Mawer Investment Management Q2 2026 Quarterly Update

In Canada, inflation accelerated more than expected, driven by rising gasoline prices as the impact of the Iran conflict continued to filter through energy costs. Read more here.

Market Overview Headline returns in the second quarter looked strong, but the underlying drivers were AI-related technology companies, particularly semiconductors and memory manufacturers, many of which are concentrated in Asia (regional leadership from South Korea and Taiwan). Hyperscaler capex fueled global demand for memory and advanced logic chips which flowed through companies like TSMC (TSM), Samsung (SSNLF), and SK Hynix (SKHY) (to name a few) and beneath them, many parts of their respective supply chains. Importantly, this quarter was not just a story of valuation expansion but of strong fundamentals as corporate profit margins have been robust, nearing record levels.

Capital spending is real, with hyperscalers committing to ever higher levels of investment, and many profit inflections are substantial. The Initial Public Offering (IPO) market has also come alive in a way that warrants attention. SpaceX completed the largest IPO in U.S. history in June with other large IPOs planned—but not confirmed—for this year which has elevated both enthusiasm and potential risk.

A hot IPO market is not, on its own, proof of a bubble, but it is one more data point in a broader mosaic of speculative enthusiasm that merits continued attention. In Canada, inflation accelerated more than expected, driven by rising gasoline prices as the impact of the Iran conflict continued to filter through energy costs. At the time of writing, the picture has shifted again.

A U.S.-Iran interim agreement signed in mid-June opened a 60-day window during which the Strait of Hormuz partially reopened, pushing crude prices sharply lower. That relief proved temporary as renewed military strikes between the two countries have reignited the conflict, and oil prices have moved back higher. A full return to pre-war oil production levels may be further out in the future depending on how this escalation unfolds.

Central banks navigated a materially more complicated quarter than the one before. The Bank of Canada held its overnight rate steady this quarter, choosing to look through what it views as a supply-driven inflation shock rather than tighten into an economy that contracted for a second consecutive quarter. In the United States, the Federal Reserve also held its rate steady, but the June meeting marked a significant shift in tone.

The new Fed Chair delivered a hawkish message, with half of the Fed committee members projecting at least one rate increase this year, and inflation forecasts revised upward with an uncomfortable persistence into 2027. The Fed is not yet raising rates, but the committee seems to be less patient with inflation that has now run above target for five consecutive years. Elsewhere, the European Central Bank delivered a rate increase, and the Bank of Japan continued its gradual normalization.

How and What We Did Our quality oriented portfolios delivered solid absolute returns this quarter but were mixed versus their benchmarks. Fixed income strategies generated modest positive returns, consistent with an environment where rates moved broadly sideways. It is worth reminding readers that bonds are held not to outperform in a strong equity market but to act as stabilizers during periods of volatility.

In Canada, financials were a major