Commentary

The first quarter of 2026 showed that short-term sentiment and company fundamentals don’t always correlate. U.S. large-capitalization growth equities declined during the quarter, marking the weakest quarter since mid-2022. While forward earnings estimates for the benchmark rose, valuations compressed as sentiment deteriorated. The primary drivers included geopolitical uncertainty and elevated oil prices caused by the conflict in the Middle East, as well as concerns about artificial intelligence’s (AI) long-term disintermediation risk for certain asset-light, information-based service industries, including software.

Traditional value sectors such as energy and materials, along with utilities and industrials, proved more resilient, while higher-growth areas such as information technology and communication services came under pressure.

The sell-off in asset-light, high-quality companies has been impactful on the Fund given its focus on businesses deeply embedded in their customers’ workflows with recurring revenue models, often built on proprietary data with limited capital requirements. The release of next-generation AI large language models optimized for reasoning and agentic workflows has the potential to automate certain cognitive tasks. Alternative asset manager stocks were similarly pressured because of their underlying exposure to software-related assets and private credit.

Performance

An underweight allocation to the consumer discretionary sector and an overweight allocation to the materials sector contributed to the Fund’s performance, along with stock selection in both sectors.

Monolithic Power Systems Inc. contributed to performance because of strong quarterly results and a favourable outlook. Taiwan Semiconductor Manufacturing Co. Ltd. contributed to performance after posting record results, driven by healthy AI-related demand, strong pricing and premium node performance. Marvell Technology Inc. contributed to performance following a strong outlook and solid earnings. At quarter-end, NVIDIA Corp. announced a USD$2-billion investment in Marvell Technology, along with a strategic partnership focused on AI infrastructure.

Stock selection in the industrials, health care and financials sectors detracted from performance.

Microsoft Corp. detracted from performance despite delivering robust earnings results. As a bellwether of software companies, the company’s stock fell alongside other holdings because of investor concerns about AI disintermediation. The company is also expected to substantially increase its capital spending on AI and data centre buildout, limiting near-term free cash flow growth.

Intuit Inc. detracted from performance as the company’s shares sold off on concerns about AI’s potential disruption to the company’s competitive position. In the sub-advisor’s view, the company’s trusted brand and proven track record of integrating new technology may enable it to emerge as an AI beneficiary.

KKR & Co. Inc. detracted from performance alongside the alternative asset management sector on investor concerns about exposure to software companies in private equity and credit portfolios. In the sub-advisor’s view, these concerns may be overstated, as fee-related earnings remain strong.

Portfolio Activity

The sub-advisor added to the Fund a holding in Palo Alto Networks Inc., a leader in cybersecurity. In the sub-advisor’s view, the company is positioned to grow its market share as organizations move toward using one integrated platform for cybersecurity. Despite attractive fundamentals, including strong organic revenue growth and a subscription-based revenue model, the company’s valuation compressed during the quarter, creating a buy opportunity.

Cintas Corp. was added, one of the largest North American providers of uniforms, facility services and safety products through a subscription-like revenue model. Cintas announced the acquisition of UniFirst Corp. during the quarter, which, in the sub-advisor’s view, could create shareholder value through cost and revenue synergies.

The sub-advisor sold the Fund’s holdings in Dynatrace Inc. and Verisk Analytics Inc. as the sub-advisor has greater conviction in existing holdings.

Outlook

The sub-advisor is optimistic and energized about the overall portfolio and our holdings despite the market’s wobble during the first quarter. The holdings continue to deliver strong corprate financial results. the subadvisor's process continues to improve with heightened investment debate. The subadvisor is excited about the addition of two new purchases in the quarter, Cintas and Palo Alto. Importantly, the portfolio unusually trades at a discount to the market today, while the median expected EPS growth rate of holdings over the next couple of years is significantly above that of the market. With a multi-year investment time horizon, they are excited by the prospect of their portfolio holdings.

Disclaimer

The commentaries on the company specific information and purchases and sales were provided by the fund manager. Canada Life Investment Management Ltd. will not be liable for any loss, or damages whatsoever, whether directly or indirectly incurred, arising out of the use or misuse of errors or omissions in any information contained in this commentary. The data provided in this commentary is for information purposes only and, except where otherwise indicated, is current as of March 31, 2026.

The views expressed in this commentary are those of fund manager as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their Advisor for advice based on their specific circumstances.

The content of this commentary (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

This document may contain forward-looking information which reflect our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of March 31, 2026. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

There can be no assurance that the Fund’s return or volatility targets will be met, or met over any particular time horizon. Targeted returns and volatility should be evaluated over the time period indicated and not over shorter periods. Targeted returns are not actual performance and should not be relied upon as an indication of actual or future performance.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

Counsel Portfolios are managed by Canada Life Investment Management Ltd. Counsel Portfolios are distributed by Quadrus Investment Services Ltd., IPC Investment Corporation, and IPC Securities Corporation, and may also be available through other authorized dealers in Canada.