February 2026 

I hope you are all doing well. 2026 has certainly had an eventful start. Who would have thought that the markets would remain relatively calm despite the US invading and capturing a sitting leader of a country and, days later, threatening to annex land of a NATO nation? Indeed, we live in interesting times. This situation raises an important question: if investment decisions over the last forty years were based on the premise of globalization, low inflation, the power of democracy, and the US dollar being the world's reserve currency, and this may no longer be the case, shouldn't we also consider investing differently than we have?

Allow me to share some thoughts on how we are approaching various asset classes in this changing landscape:

Bonds: Over the past forty years, bonds, especially long-duration bonds, have been exceptional investments. As inflation and interest rates declined, bonds not only provided high coupons but also increased in value, offering a good ballast in equity portfolios. However, owning long-term bonds today is much riskier. While inflation is lower than a few years ago, it remains sticky around 3%. Most government bonds do not offer rates much higher than that, and if inflation accelerates, these bonds will become less attractive and may decrease in value. They may not provide the same ballast as they did in the past. Consequently, bond investments may require more active management concerning duration and credit.

US Stocks: US stocks have been incredible investments over the last fifteen years, driven primarily by the global dominance of major US technology companies. In 2011, the US stock market's price-to-earnings (P/E) multiple was 15x earnings; today, it is 23x earnings. This increase reflects not only the growth in earnings, but also higher demand for these securities, driven by both domestic and foreign investors. For instance, in 2011 the Canada Pension Plan had 22% of its investments in the US  and in 2025 it had 47%. Historically, when the US stock market traded at 23x earnings, the subsequent 10-year annual return ranged from positive 2.2% to negative 5.1% per year. Compounding the issue, many global investors are reducing their US allocations due to current US administration policies. As a result, our allocation to US stocks will decrease in favor of international markets.

Gold: For long-term investors, gold has proven to be a valuable investment. Gold bought in 1970 at $34/oz is worth $5,000/oz today. However, the journey hasn't been a straight line. Investors who bought gold in 1980 at $700/oz didn't see that price again until 2008, and those who bought gold in 2012 at just under $2,000/oz had to wait a decade for it to reach that level again. The difference this time is the significant buying of gold by central banks after Russia's attack on Ukraine. In response, the US restricted Russia's access to the SWIFT banking system, which didn't go unnoticed by other central banks holding large US dollar reserves. As a result, central banks have been steadily replacing US dollars with gold, currently holding 23% of their reserves in it. Unless the US changes its narrative and becomes less combative, central banks are unlikely to sell their gold holdings and may even increase them. Of note, pre-1970, central banks had more than 70% of their reserves in gold. While gold prices could retreat to $4,000 or $3,500 in the short term, the probable outcome is that prices will be higher over the next decade.

Commodities: Many investors have shied away from commodities over the past decade, and for good reason. Take copper, for example, from 2008 to early 2021 the price remained virtually unchanged with significant year-over-year volatility. Despite copper's importance in electrification, many projects couldn't proceed due to environmental concerns or lack of confidence in prices that would justify building a mine that could take years. We now face a looming copper shortage as demand increases, similar to other commodities. Coupled with a more fragmented world where countries hoard assets, it is more likely that commodity prices will stay elevated. This asset class not only provides diversification but also has the potential to be a good investment. We have increased our allocation to commodities.

When constructing portfolios, we must look forward rather than in the rear-view mirror. The geopolitical environment has changed significantly, and it doesn’t appear to be a short-term aberration. We aim to diversify our portfolios to reflect the challenges and opportunities that lie ahead. The investment phrase "past performance is not an indication of future performance" has never rung so true.

On a personal note, my daughter Maya is studying abroad this term in Dublin, Ireland. A few weeks ago, I was in Toronto for a conference, and since flights to Dublin connect through Toronto, I suggested visiting her. Her response was, "That would be great, Dad, but I'm going to Hamburg or London, any chance you can come in a few weeks?" Fortunately, she's free this week, so I'm heading out to see her. In my next life, I want to come back as my kids.

Regards,

AD