The Path Forward From Oz

We are midway through 2026, and we thought it important to revisit some of the same themes we have been writing and talking with you about for the last several years.

In January 2024, I wrote “Hold on Dorothy, We’re Way Beyond Kansas Now”, highlighting a twister–like concentration in U.S. and world equity markets as the Magnificent 7 companies (I called them the “FAATMAN” stocks) had grown overweight based on the AI theme taking over the land of Oz. They had grown to be more than 20% of the largest stock market in the world: the U.S.

Well today, there’s a lot of yellow-brick road between then and now. The same Mag 7 stocks are down from approximately 35% of the S&P 500 Index but still comprise 31.6%. More importantly, they are even 22.4% of the 2000-company MSCI World Index (down from over 25% in September 2025). More shocking is that the top 10 largest companies make up approximately 40% of the S&P 500. This is extremely rare (more so than munchkins and poppy fields!).

The equity component of our globally-diversified portfolios continues to be much less concentrated, holding slightly less than 7% of these Mag 7 companies. Our portfolios have more small- and mid-size capitalization companies, as well as emerging markets companies. Approximately 35% of our managed portfolios are in small, mid-size and emerging market companies actively selected for their strong fundamental characteristics.

For context, though, even smaller global companies ($300 million to $5 billion) or mid-size companies ($2 to $10 billion) can be considered comparable to the smaller half of Canada’s largest 100 companies. So, if you thought smaller sounds risky, in fact, smaller has outgrown larger over the long term and with returns less correlated with mega-cap (FAATMAN) and large-cap companies. Although mega-cap technology companies and, thereby, the U.S. stock market, have dominated returns since the great credit crisis, the undervaluation in small, mid-size, and even value-oriented large companies has rhymed with the fundamentals we saw in the last concentration bubble of 1999-2000. So, while diversification may be less rewarding in concentrated markets driven by AI themes (think processing chips, data centers, electrical infrastructure) and related technology momentum, grandma’s advice on your eggs can be reassuring when these themes dissipate and the market widens back to more fundamentally compelling undervalued companies.

As your fiduciary financial advisors and portfolio managers, we have helped you implement a strategy designed to be resilient as times change. The portfolios have weathered the storms of recent political and geopolitical disruption, and we believe they are well-positioned for when the twister unwinds.

We have included a commentary this quarter from one of our largest core portfolio managers, Capital Group, titled “A unique market moment and the case for active judgment”, written by their Chief Investment Officer, Martin Romo. They make a compelling case for our diversified active approach, backed by the credibility of almost a century of investing experience and their multi-trillion-dollar scale. I hope you’ll enjoy reading it and receive some reinforcement of the patient, fundamental approach to investing that your results depend on.

As always, thank you for your trust and confidence, and for the patience to see your long-term vision unfold down the yellow-brick road.

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