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Markets began 2026 on a strong footing, extending the momentum from 2025. In late February, however, sentiment shifted following the U.S. and Israel’s strikes on Iran on February 28, contributing to a meaningful pullback in March. Despite this volatility, the portfolio performed broadly in line with the S&P/TSX Small Cap Index in the first quarter, returning 11.4% versus 12.0% for the Index. Canadian small caps also materially outperformed global markets during the quarter.
The table below summarizes the quarter’s returns for select global indices alongside the portfolio’s return.
Amid heightened uncertainty and the closure of the Strait of Hormuz, investors shifted toward perceived safe havens, supporting the U.S. dollar, while spot oil prices rose sharply. Higher energy prices brought inflation concerns back into focus, contributing to higher interest rates and increased global economic uncertainty. In response, the U.S. Federal Reserve paused rate reductions, citing the need for additional data before proceeding further. A key question for investors remains the duration of the conflict and its potential implications for both inflation and economic growth.
For the quarter, the two best-performing sectors were Energy (+34.8%) and Utilities (+23.9%). These headline returns, however, do not capture the full intra-quarter dynamics: the first two months of the year saw Materials materially outperform before pulling back in March, whereas Energy’s gains were amplified by events late in the quarter. As noted at the end of 2025, we were looking to add Energy exposure, which we initiated during the first quarter and increased further following the escalation in Iran. The portfolio was positioned close to market weight in Energy; however, following a drawdown in gold and copper prices, we increased exposure to gold and copper equities by reducing Energy holdings. We also increased exposure to defence-related holdings within Industrials, funded primarily through a reduction in Technology (mainly software stocks).
The three largest detractors from performance in the first quarter were New Found Gold Corp., Aldebaran Resources Inc., and Magna Mining. Collectively, these positions reduced portfolio returns by -1.2% in Q1.
New Found Gold is an emerging Canadian gold producer with assets in Newfoundland and Labrador. The company holds a 100% interest in the Queensway Gold Project and the Hammerdown Gold Project, which includes the fully permitted Pine Cove Mill. The mill and the Hammerdown project were acquired through New Found Gold’s acquisition of Maritime Gold in 2025. The company is advancing its flagship Queensway project while progressing Hammerdown toward commercial production. We continue to hold a position as the company transitions from an exploration-focused profile to a producing profile.
Aldebaran Resources owns an 80% interest in the Altar copper–gold project in the mining-friendly San Juan Province of Argentina. The management team has a strong track record and is advancing the Altar project alongside its strategic partner, South32. In October 2025, the company released a Preliminary Economic Assessment (PEA) and is now progressing the project toward a pre-feasibility study in 2026. Altar is one of the largest undeveloped copper projects globally, with an estimated 48-year mine life. We added to the position in mid-March as copper equities retreated from recent highs.
Magna Mining is a producing mining company with a portfolio of copper, nickel, and PGM operating, exploration, and development projects in the Sudbury region of Ontario. The company’s primary assets include the producing McCreedy West copper mine and the past-producing Levack, Podolsky, Shakespeare, and Crean Hill mines. The team has an established track record in the region, with leadership experience from FNX and previously Inco. We continue to hold our position as the company increases production and advances an active exploration program.
The three largest contributors to performance in the first quarter were Tenaz Energy Corp., 5N Plus, and Spartan Delta Corp. Collectively, these positions contributed +3.7% to portfolio returns.
Tenaz Energy Corp. is an energy company focused on acquiring and developing international oil and gas assets. Tenaz is the largest operator of natural gas assets in the Dutch sector of the North Sea. The management team is experienced and follows a clear strategy, prioritizing free cash flow generation to support balanced growth through an acquisition-led model targeting underfunded or under optimized assets. During the quarter, we both added to and reduced the position in response to sector volatility. Most recently, we reduced the weighting to realize gains following the spike in oil prices (Tenaz shares were up 143.9% in the quarter).
5N Plus is a leading global producer of specialty semiconductors and performance materials. The company uses proprietary technologies to develop and manufacture advanced materials that are often critical components in customers’ products. Key end markets include terrestrial renewable energy, space solar power, and imaging and sensing. We continue to hold a position as the company executes well and delivers strong financial performance.
Spartan Energy is managed by a strong team with an impressive track record. Spartan is a Canadian oil and gas company that focuses on assets with multi-zone, oil and gas operated production alongside a large land base with a strategic infrastructure footprint. The company is acquisitive and focused on building a diverse portfolio that can be restructured, optimized, and rebranded to fully realize the assets’ potential. We bought and sold shares in Spartan in the first quarter of 2026, but most recently reduced the position following the oil price spike. We continue to maintain an oversized weight.
The Outlook
Clearly, the short-term outlook remains somewhat unpredictable, with the conflict in the Middle East still underway, albeit with a ceasefire in place. After substantial air strikes on Iran by both the U.S. and Israel, aimed at degrading Iran’s nuclear capability and targeting its leaders, Iran retaliated by closing the Strait of Hormuz and conducting its own air strikes on Israel and neighbouring countries. With a tentative ceasefire in place and negotiations ongoing, it appears we may be closer to the end of hostilities. This would be positive, and since the ceasefire, financial markets have rallied on the assumption that oil prices will begin to recede and the negative economic consequences will be more muted than initially thought.
Could things flare up? Absolutely. However, we are in the camp that the crisis is waning despite any flare-ups that might occur. We have reduced our Energy weight in anticipation of oil prices receding from recent highs. We will continue to monitor the sector and may look to increase positions, as we expect some war premium to remain in energy prices going forward.
The short-term outlook could also be clouded by President Trump’s reaction to countries that did not “help” the U.S. during the conflict with Iran. We will monitor developments as they unfold.
Clearly, the shorter-term environment is a road with bumps and turns, but our longer-term view remains firm. We are increasingly in a world where security of supply for materials is paramount. Underinvestment in the exploration and development of critical minerals has created an outlook that is characterized by undersupply. The western world is increasingly unwilling to rely on China for critical minerals and rare earth supply.
Globally, the world is moving toward near shoring from globalization. The interest rate environment appears biased lower in the short term as central banks respond to a weakening economy, but longer-term inflation will remain a burden and a focus for these central banks. Reliance on the U.S. is less certain for many of its allies and, therefore, diversification away from the U.S. dollar may reassert itself as a theme following the Iran conflict. In this environment, hard assets should continue to attract investment dollars. Gold may benefit as central banks diversify their reserves, and base metals may benefit from underinvestment and strong demand from areas such as data centres and vehicle electrification.
If we were to leave you with one picture of where we see the investment climate moving, it would be the one below.
This image shows a long-term view suggesting the establishment of a new long-term trend of U.S. 10-year yields being biased to the upside. There will, of course, be many ups and downs within the larger cycle, but the relative environment for equities over bonds, small-cap over large-cap, and hard assets over financial assets is what this picture may be forecasting.
We remain excited by what the future holds and look forward to investing in many great Canadian small-cap companies as we navigate a changing world.