liza, Author at Groupe financier Connor, Clark & Lunn ltée

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.

Stratégie et positionnement des portefeuilles en 2026
Thèmes à long terme qui façonnent les perspectives
Perspectives cycliques pour l’année
Conclusion

Les Prévisions de cette année commencent par un résumé de 2025, avant d’explorer les thèmes à long terme qui façonnent nos perspectives et d’analyser les facteurs cycliques à court terme qui influent sur l’économie, l’inflation et la politique monétaire. Nous évaluons les valorisations boursières et, en tenant compte de ces éléments, nous établissons notre stratégie de portefeuille.

Tout au long de l’année, vous trouverez des mises à jour des Prévisions dans notre bulletin trimestriel Perspectives.

Introduction

L’année 2025 a été marquée par des chocs, puis par de la résilience. Malgré l’incertitude extrême entourant les politiques, les marchés boursiers ont enregistré de solides gains pour une troisième année consécutive, les investisseurs ayant fait abstraction de la situation géopolitique et mis l’accent sur la durabilité des bénéfices et les investissements axés sur l’intelligence artificielle (IA). Les actions canadiennes ont inscrit des rendements supérieurs, profitant de la stabilité relative des politiques, de la résilience de la croissance et d’une flambée des prix de l’or dans un contexte d’incertitude géopolitique et institutionnelle.

Alors que 2026 commence, les marchés font face à moins de tensions immédiates que les années précédentes, mais les résultats demeurent très sensibles aux politiques, à l’inflation et à la confiance. Dans les pages qui suivent, nous présentons la stratégie et le positionnement de nos portefeuilles, et nous abordons les influences cycliques à court terme et à long terme sur les marchés.

Graphique 1 : Solides gains des marchés boursiers en 2025, menés par le Canada
Rendements totaux en monnaie locale recalculés au 1^er janvier 2025 à 100

Sources : TMX, S&P Global, MSCI et, Macrobond

Graphique 2 : Hausse du prix de l’or en 2025

Sources : CME group, Macrobond

Stratégie et positionnement des portefeuilles en 2026

Les marchés boursiers entament l’année 2026 dans un contexte favorable. Des politiques monétaires et budgétaires expansionnistes ainsi qu’une solide croissance nominale favorisent un contexte propice aux actions. Les bénéfices des sociétés demeurent résilients, soutenus par une solide croissance nominale et l’atténuation des pressions sur les coûts. Les investissements axés sur l’IA continuent de façonner la répartition du capital dans les secteurs des technologies de l’information, de l’industrie, des infrastructures énergétiques et des services aux collectivités, tandis que les attentes en matière de productivité continuent de contribuer de façon importante aux valorisations. Par ailleurs, les valorisations élevées aux États-Unis atténuent le potentiel de hausse, mais représentent une meilleure valeur au Canada et sur d’autres marchés non américains.

Les marchés obligataires reflètent un équilibre entre le ralentissement des marchés de l’emploi ainsi que les préoccupations budgétaires et liées à l’inflation à long terme. Les taux à long terme demeurent confinés dans une fourchette « élevée pendant plus longtemps » en raison de l’expansion budgétaire persistante, de la reconfiguration des structures de pouvoir mondiales et des besoins d’investissement soutenus. L’assouplissement de la politique monétaire devrait se poursuivre au début de l’année, dans un contexte de préoccupations persistantes à l’égard de la crédibilité des banques centrales face à une inflation sous-jacente tenace.

Graphique 3 : La croissance des bénéfices demeure solide
Croissance des bénéfices

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

Répartition de l’actif

Le contexte macroéconomique favorise une approche équilibrée qui tient compte à la fois des progrès réalisés en matière de désinflation et de la persistance des forces structurelles qui maintiennent les taux à long terme à des niveaux élevés. Même si l’assouplissement de la politique monétaire soutient les actifs à risque, nous conservons une position neutre à l’égard des actions et une légère sous-pondération des titres à revenu fixe. Nous préférons les actions canadiennes et des marchés émergents aux actions mondiales.

Positionnement fondamental des actions

Nos portefeuilles fondamentaux d’actions ont ajouté des sociétés cycliques de grande qualité qui profiteront de l’élargissement de la croissance économique, notamment dans les secteurs financiers et de l’automobile. Nous avons étoffé nos placements dans les infrastructures afin de profiter des dépenses en immobilisations liées à l’IA ainsi que de la démondialisation et des politiques protectionnistes. Nous avons également étoffé nos placements dans des producteurs d’or à moyenne capitalisation, car les prix au comptant favoriseront de solides flux de trésorerie disponibles au cours de l’exercice. Nous avons réduit le nombre de sociétés à faible croissance et sensibles aux taux d’intérêt en raison des prévisions de volatilité des taux d’intérêt.

Graphique 4 : Potentiel d’expansion limité

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

Positionnement des titres à revenu fixe

Dans les portefeuilles de titres à revenu fixe, nous gérons l’exposition à la durée de façon tactique dans la récente fourchette des taux obligataires, car les taux d’intérêt fluctuent en fonction des mauvaises surprises économiques et des pressions à la hausse sur les taux à long terme. Les taux à long terme devraient subir des pressions à la hausse, une tendance mondiale. Nous maintenons une préférence pour l’accentuation de la courbe des taux. Par ailleurs, les taux à court terme au Canada, qui anticipent actuellement des hausses du taux cible par la banque centrale, devraient afficher un potentiel de hausse limité à partir de maintenant.

L’atténuation de l’inflation et la stabilité de la demande soutiennent les données fondamentales des titres de créance, et la vigueur des bénéfices, des revenus et du contexte politique devrait persister. Toutefois, les écarts de taux les plus serrés depuis plus de dix ans, combinés à une dynamique risque-rendement asymétrique, ont donné lieu à une exposition globale neutre. Du côté des titres de créance, nous préférons les obligations de sociétés aux obligations provinciales.

Thèmes à long terme qui façonnent les perspectives

Inflation : un seuil inférieur plus élevée et plus volatile

La désinflation des deux dernières années reflète la dissipation des chocs aigus, et non un retour aux niveaux d’avant 2020. Les réseaux commerciaux mondiaux s’adaptent pour raccourcir les chaînes d’approvisionnement, privilégier la résilience et faire passer les facteurs géopolitiques avant la rentabilité. Le vieillissement de la population et la réduction de l’immigration impliquent une diminution de la population en âge de travailler et un resserrement des marchés de l’emploi. Le renouvellement à grande échelle des infrastructures ainsi que la modernisation et l’expansion de la défense, conjugués à des investissements dans la transition énergétique, renforcent les pressions à la hausse sur les coûts. La croissance soutenue du PIB nominal maintiendra des taux de croissance plus élevés pour les salaires, les loyers, les bénéfices et les dépenses publiques. Dans ce contexte, il demeure essentiel de maintenir la confiance dans l’indépendance des banques centrales, car toute érosion de la crédibilité de la Réserve fédérale américaine (la Fed) augmenterait le risque à long terme que les attentes d’inflation soient moins solidement ancrées. L’inflation devrait fléchir, mais présenter un seuil inférieur plus élevée, une plus grande volatilité et un risque accru de résurgence si la demande se raffermit ou si la politique monétaire est assouplie prématurément.

L’IA et l’incertitude liée à la productivité

L’IA transforme la répartition du capital, la demande de main-d’œuvre et la stratégie des entreprises, mais son incidence macroéconomique demeure inégale. Les effets à court terme sont hautement capitalistiques, car l’adoption s’est accélérée, stimulant les investissements dans les centres de données, les semi-conducteurs et les infrastructures électriques. Pour financer cette expansion, les sociétés se tournent de plus en plus vers l’émission de titres de créance, tant par appel public à l’épargne que placement privé. Cela reflète l’ampleur de leurs ambitions, mais présente également des risques pour la stabilité financière si les conditions de financement se resserrent ou si les rendements prévus ne se concrétisent pas. Même si les utilisateurs précoces demeurent confiants quant au transfert des tâches cognitives routinières, l’IA n’a pas encore réalisé les gains de productivité promis. Les avantages à long terme dépendent de sa diffusion dans les processus d’entreprise, de la refonte organisationnelle et de l’adaptation de la main-d’œuvre, ce qui prend généralement du temps. Une question plus profonde concerne les conséquences sociales à long terme, en particulier la façon dont les répercussions sur la distribution et l’emploi seront gérées. L’IA représente à la fois une puissante occasion de croissance et une source d’incertitude quant au déplacement de la main-d’œuvre, aux inégalités et à la stabilité financière.

Renforcement du rôle de l’État et domination budgétaire

La politique budgétaire est passée d’un soutien cyclique à une force structurelle persistante. Même si les banques centrales ont réduit les taux d’intérêt, les déficits bien établis sur la scène politique, les politiques industrielles, les dépenses militaires et les investissements liés au climat créent une puissante combinaison de mesures de soutien . Cela favorise la croissance et l’emploi et réduit la probabilité d’un repli. Toutefois, cela empêche la politique monétaire de mettre en œuvre des mesures restrictives en raison de la forte augmentation des coûts du service de la dette. Cette dynamique entraîne des réactions asymétriques à l’inflation, qui risque de se stabiliser au-dessus de la cible. Les fortes émissions d’obligations et la sensibilité au service de la dette se traduisent par une hausse des primes à l’échéance, un élargissement des fourchettes de taux et une plus grande volatilité des taux à long terme.

Situation géopolitique et fragmentation du monde

La mondialisation fait place à la régionalisation et à l’harmonisation stratégique. Le commerce, les flux de capitaux et les chaînes d’approvisionnement sont de plus en plus influencés par les préoccupations liées à la sécurité plutôt que par le souci d’efficacité. Les pays situés à la croisée des réalignements, comme le Mexique, certaines régions de l’Asie du Sud-Est et le Canada, sont bien placés pour en profiter. Toutefois, cette réorganisation mondiale augmente les coûts, complique la coordination et maintient des primes de risque plus élevées. Par conséquent, les spécialistes mondiaux de la répartition réévaluent la forte exposition aux actifs libellés en dollars américains. Bien que le dollar américain demeure dominant, la diversification entre les devises, les territoires et les actifs réels s’accroît graduellement.

Hyper-financiarisation et fragilité

Les marchés financiers exercent désormais une influence démesurée sur les résultats économiques réels. La consommation, l’embauche et l’investissement sont de plus en plus sensibles aux cours des actifs, en particulier des actions. Jusqu’à présent, la concentration des effets de richesse au sommet de la distribution des revenus a soutenu la croissance des dépenses. Toutefois, cela accroît la vulnérabilité globale des consommateurs face à un renversement de la confiance des marchés. Cela est particulièrement vrai compte tenu de la hausse des taux d’intérêt (qui pénalise les emprunteurs et favorise les épargnants) et de l’inflation élevée qui pèse de manière disproportionnée sur les personnes à faible revenu. Les risques liés aux marchés financiers sont exacerbés sur les marchés privés, où l’endettement est plus élevé, la transparence est moins grande et la liquidité est plus faible. Cela peut entraîner l’inadéquation des valorisations à mesure que les pressions de refinancement, en particulier pour financer le développement de l’IA, augmentent.

Perspectives cycliques pour l’année

États-Unis : poursuite de l’expansion en milieu de cycle, avec des risques d’inflation

Les États-Unis amorcent l’année 2026 dans une phase d’expansion en milieu de cycle soutenue par des mesures de relance budgétaire, un assouplissement des conditions financières et des dépenses en immobilisations soutenues dans le domaine de l’IA. Les consommateurs à revenu élevé continuent de résister et la disponibilité du crédit s’améliore. Toutefois, les marchés de l’emploi ralentissent progressivement, l’inflation des services demeure tenace et les tarifs douaniers commencent à se répercuter sur les prix. Les risques d’inflation sont asymétriques : une reprise de la demande ou une politique trop expansionniste pourrait raviver l’inflation et contraindre la Fed à adopter un ton moins conciliant que ne le prévoient les marchés.

Europe : stabilisation graduelle malgré des difficultés structurelles

L’Europe montre des signes de stabilisation graduelle grâce à une souplesse budgétaire accrue et à des baisses de taux qui assouplissent les conditions financières. Les dépenses en défense et en infrastructures soutiennent l’activité, notamment en Allemagne. Cependant, la fragmentation politique des gouvernements de coalition et le populisme laissent présager des tensions budgétaires croissantes, car les mesures d’austérité budgétaire suscitent peu d’enthousiasme. Les pressions commerciales et les coûts de la transition énergétique freineront la croissance dans la région. L’inflation ralentit, mais la dynamique salariale découlant des tendances démographiques défavorables, combinée à la hausse des coûts des aliments et de l’énergie, continue de présenter un risque de hausse.

Chine : modération maîtrisée

La Chine poursuit un ralentissement contrôlé, la croissance étant alimentée par la fabrication, les exportations et les dépenses publiques plutôt que par la consommation. La correction du secteur immobilier continue de peser lourdement sur la confiance des ménages. L’inflation demeure inférieure à la cible, la faiblesse du pouvoir de fixation des prix et la capacité industrielle insuffisante exerçant des pressions à la baisse. Les mesures de soutien sont ciblées, les autorités privilégiant la stabilité financière et ne souhaitant pas stimuler le marché de l’habitation de façon vigoureuse. Des risques externes persistent, surtout en raison des échanges commerciaux, mais des mesures d’assouplissement et de stabilisation supplémentaires devraient contribuer à réduire les risques de déflation cette année.

Canada : reprise de la croissance de la production potentielle

Le Canada a mieux résisté que prévu en 2025, malgré d’importants chocs commerciaux et la faiblesse du marché de l’habitation. L’endettement des ménages, le refinancement des prêts hypothécaires, le ralentissement de la croissance de la population et l’humeur morose des entreprises demeurent des contraintes. Dans cette perspective, on s’attend à ce que les risques s’atténuent. Les dépenses budgétaires dans les infrastructures, le logement et la défense ont un effet positif, tandis que l’inflation contenue donne à la Banque du Canada la marge de manœuvre nécessaire pour maintenir une politique expansionniste. Les tensions commerciales pourraient reprendre dans le cadre de la renégociation de l’ACEUM, mais le Canada entame 2026 dans un contexte d’amélioration de la dynamique de l’emploi et de reprise de la croissance de la production potentielle.

Conclusion

Après trois années consécutives de solides rendements boursiers, le contexte de placement au début de 2026 est en pleine mutation. Le rendement des actions devrait de plus en plus être attribuable à la croissance des bénéfices plutôt qu’à l’expansion des valorisations, dans un contexte macroéconomique qui demeure généralement favorable. Au Canada, l’exposition aux matières premières, l’amélioration de la croissance des bénéfices et les valorisations relativement intéressantes contrastent avec le marché américain, où les valorisations sont élevées, tandis que les taux obligataires semblent confinés dans une fourchette, l’inflation et les pressions sur les taux d’intérêt s’annulant mutuellement.

Au-delà du cycle à court terme, les marchés sont façonnés par de puissantes forces à long terme. La fragmentation géopolitique, les déficits budgétaires importants et persistants et les investissements rapides liés à l’IA redéfinissent la croissance, l’inflation et les contraintes en matière de politique. L’inflation s’atténue, mais devrait rester plus volatile qu’avant la pandémie.

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.

Venezuela and the arrival of the “Donroe Doctrine”

Trump gunboat diplomacy in the Caribbean has culminated in the seizure of Venezuelan leader Nicolás Maduro on January 3, 2026. The move has been widely touted as part of a revived Monroe-style foreign policy doctrine in the United States which aims to assert regional hegemony by shaping political trajectories through the region.

More muscular regional foreign policy from the United States under President Trump reinforces a rightward political shift across the region. Economic instability, corruption and crime have been the fuel for voters to favour conservative and far right candidates in elections across Argentina, Bolivia, Chile, El Salvador and Honduras. The United States has signalled in recent months that it is prepared to strengthen the hand of conservative political actors aligned with its strategic aims (e.g., the US Treasury’s $20 billion currency swap line with Argentina’s central bank).

Maduro’s capture sends a clear message – particularly to Latin America’s left-wing politicians – with respect to the lengths to which Washington will go to protect its economic, geopolitical, security and ideological interests in the region.

The rise of economic conservatism with a backstop from the United States has already stoked optimism in regional equity markets on hopes for pro-business reforms, deregulation and fiscal discipline. While LatAm’s equities markets were buoyant in 2025, we think there is potential for positive momentum to pick up as the continent embraces fiscal conservatism.

As we have written previously, Brazil remains the largest market that can move the dial for EM equities should voters go with an economic moderate over incumbent President Lula in this year’s presidential elections. Below, our LatAm portfolio manager Luis Alves de Lima provides an update on prospects for the market.

Will Brazil be the next domino to fall in LatAm’s shift to the political right?

With the FIFA World Cup and presidential elections looming, 2026 shapes up as a big year for Brazil. While my Brazilian compatriots and I remain as passionate as ever about football, I think that politics is poised to steal the spotlight from the pitch.

In my view, the « Hexa » (Brazil’s longed-for sixth World Cup win) remains a distant national dream reflected in rather long odds among the bookmakers. The better bet is for a market-friendly political shift and subsequent bull market in Brazilian stocks.

However, it would be foolhardy to call time on a political operator as wily as Lula da Silva. We have written in previous commentaries about the potential for a conservative moderate such as Sao Paolo governor Tarcísio de Freitas to win the presidency. He remains the markets’ preferred candidate, being a technical, pro-market leader capable of bridging the gap between the Bolsonarista base and the moderate right. However, recent data from the December 2025 Quaest polls suggests a more complex reality.

Senator Flávio Bolsonaro, the son of the former president Jair Bolsonaro (now in prison for a botched coup attempt), has reached parity with Tarcísio in presidential vote runoff simulations, both trailing President Lula in a 46% to 36% split. This shift has emboldened the Bolsonaro family to prioritize their own political legacy, seeing an opportunity for Flavio to inherit the mantle of right-wing standard-bearer rather than coalesce around a moderate more likely to garner wider public support.

Critically, and much to the consternation of investors, Governor Tarcísio has said he will not run for president if Flávio Bolsonaro maintains his candidacy. Driven by a deeply held sense of loyalty and a desire to avoid fracturing the conservative base, Tarcísio has essentially signalled that he will remain in São Paulo if the « heir apparent » proceeds.

This is the worst-case scenario and would leave voters with a choice between two populists who feed on political polarisation. President Lula would welcome the prospect of Flávio’s candidacy, where he can home his narrative for the candidacy in on the threat to institutions of a Bolsonaro presidency.

Political sands will continue to shift as 2026 unfolds

These recent developments are no doubt a knock to the short-term bull case to Brazilian equities. However, getting overly fixated on this « nightmare scenario » would be a mistake. The field is deeper than current headlines suggest.

Even if Flávio remains the standard-bearer for now, there is potential for alternative candidates to grow in the polls should the electorate favour administrative results over populist chaos.

Figures like Governor Ratinho Júnior (Paraná) and Governor Romeu Zema (Minas Gerais) have built formidable reputations for fiscal discipline and efficiency.

The emergence of Renan Santos and the MBL’s « Missão » party represent a youth-driven movement prioritising fiscal conservatism, anti-corruption and law and order, which could disrupt the duopoly between Lula’s PT party and the Bolsonarismo right as we approach the March 2026 deadline for candidate clarity.

Market implications

There are two primary reasons for constructive optimism in thinking about the outlook for Brazilian stocks:

First, Brazil is not an island; it is part of a decisive continental swing to the right. In December, we saw José Antonio Kast’s victory in Chile, this on the back of President Javier Milei’s strong showing in Argentinian legislative elections, and recent conservative momentum in Ecuador.

This regional « blue tide » creates a powerful tailwind for market-friendly policies, and we argue that this will place some moderating pressure on Brazil’s political elite.

As its neighbours demonstrate the success of radical deregulation, the appetite for a « rational right » candidate in Brazil will only strengthen.

Second, valuations remain exceptionally attractive. Despite the noise, the Brazilian equity market continues to trade at a forward P/E of roughly 10x – well below historical averages and global peers.

EM market valuations vs past 10 years – Brazil the cheapest of the major markets

Source: FTSE Russell, Factset, HSBC

Momentum in earnings revisions ratios is broadly turning higher

Source: FTSE Russell, Factset, HSBC

The « election premium » is already being priced into assets, meaning that any pivot back toward a Tarcísio-led ticket or a credible centrist surge would trigger a massive re-rating.

Historically, when Brazil shifts toward a pro-market administration, the subsequent rallies can exceed 200% in dollar terms.

In summary, while we expect continued volatility through the first half of 2026, the fundamental investment case for Brazil remains intact. We are navigating a period where political pessimism provides a rare window to build positions in high-quality companies at distressed prices.

We remain vigilant but confident that the broader regional trend and the sheer attractiveness of local valuations will ultimately win out over the electoral circus.

Nouvelles

Gestion de placements CC&L est fière de recevoir le prix Coalition Greenwich 2025 : Meilleur gestionnaire d’actifs pour les investisseurs institutionnels au Canada*. Ce prix reflète l’excellence pour ce qui est du rendement des placements et du service à la clientèle, selon l’indice de qualité Greenwich.

Rendement des indices boursiers (monnaie locale)	T4 (%)	Cumul annuel (%)
MSCI Monde tous pays	3,7	20,2
MSCI Monde tous pays hors É.-U.	6,0	25,1
S&P/TSX composé	6,3	31,7
S&P 500	2,7	17,9
MSCI monde tous pays	5,7	32,1
Obligataire universel FTSE Canada	-0,3	2,6

Actions étrangères

Stratégies d’actions étrangères	T4 (%)	Cumul annuel (%)
Stratégie d’actions mondiales Q CC&L	2,6	22,0
Stratégie d’actions mondiales Q à extension CC&L¹	4,5	24,1
Indice MSCI Monde tous pays ($ CA) (net)	1,8	16,6
Stratégie d’actions mondiales à petite capitalisation Q CC&L	2,4	20,1
Indice MSCI Monde tous pays à petite capitalisation ($ CA) (net)	1,1	14,1
Stratégie d’actions internationales Q CC&L	4,3	32,1
Indice MSCI Monde tous pays hors É.-U. ($ CA) (net)	3,5	26,2
Stratégie d’actions internationales à petite capitalisation Q CC&L	3,8	32,6
Indice MSCI Monde tous pays hors É.-U., à petite capitalisation ($ CA) (net)	1,4	23,2
Stratégie d’actions marchés émergents Q CC&L	3,8	30,6
Indice MSCI Marchés émergents ($ CA) (net)	3,2	27,3
Stratégie d’actions américaines Q à extension CC&L¹	3,0	17,2
Indice S&P 500 (net 15%)	1,1	12,1

Rendements sectoriels (en devise locale) de l’indice MSCI Monde tous pays au 4ème trim.

3 MEILLEURS

10,1 %

Santé

6,4 %

Matériaux

5,2 %

Finance

3 MOINS BONS

1,4 %

Biens de consommation de base

0,0 %

Consommation discrétionnaire

-2,0 %

Immobilier

Rendements des pays (en devise locale) de l’indice MSCI Monde tous pays au 4ème trim.

3 MEILLEURS

30,8 %

Corée

18,0 %

Autriche

17,7 %

Chili

3 MOINS BONS

-2,9 %

Maroc

-7,6 %

Chine

-7,6 %

Arabie saoudite

Actions canadiennes

Stratégies d’actions canadiennes	T4 (%)	Cumul annuel (%)
Stratégie fondamentale d’actions canadiennes CC&L	7,6	30,3
Stratégie d’actions canadiennes de revenu et de croissance CC&L	6,0	24,6
Actions de revenu et de croissance plus CC&L	5,3	25,0
Stratégie d’actions canadiennes Q de base CC&L	7,8	34,6
Stratégie d’actions canadiennes Q croissance CC&L	7,4	35,5
Stratégie d’actions canadiennes Q CC&L (stratégie d’extension)¹	9,3	40,2
Stratégie d’actions canadiennes combinées CC&L (Q de base & fondamentale)	7,7	32,4
S&P/TSX composé	6,3	31,7
Stratégie fondamentale d’actions canadiennes à petite/moyenne capitalisation CC&L	11,3	44,5
60 % indice des titres à petite capitalisation S&P/TSX + 40 % indice complémentaire S&P/TSX	9,5	47,2

Rendements sectoriels de l’indice composé S&P/TSX au 4ème trim.

3 MEILLEURS

11,9 %

Matériaux

11,0 %

Consommation discrétionnaire

10,5 %

Finance

3 MOINS BONS

-1,5 %

Industrie

-1,7 %

Services de communicationcommuni-cation

-6,1 %

Immobilier

Titres à revenu fixe canadiens

Stratégies de titres à revenu fixe	T4 (%)	Cumul annuel (%)
Stratégie d’obligations de base CC&L	-0,4	3,0
Stratégie d’obligations universelle alpha plus CC&L¹	1,5	6,0
Stratégie de titres à revenu fixe de base plus CC&L	0,0	3,5
Stratégie d’obligations à haut rendement CC&L²	0,5	5,8
Indice obligataire universel FTSE Canada	-0,3	2,6
Stratégie d’obligations à long terme CC&L	-1,4	-0,3
Stratégie d’obligations à long terme alpha plus CC&L¹	0,4	2,6
Indice obligataire global à long terme FTSE Canada	-1,4	-0,7
Stratégie d’obligations à court terme CC&L	0,3	3,9
Indice obligataire global à court terme FTSE Canada	0,3	3,9
Stratégie marché monétaire CC&L	0,7	3,0
Indice des Bons du Trésor à 91 jours FTSE Canada	0,6	2,8

Évolution des marchés obligataires

Stratégies équilibrées

Stratégies équilibrées	T4 (%)	Cumul annuel (%)
Stratégie équilibrée CC&L	2,8	16,4
25 % Indice composé S&P/TSX & 35 % MSCI ACWI Net ($ CA) & 40 % Indice obligataire universel FTSE Canada	2,1	14,6
Équilibré bonifié CC&L	3,0	16,8
20 % Indice composé S&P/TSX & 40 % Indice MSCI Monde tous pays ($ CA) (net) & 40 % Indice obligataire universel FTSE Canada	1,8	13,9
Stratégie revenu et croissance de base CC&L	4,1	19,9
Indice composé S&P/TSX à 50 % / Indice plafonné des FPI S&P/TSX à 25 % / Indice obligataire toutes les sociétés FTSE Canada à 25 %	2,5	19,2

Stratégies de rendement absolu

Stratégies de rendement absolu¹	T4 (%)	Cumul annuel (%)
Stratégies multiples CC&L	7,0	13,4
Toutes stratégies CC&L	9,7	15,0
Stratégies fondamentales d’actions neutres par rapport au marché CC&L	9,4	5,1
Stratégie d’actions mondiales Q neutre au marché CC&L (Canada)	5,1	14,7
Stratégie de revenu fixe à rendement absolu CC&L	0,0	3,4
Fonds d’obligations à rendement absolu CC&L	0,2	3,8
Indice des Bons du Trésor à 91 jours FTSE Canada	0,6	2,8

Gestion de placements Connor, Clark & Lunn Ltée

Fondée en 1982, Gestion de placements Connor, Clark & Lunn est une société fermée de gestion de placements qui a à cœur d’offrir un service exceptionnel et une vaste gamme de solutions de placement intéressantes à sa clientèle diversifiée, qui comprend des particuliers, des régimes de retraite, des sociétés, des fondations, des membres des Premières Nations et d’autres organisations. Nous nous employons à répondre aux besoins de nos clients en matière de placement en leur offrant des stratégies de placement complètes qui comprennent des catégories d’actif traditionnelles ou non, de même qu’une diversité de styles axés sur des facteurs quantitatifs et fondamentaux.

* Tout au long de 2025, Crisil Coalition Greenwich a mené des entrevues auprès de 147 des plus grands régimes de retraite privés et publics, institutions financières, fonds de dotation et fondations au Canada et dans d’autres régions du monde. Des gestionnaires de fonds chevronnés ont été invités à fournir des évaluations détaillées de leurs gestionnaires de placement, des évaluations des gestionnaires qui sollicitent leurs services et des renseignements sur les tendances importantes du marché. Gestion de placements Connor, Clark & Lunn n’a versé aucune rémunération à Crisil Coalition Greenwich pour ce sondage.

Toutes les données, à l’exception des indices MSCI sont en date du 31 décembre 2025 et sont exprimées en dollars canadiens ($ CA). Sources : Groupe financier Connor, Clark & Lunn Ltée, FTSE Global Debt Capital Markets Inc., MSCI Inc., Thomson Reuters Datastream et S&P. Les rendements des portefeuilles sont des données préliminaires, fondées sur un compte représentatif de la stratégie applicable et peuvent changer. Sauf indication contraire, les rendements sont présentés avant déduction des frais. Le rendement brut est présenté après déduction des frais de négociation et d’exploitation, mais avant déduction des frais de gestion et des commissions de rendement, selon le cas. Les frais d’exploitation comprennent des éléments comme les frais de garde pour les comptes distincts et, dans le cas des fonds en gestion commune, ils comprennent aussi des frais d’évaluation et d’audit ainsi que des frais fiscaux et juridiques. Les frais de gestion et les frais d’exploitation additionnels réduiront les rendements réels des investisseurs. 1. Ces stratégies sont assujetties à des frais de rendement, lesquels réduiront davantage les rendements réels obtenus par les investisseurs. 2. La Stratégie d’obligations à haut rendement CC&L s’appuie sur un indice de référence personnalisé. Pour en savoir plus, veuillez communiquer avec nous.

Cette publication est fournie à titre informatif uniquement et ne constitue ni une offre d’achat ou de vente, ni une sollicitation d’offre d’achat ou de vente de titres ou d’autres instruments financiers recommandés par CC&L.

Pour de plus amples renseignements sur le rendement, veuillez communiquer avec nous à [email protected].

Sources : MSCI Inc. Les données de MSCI sont destinées uniquement à l’usage interne. Elles ne peuvent être reproduites ni rediffusées sous quelque forme que ce soit et ne peuvent être utilisées pour créer des instruments, des produits ou des indices financiers. MSCI ne donne aucune garantie et ne fait aucune déclaration, explicite ou implicite, et ne peut être tenue responsable quant aux données présentées ici. MSCI n’a pas approuvé, revu ou produit le présent document.

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.

Outlook

Emerging market equities have outperformed developed markets for the first time in five years, and by the most since 2017. The backdrop for the asset class is the most positive we have seen for the last decade or more. We expect the monetary backdrop to remain disinflationary for the first half of 2026, with treasury yields and the US dollar expected to continue declining.

Money growth in China is supportive, strong in India, and weak in Brazil, Mexico and South Africa. EM earnings growth is forecast to be 20.5% in 2026, nearly double this year at 10.4% according to Jefferies. On a more cautious note, global money trends suggest an economic slowdown into the end of Q4 and through Q1 2026 making us cautious on cyclical exposure.

Quality investing by first principles

In investing, there is a fine line between discipline and rigidity, or between conviction and stubbornness. Any resilient investment process must be nimble and adaptable enough to weather different market regimes. Investors relying too heavily on static profitability or valuation metrics in their investment process risk getting caught out when structural change takes place.

Screening for returns on equity, low leverage and earnings growth will give you only a very limited snapshot of investment value. Our aim is to paint a far richer picture of the businesses we are analysing.

We are trying to think about value creation in the stock market from first principles. Economic value added (EVA) stock analysis is one of the key tools we use for this. For those who missed it, we wrote about the core elements of EVA investing in a previous monthly, with highlights from that piece below.

Our approach to stock picking – focus on economic value added (EVA)

Made famous by Stern Stewart & Co., the approach homes in on the spread between the rate of return on a company’s invested capital and its cost of capital; economic value added, or EVA for short.

Why? We know that over the medium to long term, EVA is directly tied to the intrinsic value of any company and the fuel that fires up a company’s stock price.

Stock prices reflect how successfully a company has invested capital in the past and how successful it is likely to be at investing new capital in the future. EVA is the best methodology to measure the value that management has added to, or subtracted from, the capital it has employed over time.

How can management create value?

Bennett Stewart in his book The Quest for Value boils it down to three drivers:

The rate of return earned on the existing base of capital improves; that is, more operating profits are generated without tying up more funds in the business.
Additional capital is invested in projects that return more than the cost of obtaining new capital.
Capital is liquidated from, or further investment is curtailed in, substandard operations where inadequate returns are being earned.

We are looking for companies that can be expected to generate high or improving returns on the capital employed in their businesses. These are companies run by management teams laser-focused on making investments that earn more than the cost of capital, and undertaking all positive net present value projects, while rejecting or withdrawing from all negative ones.

Source: Bennett Stewart (1991), The Quest for Value

Understand what drives returns

Value creation is not enough for long run success. We need to know whether it can be sustained. Our process is focused on identifying the drivers of these returns and assessing:

whether there are historic changes or potential catalysts for improved value creation that are yet to be reflected in market prices; and
the sustainability of those returns – are there enduring competitive moats that will protect excellent returns on invested capital?

Our approach identifies highly productive and capital-efficient companies pursuing value creation in a variety of ways. It also focuses on whether that value creation is sustained via competitive moats.

Moats can take a number of forms, from differentiation via proprietary tech, brands or prime locations, to high switching costs, network effects, cost leadership, economies of scale or minimum efficient scale.

EVA helps to cut through the noise and home into whether a business is creating real economic value, and whether the trend of that value creation is strengthening or weakening. Crucially for emerging markets with weaker governance and opaque accounting, headline earnings can mask poor capital efficiency or inflated asset values. EVA cuts through these distortions by focusing on true economic profitability, drilling into the underlying economic strength of a business.

By emphasising value creation rather than headline earnings, EVA highlights when incremental investments fail to cover their capital charge – often an early warning sign of eroding competitive advantage. Further, this approach naturally draws attention to cyclical or structural changes impacting margin compression, rising capital intensity or declining asset productivity, which traditional metrics might obscure.

Below is a rough sketch of how EVA can provide a more robust check of company economics than an approach focused on accounting profitability.

Example: EM Real Estate Development Co.

Accounting view (P/E)
Reported net income: $100m
Shares outstanding: 50m
EPS: $2
Current price: $20
P/E ratio: 10x

On the surface, ABC Realty looks attractively valued at 10x earnings, suggesting a cheap stock relative to peers trading at 12–15x.

Economic value added view
NOPAT (Net operating profit after tax): $120m
Invested capital: $1.5bn
Weighted average cost of capital (WACC): 12%
Capital charge: $180m (1.5bn × 12%)
EVA = $120m – $180m = –$60m

Despite positive accounting profits, the company is destroying economic value, earning less than its cost of capital. This signals that growth funded by debt and equity is not creating shareholder wealth, even though the P/E ratio looks attractive.

In this case, the EVA approach provides a better assessment of whether a company’s moat remains intact and whether its strategic positioning continues to justify its valuation.

Below is a brief example of what we love to see from an EVA perspective.

Stock example – Vivara: market leader in Brazil’s jewellery industry, vertically integrated and expanding aggressively

Vivara is the dominant retail jewellery brand in Brazil, controlling more than 20% of the market.

Source: Vivara Investor Relations 2025

The business is improving its returns on capital through new store openings, sweating assets and maintaining cost control through scale as the only domestic player which manufacturers its own products.

Sweating the assets harder than peers
Retail space productivity (EUR 000s for sale/m²) correlates with EBIT margin (%) – Global players

Retail space productivity (R$ 000/sqm) correlates with EBIT margin (%) – Local players

Source: BTG Pactual 2024

Value creation highlights:

Opening 50–70 stores per year, focus on aspirational Life brand, forecast 40% of sales by 2026.
2-year sales CAGR of c.18% and EBITDA CAGR c.19%. Same-store sales growth consistently positive.
E-commerce 23% of total sales, headroom for further growth.
Plans to enter new markets Mexico and Panama, leveraging scalable business model.

Return drivers and competitive advantage:

Vertical integration: Vivara controls the entire value chain from design to production and distribution, enabling cost efficiency and rapid response to market trends.
Brand strength and market position: Strong brand recognition and customer loyalty, 75% retention rate and a broad product range catering to multiple segments.
Scale and retail network: Extensive retail network with 40% penetration in premium malls and significant opportunities for further expansion.

Our kind of business – this all translates into an attractive EVA profile

Vivaras ROIC charts

Source: NS Partners and Bloomberg

As emerging markets show renewed strength, our approach remains rooted in first principles: seeking resilient, capital-efficient companies positioned for long-term value creation that should drive stock prices.

Of the five senses, vision is regarded as the most important as it allows us to navigate our environment, recognize the faces of our loved ones and read and watch to learn and entertain. But a good number of us do not have healthy eyes. According to the World Health Organization (WHO), at least 2.2 billion people globally suffer from near or distant vision impairment. The organization recognizes myopia as a significant public health concern given its rising prevalence around the world. A review of 276 studies (involving more than 5.4 million children from 50 countries across six continents) by the British Journal of Ophthalmology revealed that global prevalence of myopia among children and adolescents increased from 24% in 1990 to 36% in 2023 – one in three of all children and teens are nearsighted today. What is even more concerning is that myopia is starting earlier in children than before.

Prevalence of myopia by age group in 2000 vs. 2050, % of world population

Source: American Academy of Ophthalmology, BofA Global Research

The study predicted that approximately 740 million children and teens (more than half globally) will be myopic by 2050. American Academy of Ophthalmology in its 2016 article forecasted that by 2050, myopia would affect nearly half of global population. A more conservative projection this year puts the number at ~40% of global population – but it is clear that the world 25 years from now will have more than the 2.2 billion people in need of corrective lenses today.

Prevalence of myopia is not even across the world. Asia sees a higher prevalence (close to 40%) that is two to four times higher than that of other regions. East Asian countries – China, Taiwan, South Korea, Japan and Singapore – see much higher myopia rates, exceeding 80–90%, in their adolescent populations.

Source: ScienceDirect, Global perspectives on myopia and pathologic myopia: From environmental drivers to precision medicine

Primary drivers of myopia are genetics, near-work activities and lack of outdoor activities. A recent article in Progress in Retinal and Eye Research journal linked the high prevalences in the East Asian countries to educational systems characterized by intense academic competition, prolonged school hours and substantial homework assignments which significantly reduce opportunities for outdoor activities.

The WHO estimated that vision impairment cost the global economy an estimated USD411 billion in productivity loss, with only 36% of people with myopia having access to an appropriate intervention. Shanghai Conant Optical Co. Ltd. (2276 HK) in our Emerging Markets Small Cap Strategy seeks to address this global myopia pandemic. SCO, a sub-USD3 billion market cap company, is the second largest resin (plastic) optical lens maker in the world after EssilorLuxottica in terms of production volume. At its manufacturing locations across China and Japan, the company produced 209 million pieces to serve customers in over 90 countries around the world in 2024.

We believe SCO’s customer value proposition of value for money is especially effective in the product category of optical lenses. SCO’s high-index lenses (such as 1.74 and 1.67) are approximately half the price of comparable lenses from EssilorLuxottica, Hoya and Zeiss whilst providing the same level of vision correction. On product quality, SCO is an ODM (original design manufacturer) for all the previously mentioned global brands with various lens-coating options available. For the brand-conscious, it is “fortunately” very difficult to tell which brand of lens one is wearing. We are not surprised that the company is especially seeing strong demand in developing countries where its customer value proposition would be stronger. As a person who has been wearing glasses for the past three decades, I have found myself switching from the expensive Hoya and Nikon to much more affordable brands (including Asahi-Lite which is now owned by SCO), which have provided an identical visual experience – I have not looked back since.

China offers a significant room for growth, having entered the world’s largest short-sighted country in 2018, two decades after the company was established. Over 700 million people or roughly half the population in China are diagnosed with myopia. The prevalence of myopia is especially high in school-aged children – roughly 40%/70%/80% of students in elementary/middle/high school suffered from myopia according to a 2022 study published in Investigative Ophthalmology & Visual Science. Laser eye surgery is not an option for these youths, and they must rely on glasses for vision correction until they are older. SCO’s sales in China focus on higher-index lenses where competition is more limited and penetration is lower, and 80% of those sales are of its own brand. The company’s growth in China has been margin accretive given the higher mix of own brand and higher-index lenses.

The company is also involved in the development of AI/AR glasses with leading technology companies in North America and China. SCO as a partner to the technology companies makes sense, given SCO’s scale and cost competitiveness. We appreciate that SCO is trying to solve the problem of the global myopia pandemic, but do not doubt that AI/AR glasses offer the next leg of growth for the company.

After the “meme stock” frenzy of 2021 and a bruising surge of volatility in 2022, many investors assumed retail traders had finally stepped back. The story was neat: higher rates, tighter liquidity and fading stimulus would restore rationality to equity markets. We were not convinced and argued in February 2023 that speculative behaviour was more likely to adapt than disappear.

Fast forward to today, and the data suggest retail participation has not only persisted, it has become a defining force in short‑term market moves. Across the small‑ and mid‑cap universes, trading volumes in lower‑priced, lower‑quality names have surged, with roughly a quarter of daily volume now concentrated in stocks trading under $5, a share last seen at the peak of 2021’s speculation. This renewed activity has driven a striking rotation beneath the surface: low ROE and even unprofitable companies have periodically outpaced their higher‑quality, high‑ROE peers over short horizons.

In this weekly, we want to address two questions:

Why does high ROE – the best proxy for quality – matter when investing? And,
What does history tell us about the performance of companies with high ROE versus those with low or negative ROE?

What ROE really measures

Return on equity (ROE) is net income divided by shareholders’ equity; it tracks how efficiently a business converts owners’ capital into earnings. In practical terms, it tells you how many dollars of profit a company generates for every dollar of equity on its balance sheet. Conceptually, ROE links back to basic valuation logic: for a given starting multiple, a firm that can earn and reinvest at higher rates should grow intrinsic value and future dividends faster over time. A company that compounds book value at 15–20% per year for a decade ends up in a very different place than one compounding at 5%, even if both start at the same size and valuation.

High – and sustainably high – ROE typically reflects one or more durable advantages: strong pricing power, an advantaged cost position, valuable brands or networks, or business models that require relatively little capital to grow. This is why investors often group high-ROE companies under the broader “quality” or “profitability” factor. In other words, ROE is not just a ratio; it is often a shorthand for underlying business quality.

Why high ROE wins over time

History is clear: profitability and quality matter far more over multi-year horizons than they do over six month “junk” episodes. Portfolios tilted toward companies with high and persistent profitability have historically delivered higher average returns than portfolios concentrated in low profitability or unprofitable names, even after controlling for size and valuation.

There are three main reasons for this:

Compounding of retained earnings: High-ROE companies can reinvest a larger portion of each dollar of earnings at attractive rates. Over time, this drives faster growth in earnings per share and intrinsic value without requiring fresh capital from shareholders.
Resilience through cycles: Businesses that earn high returns on capital usually have competitive advantages that help them sustain margins and cash flows during downturns, which tend to show up as shallower drawdowns and faster recoveries.
Better capital allocation options: Management teams leading high-ROE franchises often have more flexibility: reinvest in the core, expand into adjacencies, pay dividends or buy back shares. Lower-quality companies, in contrast, often need to issue equity or debt simply to survive, diluting existing shareholders.

Short periods of outperformance by low-quality stocks can be sharp and uncomfortable, but they have historically been transient, while compounding fundamentals tend to dominate over longer horizons.

When you think about it, the lesson for long-term investors couldn’t be clearer: real wealth comes from investing in companies that steadily compound capital at high rates, not from jumping on every fleeting speculative surge. The junk rallies fade and quality compounding lasts.

Time to take out the trash – What really is a “junk rally”?

In a universe of over 12,000 companies within global small caps, not every balance sheet is one to admire. Our job as active managers is to find real quality – the companies that actually make money and know how to grow it – and to avoid the companies that are overleveraged, poorly managed or structurally unprofitable. Many of those “junk” businesses feel more like ticking time bombs than investments. So, what happens when these so‑called junk companies rally and drive index performance? Do we simply throw in the towel and chase them?

A junk rally is a period when the lowest‑quality stocks – often those with excessive leverage, negative earnings, high beta or heavy short interest – significantly outperform the broader market, particularly higher‑quality names. These episodes tend to be most intense and momentum‑driven in small caps, where smaller market caps and thinner liquidity allow collective enthusiasm and buying pressure to move prices disproportionately.

Junk rallies often arrive with a burst of excitement – usually from retail investors – as they rush into stocks chasing a story and paying little attention to fundamentals. To spread these stories, investors turn to platforms like Reddit, X or Instagram, using viral posts and online communities to build momentum. As more buyers join in, the rally feeds on itself, with price action attracting even more attention.

Common terms around these episodes include:

Diamond hands: Investors who refuse to sell, convinced that holding long enough will eventually make them rich.
Short squeeze: When heavily shorted stocks rise sharply, forcing short sellers to buy back shares to cover positions, which drives prices even higher.
FOMO (“fear of missing out”): The anxiety investors feel when they believe they might miss a big gain if they do not act immediately.
Pump and dump: When prices are hyped up – often by coordinated online promotion and early movers sell into the frenzy, leaving late buyers exposed when prices fall back.

These phrases rarely appear in institutional memos, but the behaviours behind them very much exist in our universe and often bring sharp, sudden volatility to stocks whose fundamentals have not changed.

How junk rallies behave in practice

Over the past five years, we have seen several junk rallies – wild bursts where low‑quality stocks suddenly take off. Each time, two features have stood out. First, these rallies are typically parabolic and short‑lived; trying to jump on the bandwagon after the move is underway is almost always a poor risk‑reward trade‑off. Second, they almost always mean‑revert back toward the market, making them more about timing and positioning than about sustainable value creation.

Normally, we would pay limited attention to these episodes. However, because these lower-quality stocks sit in our benchmark, big, synchronized rallies in some low-quality pockets can cause us to lag temporarily. That is exactly what happened in 2020, 2023, and again in 2025, when risk on sentiment sent the lowest quality corners of the market flying while our quality growth names took a back seat. As the excitement faded and fundamentals reasserted themselves, excess junk gains unwound and quality leadership reemerged.

Proof that low quality doesn’t last

Even without decades of data, recent episodes make the point: high ROE remains a long‑run winner. In the 2022 low‑quality rally, high‑quality stocks temporarily lagged as low‑quality names spiked and then sold off, but by the end of that six‑month stretch, the high‑quality cohort had again moved ahead. You saw a similar pattern in the quality rally of summer 2024, which lost steam by early 2025, and more recently in the post‑Liberation Day rebound, where relief from macro fears and crowded positioning turbocharged the most speculative, lower‑ROE parts of the market.

Once low quality lost steam, high quality rebounded faster

Low quality was ahead, but high quality protected during Liberation Day market correction

In the immediate aftermath of Liberation Day, low‑quality stocks rallied because the market shifted violently from fear to relief: investors moved quickly from pricing in severe recession and trade dislocation to betting on a softer outcome, and that swing in sentiment tends to benefit the most beaten‑up, highly levered and high‑beta parts of the market first. Positioning and mechanics amplified the move, as many lower‑quality names were heavily shorted and under‑owned going into the shock, so even a modest improvement in the macro narrative forced short covering and factor rebalancing, turbocharging returns in exactly the sort of speculative companies that typically lead junk rallies.

The current junk rally is showing signs of losing momentum, with lower-quality names starting to lag

Don’t hate the player, hate the game

Now that we’ve defined what junk rallies look like, let’s examine how they affect active management. As noted above, the post-Liberation Day period – when the MSCI World Small Cap Index surged 34.3% (CAD) between April 8 and October 31, 2025 – marked one of the strongest low-quality rallies of the past decade. During this time, market leadership – particularly in the United States – was dominated by lower-quality companies across a range of sectors. The AI and data centre trade became the theme of the year, driving performance regardless of valuations or ROE.

What you’ll almost never hear an investor say is that they’re overweight “junk.” It’s rare for anyone to deliberately focus on low-quality companies. As a result, low-quality rallies usually lead to short-term periods where active managers struggle to generate alpha. Looking at year-to-date and one-year returns, we’re seeing exactly that type of environment. With the MSCI World Small Cap Index ranking in the middle-to-high second quartile, about 60% of active global small-cap managers haven’t added alpha over the past year. Additionally, these periods usually come with a wide dispersion in manager returns, as portfolios with even modest exposure to the most speculative names tend to outperform sharply, while quality-focused strategies are left behind.

As we can see below, over the 7- and 10-year periods, global small caps remains an inefficient asset class – with more than 50% of active managers outperforming the MSCI World Small Cap Index.

What we’re trying to argue is that when these short periods of low quality take over, don’t hate the player, hate the game. The small cap market can be dysfunctional for short stretches, but over the long run, high-ROE companies almost always outperform their low-ROE peers.

En tant que signataire des Principes pour l’investissement responsable (PIR) des Nations Unies, nous sommes heureux de vous présenter les résultats de notre rapport d’évaluation pour 2025. Cette année, CC&L Infrastructure a mis de l’avant plusieurs initiatives de gestion des risques et de création de valeur qui ont contribué à l’obtention de ces résultats remarquables, témoignant du travail acharné de l’équipe, de son approche disciplinée et de son engagement à l’égard de la gestion dynamique des actifs.

Apprenez-en davantage sur la façon dont nous mettons en pratique les Principes pour l’investissement responsable en consultant le https://cclinfrastructure.cclgroup.com/what-we-do/responsible-investment/ (en anglais seulement).