liza, Author at CC&L Financial Group Ltd.

Retail brokers have benefited immensely from the impact of retail investors on financial markets since the onset of COVID. Robinhood is now a familiar name to most Americans, but virtually all the brokerages globally have benefited from the rising tide of retail investors’ enthusiasm for investing and trading. In this note, we examine some of the mega-trends that have helped European brokerages outperform the market since COVID emerged in 2020.

1. Retail participation and retail financial product availability.

Since the 2008 recession, retail investors have gained access to a multitude of new products like index ETFs, crypto, fractional shares, robo-advisors, IPOs and even private markets. This led to an explosive growth in retail investment, especially since 2020 and the dawn of COVID. Digital and mobile platforms, along with significantly reduced commission costs, have made it easier than ever for a younger demographic to access the markets. The vast majority of onboarded customers over the last decade have not lived through the trauma of the 2008 recession and see any market pullback as an opportunity to double down on their favourite stocks.

2. Increase in cross-border trading.

It is well documented that investors, including retail, have historically had a strong home bias in their asset allocations. But the US stock market outperformance since 2009, along with the disproportionate share of tech mega-cap attention, has led to consistent inflows into the US market. It has also created a larger level of familiarity with US companies that are more covered/discussed by pundits. All this has led to a higher level of cross-border trading in non-US brokerages that is typically much more lucrative as they usually pocket a large spread on foreign exchange transactions.

3. Digitalization and banks losing market share.

Over the last decade, brokerages have been able to consistently gain market share from large banks, thanks to a less-bloated corporate structure and a tech stack that could be built from scratch and not built on legacy bank structures. This has allowed them to be in a position to compete more aggressively on fees, transaction costs and overall value proposition as retail brokerage fees remain a minuscule proportion of mega-banks’ revenue and don’t garner a lot of attention from a strategic perspective.

4. Increase in share of income from NII.

Although net interest income (NII) has been declining for European brokers since the end of 2023, decreasing with the ECB rates, it remains at a more attractive level than pre-COVID and is expected to remain as such for the foreseeable future. Additionally, most brokers have been able to increase NII since 2023 thanks to client gains and account cash balance more than compensating for the lower rates.

Brokers have also been more efficient at increasing the spread between the amount they pay on deposit and the amount they get paid (known as net interest margin or NIM). Having managed deposit pass-through well on the way up and down, brokers are now better structurally positioned to benefit from deposit growth.

5. Benefit from macro volatility.

A key feature of brokerages’ stocks in a portfolio is their positive skew to market volatility. Because they make money from the number of trades, they are agnostic to market direction, as long as it causes participants to trade more. Just over the last year or so, events such as the US election, Liberation Day, the French budget and now the Venezuela situation have all been positive tailwinds mentioned by various brokerage CEOs.

It’s worth noting, however, that brokerages are not immune to long periods or volatility or market drawdown, all of which would lead customers to reduce their equity exposure.

We gained exposure to the retail brokerage space in one of our strategies through Nordnet (SAVE SS), a Swedish brokerage firm with a banking licence. It has exposure primarily to the Nordics with a top-two position in all markets and is slowly working on building a presence in Germany. It derives a bit more than half its revenue from commission and the rest from interest income.

Sweden is one of the countries with the highest savings rate globally, and financial literacy is also higher than the Europe average. Finland, Norway and Denmark also rank highly but are less penetrated and less competitive than Sweden. All have been a strong source of growth for Nordnet, which has consistently been among the top names in the space for customer satisfaction.

Given its diversified product offerings that include a full suite of investments, savings, pension and banking products, as well as its best-in-class technology platform (releases an update every 2.5 days on average and with a 99.9% platform uptime), Nordnet is able to maintain a customer acquisition cost of SEK790 – which is below the vast majority of peers – and its small social media platform has been able to generate a strong media presence and customer engagement.

Here is where Nordnet stands on the brokers mega-trends:

Financialization: Sweden is one of the countries in Europe with high financial literacy. Other Nordic countries rank above average as well.
Cross-border trading: Between 2022 and 2025, share of cross-border trading increased from 27% to 31.5% and is one of the primary contributors to the increase in income per transaction increasing from SEK31 to SEK39 over that same period.
Digitalization and market share gains: Both Nordnet and its close competitor, Avanza, have gained tremendous market share over the last decade and now rank second and first respectively by trading activity. This is despite still being behind Sweden’s largest four banks on savings capital. They both rank top of their class on user experience surveys.
Net interest income: NII was as low as 20% of overall revenue in 2021 and is now steadying at 42% of total revenue after peaking at 58% in 2023. We expect the share of NII to remain structurally higher than pre-COVID.
Macro volatility: Nordnet benefited from large macro events such as the US election and Liberation Day. In Q2 2025, following Liberation Day, Nordnet reported a 22% year-over-year (YoY) increase in trading volume. As for the US election in 2024, it saw a 14% YoY increase in trading volume.

Despite the volatility of their operational performance, brokerage firms provide a unique type of exposure to a diversified portfolio, one that is very different to how you would think of typical insurance and bank financials. There are reasons to believe brokers will continue to outperform the overall market and will continue to look for opportunities to participate.

Crestpoint Real Estate Investments Ltd. (“Crestpoint”) announced today that it has acquired a portfolio consisting of 22 retail properties and two office assets.

The portfolio comprises ~1 million square feet across 22 well located retail properties, including 15 single-tenant sites and seven grocery/pharmacy anchored centres. With assets spanning Manitoba, Quebec, and – most significantly – Ontario, the portfolio provides broad geographic diversification and exposure to some of Canada’s most resilient retail markets. The portfolio is 100% leased and anchored by essential service retailers in grocery, pharmacy and home improvement, with nationally recognized tenants such as Shoppers Drug Mart, Sobeys, Walmart, Metro and RONA.

The portfolio includes two office assets, the first being a Class A building, 145 Wellington St. W., in Toronto’s financial core, located in close proximity to the subway. The building is tenanted by a diversified mix of federal government, non-profit, engineering and insurance occupiers, among others, providing exposure to both public-sector and high-quality private-sector tenants. Current rental rates remain below market levels, providing meaningful upside potential and supporting strong income growth over time. The second office asset is located in Markham, Ontario and is a fully occupied 75,000 square foot, single-tenant office building on a 3.5 acre site, conveniently located near Warden Avenue, Highway 407 and nearby commercial amenities.

Crestpoint is acquiring a 100% interest in this portfolio on behalf of the Crestpoint Opportunistic Real Estate Strategy (its closed-end fund).

This represents the fourth acquisition for the Crestpoint Opportunistic Real Estate Strategy, which closed on December 19, 2025, and already has over 70% of its committed equity deployed.

2026 portfolio strategy and positioning
Secular themes shaping the outlook
Cyclical outlook over the year
Conclusion

This year’s Forecast begins with a synopsis of 2025 before delving into the secular themes shaping our outlook, and then examines the shorter-term cyclical factors affecting the economy, inflation and monetary policy. We assess market valuations and, considering these elements, establish our portfolio strategy.

**Throughout the next year, updates to our forecasts will be highlighted in our quarterly newsletter Outlook.**

Introduction

2025 was a year of shocks followed by resilience. Despite extreme policy uncertainty, equity markets delivered a third consecutive year of strong gains as investors looked through geopolitics and focused on earnings durability and AI-driven investment. Canadian equities outperformed, benefiting from relative policy stability, resilient growth and a surge in gold prices amid geopolitical and institutional uncertainty.

Entering 2026, markets face fewer immediate stresses than in prior years, but outcomes remain highly sensitive to policy, inflation and confidence. In the coming pages, we present our portfolio strategy and positioning, and discuss the long-term and cyclical shorter-term influences on markets.

Chart 1: Strong equity market gains in 2025 led by Canada
Total returns in local currency rebased at 01/01/2025 = 100

Source: TMX, S&P Global, MSCI, Macrobond

Chart 2: Gold surged in 2025

Source: CME group, Macrobond

2026 portfolio strategy and positioning

Equity markets begin 2026 with a favourable backdrop. Supportive monetary and fiscal policy as well as solid nominal growth underpin a positive environment for equities. Company earnings remain resilient, supported by healthy nominal growth and easing cost pressures. AI-driven investment continues to shape capital allocation across technology, industrials, energy infrastructure and utilities, while related productivity expectations remain a meaningful contributor to valuations. At the same time, high valuations in the United States temper upside potential, but represent better value in Canada and other non-US markets.

Bond markets reflect a balance between the moderating labour markets and longer-term inflation and fiscal concerns. Long-end yields remain bounded in a “higher-for-longer” range by persistent fiscal expansion, reconfiguration of global power structures and sustained investment needs. Policy easing is expected to continue early in the year, amid ongoing concerns around the central banks’ credibility in the face of stubborn underlying inflation.

Chart 3: Earnings growth to remain solid
Trailing earnings growth

Source: I/B/E/S, Bloomberg, Macrobond

Asset allocation

The macroeconomic environment favours a balanced approach that recognizes both the progress made on disinflation and the persistence of structural forces keeping long-term rates elevated. While policy easing supports risk assets, we hold a neutral allocation across equities and a modest underweight in fixed income. We prefer Canadian and emerging market equities relative to global equities.

Fundamental equity positioning

Our fundamental equity portfolios have added high-quality cyclical companies that will benefit from broadening economic growth, such as financials and autos. We increased infrastructure exposure to benefit from AI-related capex as well as deglobalization and protectionist policies. We also added to mid-cap gold producers given spot prices will support strong free cash flow generation over the year. We have reduced lower-growth and interest rate-sensitive companies given expectations of interest rate volatility.

Chart 4: Limited scope for further expansion

Source: I/B/E/S, Bloomberg, Macrobond

Fixed income positioning

In fixed income portfolios, we are managing duration exposure tactically within the recent range in bond yields, as interest rates fluctuate alongside downside economic surprises and upside pressures on long-end yields. Long-term rates are expected to see upside pressure, a global trend. We maintain a yield curve steepening bias. Meanwhile, short-term rates in Canada, currently pricing in central bank rate hikes, should see limited upside from here.

The backdrop of easing inflation and stable demand supports credit fundamentals, and the strong profits, income and policy backdrop are likely to persist. However, the tightest spreads in over a decade, combined with asymmetric risk-reward dynamics, lead to a neutral overall exposure. Within credit, we prefer corporate bonds over provincials.

Secular themes shaping the outlook

Inflation: A higher, more volatile floor

Disinflation over the past two years reflects the unwinding of acute shocks, not a return to pre-2020 levels. Global trade networks are adapting to shorten supply chains, prioritize resilience and elevate geopolitical considerations over cost efficiency. Aging populations and reduced immigration imply a shrinking of working-age populations and tighter labour markets. Large-scale infrastructure renewal, defence modernization and expansion, coupled with energy transition investment, all reinforce upward pressure on costs. Persistent momentum in nominal GDP will anchor growth rates higher for wages, rents, earnings and government outlays. In this environment, maintaining confidence in central bank independence remains critical, as any erosion of the US Federal Reserve’s (the Fed) credibility would raise the long-term risk that inflation expectations become less firmly anchored. Inflation is likely to trend lower, but with a higher floor, greater volatility and an increased risk of resurgence if demand firms or policy eases prematurely.

AI and the productivity wildcard

AI is reshaping capital allocation, labour demand and corporate strategy, but its macro impact remains uneven. Near-term effects are capital intensive as adoption has accelerated, boosting investment in data centres, semiconductors and power infrastructure. To fund this buildout, companies are increasingly turning to credit issuance, both public and private. This reflects the scale of ambition but also introduces financial stability risks, should funding conditions tighten or expected returns fail to materialize. While early adopters remain confident in the displacement of routine cognitive roles, AI has not yet delivered on the promised broad productivity gains. Longer-term benefits depend on diffusion into enterprise processes, organizational redesign and workforce adaptation, which historically take time. A deeper question concerns the long-term social consequences, notably how the distributional and employment impacts will be managed. AI represents both a powerful growth opportunity and a source of uncertainty around labour displacement, inequality and financial stability.

Bigger government and fiscal dominance

Fiscal policy has shifted from cyclical support to a persistent structural force. Even as central banks have cut interest rates, politically entrenched deficits, industrial policies, defence spending and climate-related investments are creating a potent blend of policy support . This encourages growth and employment, reducing the likelihood of a downturn. However, it constrains monetary policy from deploying restrictive policy as debt service costs surge. This dynamic implies asymmetric responses to inflation, leaving the risk of inflation settling above target. Elevated bond issuance and debt-servicing sensitivity imply higher term premiums, wider yield ranges and greater volatility in long-term rates.

Geopolitics and a fragmented world

Globalization is giving way to regionalization and strategic alignment. Trade, capital flows and supply chains are increasingly shaped by security concerns rather than efficiency. Countries at the intersection of the realignments, such as Mexico, parts of Southeast Asia and Canada are positioned to benefit. However, this global reordering raises costs, complicates coordination and sustains higher risk premiums . As a result, global allocators are reassessing concentrated exposure to US dollar denominated assets. While the US dollar remains dominant, diversification across currencies, jurisdictions and real assets is gradually increasing.

Hyper-financialization and fragility

Financial markets now exert outsized influence on real economic outcomes. Consumption, hiring and investment are increasingly sensitive to asset prices, particularly equities. The concentration of wealth effects at the top of the income distribution has so far supported spending growth. However, this also introduces overall consumer vulnerability to a reversal in market confidence. This is particularly true in light of higher interest rates (punitive for borrowers and more rewarding for savers) as well as high inflation that is borne disproportionately by lower income earners . Financial market risks are compounded in private markets where leverage is higher, transparency is lower and liquidity is thinner. This can lead to valuation mismatches as refinancing pressures, particularly to fund the AI buildout, rise.

Cyclical outlook over the year

The United States: A mid-cycle expansion continues, with inflation risks

The United States enters 2026 in a mid-cycle expansion supported by fiscal stimulus, easing financial conditions and sustained AI-related capex. High-income consumers remain resilient, and credit availability is improving. However, labour markets are gradually softening, services inflation remains sticky and tariffs are beginning to pass through to prices. Inflation risks are asymmetric: renewed demand or overly accommodative policy could reaccelerate inflation and force a less dovish Fed than markets expect.

Europe: Gradual stabilization amid structural headwinds

Europe shows signs of gradual stabilization as fiscal flexibility increases and rate cuts ease financial conditions. Defence and infrastructure spending support activity, notably in Germany. However, political fragmentation with coalition governments and populism imply rising fiscal strains as there is no appetite for fiscal austerity. Trade pressures and energy transition costs will constrain growth across the region. Inflation is moderating, but wage dynamics from challenging demographics, combined with rising food and energy costs, all remain upside risks.

China: Managed moderation

China continues a path of controlled slowdown, with growth driven by manufacturing, exports and state-directed investment rather than consumption. The property-sector correction remains a key drag on household confidence. Inflation is persistently below target with pressure on the downside from weak pricing power and industrial capacity. Policy support is targeted, as authorities prioritize financial stability and do not want to reflate housing aggressively. External risks persist, especially with trade, but incremental easing and stabilization efforts should help reduce deflation risks into this year.

Canada: Renewed potential output growth

Canada weathered 2025 better than expected despite significant trade shocks and housing weakness. Household leverage, mortgage resets, slower population growth and subdued business sentiment remain constraints. Looking ahead, risks are easing. Fiscal spending on infrastructure, housing and defence provides a positive thrust, while contained inflation gives the Bank of Canada room to remain accommodative. Trade frictions may resume in light of the USMCA renegotiations, but Canada enters 2026 with improving labour dynamics and renewed potential output growth.

Conclusion

After three consecutive years of strong equity returns, the investment environment entering 2026 is shifting. Equity performance is increasingly expected to be driven by earnings growth rather than valuation expansion, against a macro backdrop that remains broadly supportive. Canada’s combination of commodity exposure, improving earnings momentum and relatively attractive valuations stands in contrast to the highly valued US market, while bond yields appear range bound as inflation and interest-rate pressures offset one another.

Beyond the near-term cycle, markets are being shaped by powerful secular forces. Geopolitical fragmentation, sustained large fiscal deficits and rapid AI-driven investment are reshaping growth, inflation and policy constraints. Inflation is easing, but is likely to remain more volatile than in the pre-pandemic era.

We’re pleased to reflect on another year of meaningful growth and strategic advancement across our portfolio.

Transformative acquisitions

Oakcreek

In May 2025, Oakcreek Golf & Turf completed the acquisition of Pattlen Enterprises including L.L. Johnson in Denver, Colorado and Midwest Turf in Omaha, Nebraska.

This acquisition reinforces Oakcreek’s position as one of the largest, full-service distributors of Toro commercial turf equipment in North America.

Purity Life

In September 2025, Purity Life completed the acquisition of Horizon Distributors, PSC Natural Foods and Ontario Natural Food Company.

This acquisition further solidifies Purity Life’s leadership in the Canadian natural health, grocery and wellness distribution market, creating one of the country’s largest, full-service platforms with an unwavering commitment to excellent customer and vendor service.

Learn more about our portfolio.

New to Banyan and recent promotions

We’re excited to share the following promotions and additions to our firm as the depth and breadth of our team continues to grow:

Marat Altinbaev promoted to Director	Alex Gelmych promoted to Senior Analyst	James Nash has joined as Analyst

Our success at Banyan is built on the talent, dedication, and leadership of our people.

Learn more about our team.

New investments

Our focus heading into 2026 remains the same. We are looking to make long-term equity investments alongside world-class management teams in businesses across North America with EBITDA of at least $5 million.

Do you have an opportunity in mind? Learn more about our investment criteria or connect with us today.

The past year was yet another eventful one for sustainability investors and the broader Environmental, Social and Governance (ESG) landscape. 2025 was marked by a succession of extreme weather events, a near-record global temperature average and significant international policy developments, including the EU’s Omnibus simplification package and further amendments to greenwashing claims under Canada’s Competition Act. Importantly, the average global temperature for the three-year period from 2023 to 2025 likely exceeded the 1.5°C threshold above pre-industrial levels for the first time – a milestone that underscores the growing urgency for governments, companies and investors to reassess how climate risks are managed and priced.

In this commentary, we highlight five ESG trends set to shape the year ahead, revealing both challenges and opportunities for investors and businesses alike.

1. From climate mitigation to climate survival

With the 1.5°C threshold now effectively behind us, the focus is shifting from climate mitigation alone to climate adaptation and resilience. Markets are increasingly pricing physical climate risks – from flooding and heat stress to water scarcity – into valuations, insurance costs and credit risk. At the policy level, governments are directing more capital toward adaptation priorities such as resilient infrastructure, water systems, food security and disaster preparedness, with several countries announcing a major increase in adaptation finance, aiming to triple it to $120 billion annually by 2035. For investors, exposure to climate resilience is becoming critical. We believe that companies enabling societies to withstand and adapt to physical climate impacts are likely to play an increasingly important role in long-term portfolios.

2. ESG returns to its financial roots

After surging in prominence during the pandemic years, ESG has faced political pushbacks and skepticism in parts of the market. This recalibration is now forcing a clearer definition of what ESG truly represents: financially material business issues. Labour practices, supply-chain resilience, governance failures and environmental liabilities matter because they can directly affect cash flows, valuations and license to operate – and indirectly shape the long-term sustainability of economic growth. In 2026, we believe ESG will be re-anchored to its original purpose: identifying risks and opportunities that are financially relevant to investors.

3. ESG integration is also becoming mainstream

ESG is no longer a niche strategy or a product label. Sustainability considerations are increasingly embedded across investment processes, from equity and credit analysis to portfolio construction and risk management. In Canada alone, ESG integration is used by 96% of investors, representing 87% of AUM. Whether or not a fund is explicitly marketed as “ESG,” these factors are becoming part of standard due diligence, and therefore increasingly a core component of the investment infrastructure. We believe this trend will continue in the new year and accentuate in many markets around the world as countries like Japan, China and India are increasingly adopting ESG initiatives.

4. The redefinition of “responsible” capital

Energy security, defence, critical infrastructure and industrial resilience are being re-examined through an ESG lens. Investors are increasingly debating when exclusion gives way to responsibility, and whether financing defence capabilities, transition metals or strategic industries is incompatible with – or essential to – long-term sustainability. This shift reflects a more pragmatic approach to ESG, recognizing that social stability, security and resilient supply chains are foundational to sustainable development. We believe that 2026 will be marked by further discussions and guidance around how to invest responsibly in previously deemed harmful sectors, with workgroups such as the Principles for Responsible Defence Investment (PRDI) initiative.

5. AI and data-driven ESG analysis

Artificial intelligence (AI) and advanced data analytics are transforming how most sectors operate. ESG is no different. From climate modelling and supply-chain monitoring to controversy detection and impact measurement, AI is enabling more timely, granular and forward-looking ESG analysis. The competitive edge is moving away from simply having ESG data toward better understanding of the data, as well as interpreting signals faster and more effectively than the market. As AI capabilities continue to advance, we believe ESG will increasingly become more dynamic, data-driven and integral to enhance risk management, uncover emerging opportunities and improve long-term investment decision-making.

Final thoughts

At Global Alpha, it’s never been about chasing ESG trends, but remaining disciplined and consistent in our investment processes. ESG has always been about financial risk mitigation and long-term value creation – doing what is right for our clients by identifying material risks and opportunities in a rapidly changing world. From climate resilience and supply-chain stability to governance quality and data-driven analysis, ESG considerations have long been embedded in how we assess risk and opportunity across portfolios.

As the ESG landscape continues to evolve, our philosophy remains unchanged: identifying and managing material risks, while allocating capital to businesses positioned to create durable value in a rapidly changing world.

What’s New

CC&L Investment Management is proud to be the recipient of a 2025 Coalition Greenwich Award: Best Asset Manager for Institutional Investors in Canada.* This award reflects excellence across both investment performance and client service, as measured by the Greenwich Quality Index.

Market Index Returns (USD)	Q4 (%)	YTD (%)
MSCI All Country World	3.4	22.9
MSCI All Country World ex-US	5.1	33.1
S&P 500	2.7	17.9
MSCI Emerging Markets	4.8	34.4

Quantitative Equity Strategies

Long Only Strategies	Q4 (%)	YTD (%)
CC&L Q Global Equity	4.1	28.5
MSCI ACWI Net	3.3	22.3
CC&L Q International Equity	6.6	41.6
MSCI ACWI ex-US Index Net	5.1	32.4
CC&L Q Emerging Markets Equity	5.6	38.2
MSCI Emerging Markets Net	4.7	33.6
CC&L Q Global Small Cap	4.3	–
MSCI ACWI Small Cap Index Net	2.7	–
CC&L Q International Small Cap Equity	5.3	39.1
MSCI ACWI ex-US Small Cap Net	3.0	29.3

Long/Short Equity Extension Strategies¹	Q4 (%)	YTD (%)
CC&L Q ACWI Equity Extension	6.3	–
MSCI ACWI Net	3.3	–
CC&L Q Emerging Markets Equity Extension	8.5	–
MSCI Emerging Markets Net	4.7	–
CC&L Q World ex-US Equity Extension	7.8	–
MSCI World ex-US Index Net	5.2	–
CC&L Q US Equity Extension	5.3	–
S&P 500 Index (Net 15%)	2.6	–

Equity Market Neutral Strategies¹	Q4 (%)	YTD (%)
CC&L Q Global Equity Market Neutral (USD)	5.3	14.7
Merrill Lynch 3-month T-bill Index	1.0	4.2

About Connor, Clark & Lunn Investment Management Ltd.

Founded in 1982, Connor, Clark & Lunn is a privately owned investment management organization dedicated to delivering outstanding client service and a wide range of attractive investment solutions to our diverse client base. We understand the investment challenges faced by individuals, pension plans, corporations, foundations, mutual funds, First Nations and other organizations, and focus our efforts on meeting their investment needs by offering a comprehensive array of investment strategies, spanning traditional and alternative asset classes in a variety of quantitative and fundamental styles.

* Throughout 2025, Crisil Coalition Greenwich conducted interviews with 147 of the largest corporate pension funds, public pension funds, financial institutions, endowments and foundations in Canada and other global regions. Senior fund professionals were asked to provide detailed evaluations of their investment managers, assessments of those managers soliciting their business, and insights on important market trends. Connor, Clark & Lunn Investment Management did not provide Crisil Coalition Greenwich with any compensation for this survey.

All data except MSCI Indices are as of December 31, 2025 and stated in US dollars (USD$). Source: Connor, Clark & Lunn Financial Group Ltd., FTSE Global Debt Capital Markets Inc., MSCI Inc., Thomson Reuters Datastream and S&P. Portfolio performance is preliminary, based on a representative account for the applicable strategy and may be subject to change. All performance data is gross of fees unless otherwise stated. Gross performance figures are stated after trading expenses and operating expenses but before management fees and performance fees, if applicable. Operating expenses include items such as custodial fees for segregated accounts and for pooled vehicles would also include charges for valuation, audit, tax and legal expenses. Management fees and additional operating expenses would reduce the actual returns experienced by investors. 1. These strategies are subject to performance fees, which will further reduce actual returns experienced by investors.

This publication is for information purposes only and is not an offer to buy or sell, nor a solicitation of an offer to buy or sell any security or other financial instrument advised by CC&L.

For further information on performance, please contact us at [email protected].

Source: MSCI Inc. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. MSCI makes no express or implied warranties or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. This report is not approved, reviewed or produced by MSCI.

What’s New

Market Index Returns (Local Currency)	Q4 (%)	YTD (%)
MSCI All Country World	3.7	20.2
MSCI All Country World ex-US	6.0	25.1
S&P/TSX Composite	6.3	31.7
S&P 500	2.7	17.9
MSCI Emerging Markets	5.7	32.1
FTSE Canada Universe Bond	-0.3	2.6

Foreign Equities

Foreign Equity Strategies	Q4 (%)	YTD (%)
CC&L Q Global Equity	2.6	22.0
CC&L Q Global Equity Extension¹	4.5	24.1
MSCI ACWI Index (CAD) (net)	1.8	16.6
CC&L Q Global Small Cap	2.4	20.1
MSCI ACWI Small Cap Index (CAD) (net)	1.1	14.1
CC&L Q International Equity	4.3	32.1
MSCI ACWI ex-US Index (CAD) (net)	3.5	26.2
CC&L Q International Small Cap	3.8	32.6
MSCI ACWI ex-US Small Cap Index (CAD) (net)	1.4	23.2
CC&L Q Emerging Markets Equity	3.8	30.6
MSCI Emerging Markets Index (CAD) (net)	3.2	27.3
CC&L Q US Equity Extension¹	3.0	17.2
S&P 500 Index (Net 15%)	1.1	12.1

MSCI ACWI Country Q4 Total Returns (Local)

TOP 3

10.1%

Health Care

6.4%

Materials

5.2%

Financials

BOTTOM 3

1.4%

Consumer Staples

0.0%

Consumer Discretionary

-2.0%

Real Estate

MSCI ACWI Country Q4 Total Returns (Local)

TOP 3

30.8%

Korea

18.0%

Austria

17.7%

Chile

BOTTOM 3

-2.9%

Morocco

-7.6%

China

-7.6%

Saudi Arabia

Canadian Equities

Canadian Equity Strategies	Q4 (%)	YTD (%)
CC&L Fundamental Canadian Equity	7.6	30.3
CC&L Equity Income & Growth	6.0	24.6
CC&L Equity Income & Growth Plus	5.3	25.0
CC&L Q Canadian Equity Core	7.8	34.6
CC&L Q Canadian Equity Growth	7.4	35.5
CC&L Q Canadian Equity Extension¹	9.3	40.2
CC&L Canadian Equity Combined (Q Core/Fundamental)	7.7	32.4
S&P/TSX Composite Index	6.3	31.7
CC&L Fundamental Canadian Small/Mid Cap	11.3	44.5
60% S&P/TSX Small Cap Index & 40% S&P/TSX Completion Index	9.5	47.2

TSX Sector Q4 Total Returns

TOP 3

11.9%

Materials

11.0%

Consumer Discretionary

10.5%

Financials

BOTTOM 3

-1.5%

Industrials

-1.7%

CommunicationCommuni-cation Services

-6.1%

Real Estate

Canadian Fixed Income

Fixed Income Strategies	Q4 (%)	YTD (%)
CC&L Core Bond	-0.4	3.0
CC&L Universe Bond Alpha Plus¹	1.5	6.0
CC&L Core Plus Fixed Income	0.0	3.5
CC&L High Yield Bond²	0.5	5.8
FTSE Canada Universe Bond Index	-0.3	2.6
CC&L Long Bond	-1.4	-0.3
CC&L Long Bond Alpha Plus¹	0.4	2.6
FTSE Canada Long Term Overall Bond Index	-1.4	-0.7
CC&L Short Term Bond	0.3	3.9
FTSE Canada Short Term Overall Bond Index	0.3	3.9
CC&L Money Market	0.7	3.0
FTSE Canada 91 Day T-Bill Index	0.6	2.8

Bond Market Statistics

Quarterly Change (bps). Canada 2-year yield: 12, end level: 2.59. Canada 10-year yield: 22, end level: 3.42. US 2-year yield: -13, end level: 3.46. US 10-year yield: 2, end level: 4.19.

Quarterly change (bps). Corporate Canadian Credit Spread: -8, end level: 1.04. Provincial Canadian Credit Spread: -5, end level: 0.67.

Balanced Strategies

Balanced Strategies	Q4 (%)	YTD (%)
CC&L Balanced	2.8	16.4
25% S&P/TSX Capped Composite Index & 35% MSCI ACWI Net (CAD$) & 40% FTSE Canada Universe Bond Index	2.1	14.6
CC&L Enhanced Balanced	3.0	16.8
20% S&P/TSX Capped Composite Index & 40% MSCI ACWI Net (CAD$) & 40% FTSE Canada Universe Bond Index	1.8	13.9
CC&L Core Income & Growth	4.1	19.9
50% S&P/TSX Composite Index & 25% S&P/TSX Capped REIT Index & 25% FTSE Canada All Corporate Bond Index	2.5	19.2

Absolute Return Strategies

Absolute Return Strategies¹	Q4 (%)	YTD (%)
CC&L Multi-Strategy	7.0	13.4
CC&L All Strategies	9.7	15.0
CC&L Fundamental Equity Market Neutral	9.4	5.1
CC&L Q Global Equity Market Neutral (Cdn)	5.1	14.7
CC&L Fixed Income Absolute Return	0.0	3.4
CC&L Absolute Return Bond	0.2	3.8
FTSE Canada 91 Day T-Bill Index	0.6	2.8

About Connor, Clark & Lunn Investment Management Ltd.

All data except MSCI Indices are as of December 31, 2025 and stated in Canadian dollars (CDN$). Source: Connor, Clark & Lunn Financial Group Ltd., FTSE Global Debt Capital Markets Inc., MSCI Inc., Thomson Reuters Datastream and S&P. Portfolio performance is preliminary, based on a representative account for the applicable strategy and may be subject to change. All performance data is gross of fees unless otherwise stated. Gross performance figures are stated after trading expenses and operating expenses but before management fees and performance fees, if applicable. Operating expenses include items such as custodial fees for segregated accounts and for pooled vehicles would also include charges for valuation, audit, tax and legal expenses. Management fees and additional operating expenses would reduce the actual returns experienced by investors. 1. These strategies are subject to performance fees, which will further reduce actual returns experienced by investors. 2. CC&L High Yield Bond Strategy has a custom benchmark, please contact us for more information.

This publication is for information purposes only and is not an offer to buy or sell, nor a solicitation of an offer to buy or sell any security or other financial instrument advised by CC&L.

For further information on performance, please contact us at [email protected].

In 2025, US equities were powered not just by technology companies and AI giants, but by a wider array of stocks, signaling a shift beyond the famed Magnificent Seven. Yet it was Canadian equities that stole the spotlight, propelled by a remarkable gold rally that soared over 60% this year. For investors, this marks the third straight year of robust total portfolio growth, achieved despite persistent geopolitical uncertainties and trade challenges.

Equities – Canadian equity led the charge

2025 was a banner year for Canadian equities, which charged ahead of other major markets. The S&P/TSX Capped Composite Index returned 31.7%, and Canadian small cap stocks soared more than 50%. This impressive rally was powered by the explosive growth of gold and precious metal companies, as well as the continued global momentum of AI-driven firms. Emerging and international equities also delivered stellar performances, climbing 27.3% and 25.1% respectively.

In contrast, US equities lagged, rising 12.4% for the year, a result dampened for Canadian investors by a weaker US dollar. In contrast, the S&P 500 Index gained 17.9% in US dollar terms. While a wider array of stocks drove the S&P 500 Index return in 2025, the collective influence of the Magnificent Seven – Alphabet (Google), Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – saw their representation grow slightly, with Nvidia being a key contributor to that growth.

Figure 1 – 2025 calendar year equity returns (%)

Source: Bloomberg, S&P & MSCI (all returns in CAD)

While equity market indices delivered impressive gains, active managers faced a tough landscape, especially if they missed out on the surging gold and technology sectors. An exception to this experience has been quantitative (systematic) investment managers, who harness technology to analyze a vast array of global companies and maintain diversified portfolios. Quantitative-style managers have generally been able to navigate the challenging and concentrated equity markets and outperform the index over the last several years.

Fixed income – duration headwinds

2025 proved to be another challenging year for traditional fixed income markets. Emerging markets debt and US high yield stood out as top performers, driving public market fixed income returns. The Bank of Canada continued to cut rates, bringing the overnight rate down to 2.25% by year end. Once again, longer-duration bonds faced headwinds, with universe bonds invested across all maturities posting a modest 2.6% gain, while long bonds declined by 0.8%.

Figure 2 – 2025 calendar year fixed income returns (%)

* 30% Merrill Lynch US High Yield Cash Pay BB Index (CAD$) & 30% Merrill Lynch US High Yield Cash Pay BB Index (USD$) & 30% FTSE Canada Corporate BBB Bond Index & 10% Merrill Lynch Canada BB-B High Yield Index (CAD).
** 50% P Morgan Emerging Market Bond Index, 50% JP Morgan Corp Emerging Market Bond Index (CAD).
Source: Bloomberg, Merrill Lynch, S&P & FTSE (all returns in CAD)

Private markets

Private markets in 2025 once again revealed a landscape shaped by strategy and timing. Unlike public markets – where returns are immediate and transparent – private investments require patience due to valuation and reporting lags. This year witnessed encouraging results with private credit and infrastructure strategies delivering solid returns and commercial real estate showing steady improvement.

Private equity returns, while mixed, sparked renewed optimism, especially with deal activity surging past USD300 billion in the third quarter of 2025 alone. Hedge funds demonstrated their versatility, with many strategies achieving returns that more closely rivaled global equities, a notable shift from the previous year.

Ultimately, private markets continue to play a vital role in portfolio diversification, complementing public equities and fixed income to create a more resilient asset mix.

Stronger loonie

The Canadian dollar clawed back much of the decline it experienced in 2024 relative to the US dollar. For Canadian investors holding unhedged US equities, this rebound reduced returns due to the currency effect. Figure 3 traces the history of exchange rates from 1970, capturing the modern-day experience with respect to the Canadian dollar versus the US dollar relationship. Since around 2016, the Canadian dollar has settled into a relatively narrow range, even during the recent surge in inflation. By the close of 2025, the Canadian dollar stood at around 73 US cents, marking a gain of almost 5% from the previous year’s finish.

Figure 3 – History of USD / CAD exchange rates

Source: Bloomberg

Opportunity knocks

Opportunity is knocking for investors in 2026. After several years of remarkable gains in equity markets, now is the perfect moment to revisit how diversified your portfolio truly is. While alternative investments may have recently lagged soaring global equities, they remain a vital tool for building resilience. By weaving alternatives into your asset mix, you can better prepare your portfolio to weather the inevitable twists and turns of the financial landscape.

Canadian investors have long leaned toward homegrown stocks, giving Canadian equities a bigger slice of their portfolios than global equity benchmarks suggest. Notwithstanding the strong performance of the Canadian equity market in 2025, the recent surge in US markets – fuelled by the rise of the “Magnificent Seven” technology giants – has some investors rethinking this approach. Canadian investors have a similar home-country bias as some of their global peers. While some investors may go all-in on global equities, there are several advantages for having a Canadian-equity bias.

Home-country bias

Home-country bias refers to building an investment portfolio instinctively favouring stocks from your own country, which is a tendency shared by investors worldwide. Although Canadian stocks represent just 3% to 4% of world equity markets, the comfort of the familiar leads to a much larger role in equity portfolios. It is common for Canadian investors to allocate 20% to 40% of their total equity exposure to domestic equities.

Many investors globally allocate far more in local equities than their country’s actual slice of the global market. According to the WTW Thinking Ahead Institute’s Global Pension Assets Study 2025, this bias has been especially strong for Australian, Japanese and UK pension investors that allocate 20% to 45% of their total equity exposure to homegrown companies. While US pension investors typically have the largest domestic percentage allocation, it generally reflects the US market’s large representation of the global market.

The case for a home-country bias versus a more global market capitalization approach often wrestles with similar challenges, like the impact of certain sector concentration. However, each approach offers a unique lens on how to manage risk and opportunity.

Features of the different approaches

The table highlights the features of the different approaches to managing total equity assets.

	Canadian-equity bias	Global equity only
Currency	Investing in assets denominated in Canadian dollars allows institutional investors, such as pension plans, endowments and foundations, to sidestep currency risk. This ensures that asset values move in step with liabilities, eliminating valuation fluctuations caused by currency mismatches.	Investing globally is not just about geography; it is about currency too. Global equities provide exposure to multiple currencies, offering a natural hedge if the Canadian dollar takes a hit during global downturns or commodity slumps.
Index features	Canada’s equity market stands out globally with its concentration in resources and financials, which gives it a unique risk-return profile. During commodity booms, for example, Canadian equities can offer diversification benefits relative to global markets.	From a sector perspective, the global market is more heavily weighted to growth sector opportunities, such as information technology and health-care sectors compared to Canada.
Diversification	While Canada’s market is smaller and more concentrated, leading to higher return volatility, it can strengthen total equity returns when paired with global equities by adding a layer of diversification.	Diversifying globally helps avoid putting all your eggs in one equity basket. Depending on the global index adopted, it provides access to many developed and emerging market countries.
Alpha potential	Added value potential from active management has been more consistent for Canadian equities compared to global equities, providing an important additional source of return.	Active management within global equity portfolios has delivered added value, notwithstanding the recent headwinds due to the robust performance of technology-related companies.

Why have a Canadian-equity bias?

Portfolios with a Canadian-equity bias provide the opportunity to unlock better risk-adjusted total equity returns compared to global only, they have the benefit of more consistent added value potential from active management, as well as a supportive economic backdrop in Canada that amplifies its growth potential.

Return perspective

Analyzing relative historical performance of Canadian equities (S&P/TSX Index) versus the major global equity indices (MSCI ACWI Index and MSCI World Index), highlights the resilience and benefits that a Canadian equity bias can bring. While global indices often steal the spotlight, there is no clear, consistent winner. Except for the most recent decade, Canadian equities have outpaced their global counterparts over extended periods, when measured in rolling four-year returns and in Canadian-dollar terms for the global indices (figure 1). While the headlines focus on the “Magnificent Seven” powering US and global equity gains, Canadian equities have quietly matched global equity performance over the more recent rolling four-year periods.

Figure 1 – Global equity versus Canadian equity index returns

Source: MSCI, FTSE and Bloomberg

When analyzing the volatility of Canadian and global equity indices, the story is a little clearer, with Canadian equities generally being more volatile than unhedged global equities (figure 2). This experience is consistent with the more concentrated Canadian market compared to the global equity market.

Figure 2 – Global equity versus Canadian equity volatility of index returns

Source: MSCI, FTSE and Bloomberg

But here is the twist: portfolios that have a tilt toward Canadian stocks, more than their market capitalization weighting would suggest, have generally experienced lower overall volatility than a purely global portfolio, as illustrated for a portfolio invested 70% in global equities (MSCI ACWI Index) and 30% in Canadian equities (figure 3). When also considering the rolling four-year return experience (figure 4), it implies stronger risk-adjusted returns for a home-country bias.

Figure 3 – Global equity versus home-country bias global equity volatility of index returns

Source: MSCI, FTSE and Bloomberg

Figure 4 – Global equity versus home-country bias global equity index returns

Source: MSCI, FTSE and Bloomberg

Alpha potential

Active management offers the potential of an additional source of return. While the influence of technology-related stocks has recently implied headwinds for active managers in general, Canadian equity managers have on average provided more consistent added value over time compared to global equity managers (figure 5).

Figure 5 – Canadian versus global equity median added value

Note: Based on manager universe with MSCI ACWI Index benchmark for global equities.
Source: eVestment, Connor, Clark & Lunn Financial Group.

Current economic backdrop

Canada is positioned to deliver both value and growth for investors. The country is stepping confidently into a new era of economic growth, powered by a pro-business agenda. Under Prime Minister Mark Carney, the country is embracing reforms that break down interprovincial trade barriers, streamline regulations and fast-track resource and infrastructure development. Policy moves, like easing the carbon tax, signal a broader commitment to making Canada a more attractive place to do business. At the same time, the Bank of Canada’s aggressive interest rate cuts and a government focused on fiscal stimulus are working in tandem to ignite domestic growth.

Canada’s rich reserves of future-critical commodities, such as copper, uranium, gold, rare earths and natural gas, are set to play a pivotal role in the global energy transition. For example, the introduction of new liquified natural gas export terminals on the West Coast is opening the doors to Asian markets. The country’s banking sector, renowned for its stability and strong regulations, adds another layer of resilience in an unpredictable world.

Benefiting from local strengths and global opportunities

While global equities provide broad investment opportunities, a Canadian bias in total equity allocations offers strategic advantages, especially for investors seeking currency alignment, unique market exposure, greater active management contribution, as well as more efficient risk management. An optimal approach to total equity portfolio structure is a thoughtful blend of both Canadian equity and global equity that incorporates an element of home-country bias.

As we close out another year, we acknowledge it has been a difficult one for fundamental investors focused on quality companies.

How does Global Alpha define “quality”? We mean companies with:

Revenue growth with a high portion of recurring revenues
Healthy profit margins
Strong balance sheet
Dividend paying
Fair valuation, ideally below the market multiples

Instead of quality, the market has been fixated on size (the bigger, the better), liquidity (the more liquid, the better) and momentum (what goes up will continue to go up).

In other words, it’s a very speculative market.

Are we in a bubble?

Ruchir Sharma, Chair of Rockefeller International, asked that exact same question in his piece in Financial Times – The four ‘O’s that shape a bubble. He described four characteristics that define a bubble, “four Os”: overvaluation, over-ownership, overinvestment and over-leverage. In our view, today’s market checks all four boxes.

Overvaluation

Consider the S&P 500 price-to-sales ratio. It is currently at an all-time high, well above the peak reached during the tech bubble in 2000. The market is paying record prices for each dollar of revenue.

Source: Bloomberg

Over-ownership

US household stock ownership, as a share of financial assets, is also at record levels. According to Gallup, about 165 million Americans – roughly 62% of US adults – own stocks, an all-time high.

On top of that, foreign investors now hold a record share of US equities. The market has rarely, if ever, been this “crowded.”

Source: Federal Reserve

Sources: Federal Reserve, Macrobond, Apollo Chief Economist

Overinvestment

Technology investment has recently surpassed 6% of US GDP, eclipsing the previous record set in 2000. But the ultimate return on these investments is still uncertain, and there are signs that adoption is slowing rather than accelerating.

Over-leverage

We often hear about the enormous cash balances of the “Magnificent Seven.” However, much less attention is paid to the other side of their balance sheets: liabilities.

Amazon, Meta, and Microsoft are now net debtors, and they are increasingly financing capital expenditures with debt.

So, all four Os suggest a bubble. But who are we to know?

Surely, this time, it’ll be different! Right?

We recently looked at some assumptions underpinning the current enthusiasm and valuations.

The general consensus is that global semiconductor sales will grow at an annualized rate in the mid- to high-20% range over the coming decade.

During the strongest period until now – the 1990s, with the advent of the personal computer and the internet – annualized growth in semiconductor sales was about 15%.

Once again, the narrative is that “it’s different this time.”

What could deflate this bubble?
If we had to name one catalyst, it would be Nvidia, now the largest company in the world by market value, the most owned and traded stock globally, and the poster child for the AI wave.

What could go wrong with Nvidia?

In a word: Competition. More competition would likely mean lower market share, lower prices and lower profit margins.

Lessons from Novo Nordisk

The chart below shows the stock price of Novo Nordisk, which was the largest European company by market value just over a year ago. As a leader in GLP-1 “miracle drugs” used for weight loss and other health benefits, Novo Nordisk became the market’s favourite story.

As competition intensified and prices came under pressure, Novo Nordisk experienced a dramatic shift: its market value has dropped by 68% since its peak in June 2024.

What happened to this market leader?

Simple: more competition and lower prices. In 2024, Novo Nordisk earned €24.48 per share, up 29% from 2023. By mid-2024, analysts were expecting earnings of €30 per share in 2025, implying another 23% growth.

Source: Bloomberg

Instead, according to Bloomberg consensus estimates, earnings for 2025 will be around €23.38, a decline of approximately 4.5%, with a further decline expected in 2026. Novo Nordisk remains a great company, investors have just overpaid for it.

Lessons from Cisco

At the peak of the dot-com era, Cisco Systems was the company that defined the Internet age. It was the most valuable company in the world at the start of 2000, supplying the routers needed to handle internet traffic that was doubling every few months.

Despite that dominant position, Cisco’s stock only just regained its 2000 peak price last week – more than two decades later.

Source: Bloomberg

Looking at past trends, we do not expect Nvidia to maintain the market share and pricing power implied in current analyst forecasts. In our view (shaped by history that competition, regulation and changing narratives eventually catch up with even the most celebrated leaders), it is more prudent to diversify and pivot back to high-quality, reasonably valued companies with durable earnings and strong balance sheets

Lastly, we encourage you to read our previously published piece on quality: Time to take out the trash – Why high ROE matters in the long run. We breakdown how quality outperforms in the long-run and why it matters as an allocator.

We wish you a happy holiday season to you and your loved ones.

May 2026 bring peace and happiness to the world.