A focus on quality in today's market: Insights from Darren Lekkerkerker - July 14, 2026
Strong corporate earnings have helped support equities in 2026 despite ongoing uncertainty. Darren Lekkerkerker, Portfolio Manager, remains focused on identifying high-quality businesses with durable competitive advantages and the potential to grow over the long-term. Beyond AI, he sees opportunities emerging across financials, industrials and healthcare.
Here are a few highlights from his discussion.
Strong earnings remain a key market driver
The start of second-quarter earnings season provided an encouraging signal for investors. Major U.S. banks reported strong results, supported by capital markets activity, net interest income, operating leverage and moderating credit conditions. In Darren's view, the strength of bank earnings is significant because banks are often considered an early-cycle sector that can provide insight into broader economic conditions. Strong results from both U.S. and Canadian banks point to continued resilience in the economy and financial system. He also highlighted lower-than-expected June inflation data, including the first month-over-month decline in U.S. core CPI since 2020. Lower inflation can support equity markets and may also benefit banks if a steepening yield curve improves profitability.
A focus on quality and long-term compounding
His investment approach centers on identifying businesses with sustainable competitive advantages, high returns on invested capital and the ability to grow free cash flow over time. He looks for companies capable of compounding free cash flow per share at attractive rates, noting that long-term share prices generally follow business fundamentals. Within Fidelity North American Equity Class, the portfolio is typically structured with roughly 70% exposure to U.S. companies and 30% exposure to Canadian companies, although those weights can vary depending on opportunities. He described the Canadian allocation as a collection of what he believes are among the strongest ideas available across the domestic market rather than an attempt to mirror a Canadian index. Periods of volatility can also create opportunities, and earlier this year he added to several positions where share prices had fallen materially despite what he viewed as unchanged business fundamentals. Opportunities emerged across technology, industrials, financials and consumer-related companies.
AI remains important, but opportunities are broadening
Artificial intelligence continues to shape many areas of the market. Darren maintains exposure to large technology companies, including hyperscalers that are investing heavily in AI infrastructure and computing capacity. Those investments are increasing capital expenditures and affecting free cash flow in the near term. At the same time, demand for AI-related computing resources remains strong and continues to exceed available supply in some areas. He also highlighted continued strength in core businesses such as search and cloud services. Over a longer period, he expects capital intensity to moderate, which could support improved free cash flow growth.
While AI remains a significant theme, he has also been finding opportunities in areas that have received less investor attention. He pointed to healthcare and consumer-oriented businesses as examples of sectors where valuations and investor positioning may create opportunities.
Industrials supported by long-term demand trends
Industrials remain an area of interest due to ongoing investment in power infrastructure, construction and transportation. Darren pointed to strong order activity, favourable pricing trends and healthy backlogs across several industrial businesses. He also highlighted transportation companies, including railways and trucking firms, where improving manufacturing activity has supported volumes, pricing and margins. After several challenging years for the manufacturing sector, recent improvements have created more favourable conditions for many transportation businesses.
On the Canadian side, he remains constructive on the outlook. While discussions around tariffs and supply-chain shifts continue, he noted that many Canadian-listed companies already generate a significant portion of their business in the United States. He also suggested that initiatives aimed at supporting investment and economic growth could benefit Canadian businesses over time.
Healthcare opportunities tied to demographics
Healthcare is another area where he sees opportunity, particularly in segments that have faced challenges in recent years. Lower valuations and improving end-market conditions have increased the attractiveness of certain healthcare businesses in his view. One area of focus is life sciences, including companies that provide instruments and services to pharmaceutical, biotechnology and academic research organizations. He noted signs of improvement in several of these end markets, which could support stronger organic growth.
He also highlighted senior housing as a long-term demographic opportunity. The population over age 80 continues to grow while new senior housing supply remains limited. Because these facilities can take years to develop, supply has struggled to keep pace with demand. He believes this dynamic creates opportunities for businesses involved in senior housing, including some healthcare companies and real estate investment trusts (REITs).
Focusing on fundamentals
Investors continue to face risks, including geopolitical conflict and the possibility that inflation remains higher than expected. At the same time, he noted that earnings growth remains strong and that corporate fundamentals continue to provide support for equity markets. For long-term investors, his focus remains on identifying high-quality businesses with the potential to grow over time and taking advantage of opportunities created by market volatility. While AI remains an important theme, he believes opportunities can also be found across financials, industrials, healthcare and other sectors where business fundamentals remain strong.
