A Quarter Defined by Convergence
In the first quarter of 2026, multiple forces — each individually capable of reshaping capital markets — converged simultaneously: an armed conflict in the Middle East that disrupted the world’s most important energy shipping lane, the continued acceleration of artificial intelligence (AI), the most consequential technological transformation in a generation, and an ongoing recalibration of global trade alliances. Any one of these developments in isolation would have commanded the full attention of market participants. Taken together, these forces created an environment of extraordinary complexity.
In this issue, we chronicle the factors that captivated markets and caused Larry Fink, the CEO of BlackRock, the world’s largest asset manager to remark: “We are living through a period where things that would’ve defined a decade have become routine: wars with global repercussions, trillion-dollar companies, a fundamental reordering of international trade and the advent of the most significant technology since, at least, the computer.”
War, oil, foreign policy and corporate earnings
On February 28th, U.S. and Israeli forces launched joint military strikes against Iran. Iran’s response included retaliatory attacks across the Gulf region and, critically, the effective closure of the Strait of Hormuz — a waterway through which roughly 20% of the world’s seaborne oil trade flows. Oil prices surged past US$100 per barrel for the first time in four years, peaking above US$125. The International Energy Agency described the disruption as the most significant supply shock in the history of the global oil market. The human and economic toll has been, and remains, deeply concerning.
Compounding this, U.S. foreign policy actions extended well beyond the Middle East. Developments in Venezuela — including the capture of President Maduro — and escalating pressure on Cuba, where a U.S. oil blockade contributed to catastrophic power grid failures affecting nearly 11 million people, underscored a period of aggressive American geopolitical engagement.
For investors, the range of potential outcomes associated with these developments is exceptionally wide, and attempting to predict their resolution with any confidence is not a productive exercise, in our view. We have written in previous commentaries about the market’s ability to distinguish between events it views as transitory versus those it considers structural. In the first quarter, markets found this classification particularly difficult.
Despite this backdrop, corporate earnings continued to increase. FactSet estimates average earnings growth of approximately 13% among constituent members of the S&P 500 during the first quarter of 2026, with notably broader participation across industry sectors. This represents a significant change. For the past several years, a narrow cohort of mega-cap technology companies (i.e.. Magnificent 7) drove most index-level earnings growth, leaving the other 493 companies in the S&P 500 behind. This suggests a healthier, broader and more sustainable earnings backdrop.
AI: The acceleration continues
While geopolitical events dominated the headlines, the AI investment cycle continued to accelerate beneath the surface. For 2026 alone, so-called hyperscalers (companies that engage in cloud computing that requires massive amounts of compute) plan to collectively allocate US$600 billion for capital expenditures, 36% more than in 2025. Microsoft, Alphabet, Amazon, Meta, and Oracle are each investing at scale, not to chase speculative opportunity but to serve existing demand that already exceeds their capacity to deliver. Microsoft has disclosed an US$80 billion backlog of Azure AI orders that it cannot yet fulfill, constrained not by technology but by physical infrastructure — particularly electrical power.
Takeaways
Geopolitical developments will no doubt continue to drive near-term volatility, but our focus remains on the businesses we own and the structural advantages that underpin long-term value creation. The wide range of possible outcomes is not, in our assessment, helpful for making investment decisions. What is helpful is ensuring our portfolios are built with companies that have the balance-sheet strength, competitive positioning, and operational resilience to navigate—and ultimately compound through—periods of uncertainty.
Just as importantly, we build portfolios that fit together: complementary end-markets and cash-flow profiles, a mix of secular growers and defensive compounders, and exposures that don’t rely on any single scenario. The aim is a coherent system that can keep compounding regardless of headlines.
EQUITIES
Equity markets delivered mixed but revealing performance in the first quarter. The S&P 500 posted a modest decline, weighed down by geopolitical uncertainty, energy‑driven inflation concerns, and elevated valuations. The Volatility Index (VIX), which reflects the market’s expectations for near‑term fluctuations in the S&P 500, rose sharply during the quarter — a sign of heightened investor anxiety. Historically, periods of elevated uncertainty have often coincided with attractive forward returns. In our view, the market may have already priced in more fear than fundamentals ultimately warrant, creating conditions where equities can climb a proverbial wall of worry.
The S&P/TSX Composite outperformed its American counterpart, supported by the Canadian market’s heavier weighting to energy and materials, which are sectors that benefit from surging commodity prices. However, as we have noted previously, our investment philosophy favours businesses with durable cash flows, strategic moats, and predictable earnings — not stocks whose fortunes hinge primarily on the next move in commodity prices.
Exiting Comcast and Diageo
A cornerstone of our investment philosophy is the requirement that companies possess durable structural advantages. When those advantages erode, disciplined stewardship demands action and we took it in the first quarter by exiting our positions in Comcast and Diageo.
Comcast was once a textbook example of a company with powerful scale and a well-defined moat to keep competitors at bay. Its cable infrastructure provided near-monopoly broadband access with high switching costs. That advantage has materially weakened. In 2025, Comcast lost over 710,000 broadband subscribers as fixed wireless providers and fibre overbuilders systematically penetrated its footprint. The company has acknowledged that its broadband environment is “intensely competitive” and unlikely to improve. When the moat narrows, the investment case changes.
Diageo faces a similar deterioration. Its brand portfolio — Johnnie Walker, Don Julio, Guinness — was built on a powerful premiumization trend in global spirits. That trend has stalled. While the brands remain formidable, the structural tailwind that underpinned our thesis has given way to volume pressure and margin compression.
Initiating positions in Eaton, Costco, and Moody’s
The proceeds from Comcast and Diageo have been redeployed into three businesses that we believe possess durable and, in some cases, expanding structural advantages: Eaton Corporation, Costco Wholesale, and Moody’s Corporation.
Eaton Corporation is a direct beneficiary of the electrification megatrend. As the world’s leading intelligent power management company, Eaton sits at the intersection of AI infrastructure, electrical grid modernization, and the energy transition, providing the electrical distribution and control systems that data centres and industrial facilities require — a so-called “grid-to-chip” portfolio. Eaton’s order backlog and long-cycle revenue visibility are exceptional. Its advantages include deep hyperscaler relationships, proprietary power conversion technology, significant regulatory barriers to entry, and a diversified industrial base that provides resilience through cycles.
Costco Wholesale possesses one of the widest competitive moats in consumer retail. Its membership-based model creates a self-reinforcing flywheel: by capping product margins at approximately 15% and deriving the majority of profits from membership fees, Costco offers prices that competitors cannot replicate without incurring losses. Membership renewal rates exceed 90% in North America, and the business historically performs defensively in downturns while participating in expansions.
Moody’s Corporation occupies one of the most structurally advantaged positions in global financial markets. As one of only three globally recognized credit rating agencies, Moody’s benefits from an oligopolistic market structure reinforced by regulatory barriers, network effects, and switching costs that are among the highest in any industry. Virtually every significant debt issuance (a company borrowing money) worldwide requires a credit rating, and the cost of switching agencies is prohibitive for issuers and investors alike.
FIXED INCOME
The fixed income landscape in the first quarter was shaped by the collision of conflicting forces. Central bank rate-cutting cycles that began in 2024 and 2025 were expected to continue into 2026, with market consensus and U.S. Federal Reserve projections pointing to approximately two additional rate cuts this year. However, the inflationary impulse from surging energy prices has complicated the outlook. Long-term bond yields rose as investors priced in the possibility that inflation may remain rangebound near 3% rather than declining to target. Domestically, the Bank of Canada faces an especially challenging environment. The BoC has warned that it must navigate structural shifts that will permanently reshape the country’s economic landscape. The policy rate differential between Canada and the United States remains wide, and Canadian bond yields have risen alongside their American counterparts as inflationary pressures from the energy shock weigh on expectations.
CLOSING THOUGHTS
As Coleford enters its 37th year of stewardship, the world around us has never felt more dynamic. The pace and magnitude of events competing for investor attention is remarkable. Yet our response to complexity is the same as always: discipline. We do not attempt to predict the outcome of geopolitical conflicts, forecast commodity prices, interest rates or time the market’s reaction to headline risk. Instead, we focus on what we can control: the quality of our portfolios (structural advantage), the rigour of our valuation discipline, and the patience to allow compounding to work over time.
The businesses we own are undergoing a rapid technological transformation that is creating meaningful new sources of value. At the same time, the geopolitical environment is generating uncertainty of a kind not seen in decades. These two realities coexist and navigating them requires conviction and humility.
We remain, as always, steadfast in our approach: conservative, consistent, and committed to the long-term financial objectives of our clients.
“The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we fully understand it, the ground shifts under our feet.” – Peter Bernstein
2026 Q1 Quarterly Commentary
Quarterly Commentary
Q1 2026
Executive Summary
• A convergence of disruptive global events creates volatility and complexity
• Equity markets deliver mixed performance, despite strong corporate earnings growth
• Soaring energy prices complicate the near-term outlook for inflation and interest rates and require management of fixed income across a range of possible scenarios
• Proceeds from Comcast and Diageo exits reinvested in Eaton Corporation, Costco and Moody’s where structural advantages are evident and strengthening
Conservative. Consistent. Committed.
PORTFOLIO MANAGEMENT TEAM
MACRO ENVIRONMENT
A Quarter Defined by Convergence
In the first quarter of 2026, multiple forces — each individually capable of reshaping capital markets — converged simultaneously: an armed conflict in the Middle East that disrupted the world’s most important energy shipping lane, the continued acceleration of artificial intelligence (AI), the most consequential technological transformation in a generation, and an ongoing recalibration of global trade alliances. Any one of these developments in isolation would have commanded the full attention of market participants. Taken together, these forces created an environment of extraordinary complexity.
In this issue, we chronicle the factors that captivated markets and caused Larry Fink, the CEO of BlackRock, the world’s largest asset manager to remark: “We are living through a period where things that would’ve defined a decade have become routine: wars with global repercussions, trillion-dollar companies, a fundamental reordering of international trade and the advent of the most significant technology since, at least, the computer.”
War, oil, foreign policy and corporate earnings
On February 28th, U.S. and Israeli forces launched joint military strikes against Iran. Iran’s response included retaliatory attacks across the Gulf region and, critically, the effective closure of the Strait of Hormuz — a waterway through which roughly 20% of the world’s seaborne oil trade flows. Oil prices surged past US$100 per barrel for the first time in four years, peaking above US$125. The International Energy Agency described the disruption as the most significant supply shock in the history of the global oil market. The human and economic toll has been, and remains, deeply concerning.
Compounding this, U.S. foreign policy actions extended well beyond the Middle East. Developments in Venezuela — including the capture of President Maduro — and escalating pressure on Cuba, where a U.S. oil blockade contributed to catastrophic power grid failures affecting nearly 11 million people, underscored a period of aggressive American geopolitical engagement.
For investors, the range of potential outcomes associated with these developments is exceptionally wide, and attempting to predict their resolution with any confidence is not a productive exercise, in our view. We have written in previous commentaries about the market’s ability to distinguish between events it views as transitory versus those it considers structural. In the first quarter, markets found this classification particularly difficult.
Despite this backdrop, corporate earnings continued to increase. FactSet estimates average earnings growth of approximately 13% among constituent members of the S&P 500 during the first quarter of 2026, with notably broader participation across industry sectors. This represents a significant change. For the past several years, a narrow cohort of mega-cap technology companies (i.e.. Magnificent 7) drove most index-level earnings growth, leaving the other 493 companies in the S&P 500 behind. This suggests a healthier, broader and more sustainable earnings backdrop.
AI: The acceleration continues
While geopolitical events dominated the headlines, the AI investment cycle continued to accelerate beneath the surface. For 2026 alone, so-called hyperscalers (companies that engage in cloud computing that requires massive amounts of compute) plan to collectively allocate US$600 billion for capital expenditures, 36% more than in 2025. Microsoft, Alphabet, Amazon, Meta, and Oracle are each investing at scale, not to chase speculative opportunity but to serve existing demand that already exceeds their capacity to deliver. Microsoft has disclosed an US$80 billion backlog of Azure AI orders that it cannot yet fulfill, constrained not by technology but by physical infrastructure — particularly electrical power.
Takeaways
Geopolitical developments will no doubt continue to drive near-term volatility, but our focus remains on the businesses we own and the structural advantages that underpin long-term value creation. The wide range of possible outcomes is not, in our assessment, helpful for making investment decisions. What is helpful is ensuring our portfolios are built with companies that have the balance-sheet strength, competitive positioning, and operational resilience to navigate—and ultimately compound through—periods of uncertainty.
Just as importantly, we build portfolios that fit together: complementary end-markets and cash-flow profiles, a mix of secular growers and defensive compounders, and exposures that don’t rely on any single scenario. The aim is a coherent system that can keep compounding regardless of headlines.
EQUITIES
Equity markets delivered mixed but revealing performance in the first quarter. The S&P 500 posted a modest decline, weighed down by geopolitical uncertainty, energy‑driven inflation concerns, and elevated valuations. The Volatility Index (VIX), which reflects the market’s expectations for near‑term fluctuations in the S&P 500, rose sharply during the quarter — a sign of heightened investor anxiety. Historically, periods of elevated uncertainty have often coincided with attractive forward returns. In our view, the market may have already priced in more fear than fundamentals ultimately warrant, creating conditions where equities can climb a proverbial wall of worry.
The S&P/TSX Composite outperformed its American counterpart, supported by the Canadian market’s heavier weighting to energy and materials, which are sectors that benefit from surging commodity prices. However, as we have noted previously, our investment philosophy favours businesses with durable cash flows, strategic moats, and predictable earnings — not stocks whose fortunes hinge primarily on the next move in commodity prices.
Exiting Comcast and Diageo
A cornerstone of our investment philosophy is the requirement that companies possess durable structural advantages. When those advantages erode, disciplined stewardship demands action and we took it in the first quarter by exiting our positions in Comcast and Diageo.
Comcast was once a textbook example of a company with powerful scale and a well-defined moat to keep competitors at bay. Its cable infrastructure provided near-monopoly broadband access with high switching costs. That advantage has materially weakened. In 2025, Comcast lost over 710,000 broadband subscribers as fixed wireless providers and fibre overbuilders systematically penetrated its footprint. The company has acknowledged that its broadband environment is “intensely competitive” and unlikely to improve. When the moat narrows, the investment case changes.
Diageo faces a similar deterioration. Its brand portfolio — Johnnie Walker, Don Julio, Guinness — was built on a powerful premiumization trend in global spirits. That trend has stalled. While the brands remain formidable, the structural tailwind that underpinned our thesis has given way to volume pressure and margin compression.
Initiating positions in Eaton, Costco, and Moody’s
The proceeds from Comcast and Diageo have been redeployed into three businesses that we believe possess durable and, in some cases, expanding structural advantages: Eaton Corporation, Costco Wholesale, and Moody’s Corporation.
Eaton Corporation is a direct beneficiary of the electrification megatrend. As the world’s leading intelligent power management company, Eaton sits at the intersection of AI infrastructure, electrical grid modernization, and the energy transition, providing the electrical distribution and control systems that data centres and industrial facilities require — a so-called “grid-to-chip” portfolio. Eaton’s order backlog and long-cycle revenue visibility are exceptional. Its advantages include deep hyperscaler relationships, proprietary power conversion technology, significant regulatory barriers to entry, and a diversified industrial base that provides resilience through cycles.
Costco Wholesale possesses one of the widest competitive moats in consumer retail. Its membership-based model creates a self-reinforcing flywheel: by capping product margins at approximately 15% and deriving the majority of profits from membership fees, Costco offers prices that competitors cannot replicate without incurring losses. Membership renewal rates exceed 90% in North America, and the business historically performs defensively in downturns while participating in expansions.
Moody’s Corporation occupies one of the most structurally advantaged positions in global financial markets. As one of only three globally recognized credit rating agencies, Moody’s benefits from an oligopolistic market structure reinforced by regulatory barriers, network effects, and switching costs that are among the highest in any industry. Virtually every significant debt issuance (a company borrowing money) worldwide requires a credit rating, and the cost of switching agencies is prohibitive for issuers and investors alike.
FIXED INCOME
The fixed income landscape in the first quarter was shaped by the collision of conflicting forces. Central bank rate-cutting cycles that began in 2024 and 2025 were expected to continue into 2026, with market consensus and U.S. Federal Reserve projections pointing to approximately two additional rate cuts this year. However, the inflationary impulse from surging energy prices has complicated the outlook. Long-term bond yields rose as investors priced in the possibility that inflation may remain rangebound near 3% rather than declining to target. Domestically, the Bank of Canada faces an especially challenging environment. The BoC has warned that it must navigate structural shifts that will permanently reshape the country’s economic landscape. The policy rate differential between Canada and the United States remains wide, and Canadian bond yields have risen alongside their American counterparts as inflationary pressures from the energy shock weigh on expectations.
CLOSING THOUGHTS
As Coleford enters its 37th year of stewardship, the world around us has never felt more dynamic. The pace and magnitude of events competing for investor attention is remarkable. Yet our response to complexity is the same as always: discipline. We do not attempt to predict the outcome of geopolitical conflicts, forecast commodity prices, interest rates or time the market’s reaction to headline risk. Instead, we focus on what we can control: the quality of our portfolios (structural advantage), the rigour of our valuation discipline, and the patience to allow compounding to work over time.
The businesses we own are undergoing a rapid technological transformation that is creating meaningful new sources of value. At the same time, the geopolitical environment is generating uncertainty of a kind not seen in decades. These two realities coexist and navigating them requires conviction and humility.
We remain, as always, steadfast in our approach: conservative, consistent, and committed to the long-term financial objectives of our clients.
“The constant lesson of history is the dominant role played by surprise. Just when we are most comfortable with an environment and come to believe we fully understand it, the ground shifts under our feet.” – Peter Bernstein