Portfolio Update

October 2026

Global equity markets were resilient through the third quarter of 2026, supported by strong corporate earnings and a steady economic backdrop. Persistent geopolitical tensions, higher energy prices and renewed trade uncertainty continued to influence investor sentiment. Global bond markets faced a more challenging environment, as elevated inflation pressures, rising policy rates, and increased government borrowing pushed yields higher. As of September 30th, the S&P 500 returned 16.8%, the S&P/TSX 13.0%, the MSCI ACWI 17.1%, the MSCI EAFE 14.3%, and the MSCI Emerging Markets 27.8%, year-to-date in Canadian dollars.

Looking ahead, we expect the global economy to continue to expand, although growth rates will vary across regions. As highlighted in our latest Q4 Economic and Capital Markets Outlook, our base case forecast calls for global real GDP to advance by 3.3% in 2027, compared with 3.0% in 2026. Solid consumer spending and business investment should continue to support activity in the United States, while tighter monetary policy and challenging domestic conditions are expected to weigh on the Eurozone. In this environment, we continue to emphasize price discipline, careful stock selection, and diversification across our equity and fixed income portfolios.

Trade between Canada and the United States has remained a prominent topic, as recent tariff announcements and the uncertainty surrounding the future of the Canada-United States-Mexico Agreement (CUSMA) have prompted discussion about the future of the relationship and the opportunities available to Canada in other markets. In this letter, we offer some context on how the relationship has developed, the opportunities that exist elsewhere, and the factors that we believe support Canada’s economic position over the longer term.

The Foundations of Canada – U.S. Trade

The volume of trade between Canada and the U.S. reflects many decades of economic integration, supported by geography, shared infrastructure, interconnected supply chains and substantial cross-border investment. These arrangements developed because they benefit businesses and consumers on both sides of the border. Energy is a useful illustration of this. The U.S. records a goods deficit with Canada that is largely attributable to energy, since American refiners import Canadian crude oil, process it into higher-value products and sell those products in domestic and international markets, earning a margin on that activity. When the relationship is viewed on this basis, the benefits are shared more evenly between the two countries than the headline trade balance alone might suggest.

Expanding Trade Beyond North America

There is room for Canada to develop trade with Europe and Asia, and both regions have expressed interest in strengthening their relationships with Canada. At the same time, the infrastructure and commercial relationships needed to serve more distant markets at scale, including pipelines, ports, rail corridors, and distribution networks, typically take many years to develop, while Canada’s existing links to the U.S. are well established. As we noted last month, roughly 80% of Canadian exports continue to enter the U.S. tariff-free under CUSMA, while the most recent tariff measures apply to about 5%. These factors suggest that trade diversification is likely to be a gradual process, with trade outside North America developing alongside Canada’s established relationship with the U.S.

Canada’s Capacity to Support Its Own Growth

Canada also has several factors that may support this diversification. First, Canadian governments have fiscal capacity that could be directed toward infrastructure investments, including energy transportation, port capacity, and trade corridors. The extent and timing of these investments will depend on future policy decisions and economic conditions.

Second, over the past decade, a significant amount of Canadian savings, including savings managed by pension funds, has been invested outside the country, reflecting a broader move toward global diversification. If the allocation to Canadian assets were to increase in the years ahead, it could provide additional capital for Canadian companies and projects, although the scale and timing of any such shift remain uncertain.

Concluding Thoughts

Trade with the U.S. remains an important part of the Canadian economy, while relationships with Europe and Asia provide potential opportunities for further diversification. The relative importance of these markets will depend on future trade policy, infrastructure investment and commercial developments. For investors, it will take time for the direction and impact of any changes to become clear. Our approach remains focused on owning high-quality businesses with durable earnings at sensible prices, regardless of where they operate, and on maintaining a long-term perspective as these developments unfold.

The information and opinions expressed herein are provided for informational purposes only, are subject to change and are not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Any companies mentioned herein are for illustrative purposes only and are not considered to be a recommendation to buy or sell. It should not be assumed that an investment in these companies was or would be profitable. Unless otherwise indicated, information included herein is presented as of the dates indicated. While the information presented herein is believed to be accurate at the time it is prepared, Letko, Brosseau & Associates Inc. cannot give any assurance that it is accurate, complete and current at all times. No part of this information may be reproduced or distributed without the prior written permission of Letko, Brosseau & Associates Inc.
Where the information contained in this presentation has been obtained or derived from third-party sources, the information is from sources believed to be reliable, but the firm has not independently verified such information. No representation or warranty is provided in relation to the accuracy, correctness, completeness or reliability of such information. Any opinions or estimates contained herein constitute our judgment as of this date and are subject to change without notice.
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