FOCUS 2026: Finding durable opportunities in North America

Kathryn Black: [00:00:00] Everyone, there we go. Good afternoon to some of those online. Welcome back, thank you for being here with us today. I think that intro video really set the foundation for us because we are grounded in conviction, I believe. Fantastic results, awards, all of that, and celebrating a big milestone in October last year of 10 years on the North American Class which is a very exciting accomplishment so congratulations.

Darren Lekkerkerker: [00:00:24] Thank you, Kat. Thank you for that kind introduction. I'm super happy to be here. Nice to see everyone.

Kathryn Black: [00:00:31] We have a full 35 minutes together to talk about all things Darren and his mandates. We're gonna kick things off with the North American Equity Class as we touched on. It has been a tremendous success for you, for your style, for your process. Just walk us through how have you achieved such consistent returns within that mandate that really demonstrate your style?

Darren Lekkerkerker: [00:00:54] Thank you for that question. My style is to invest in high quality companies. When I invest in a company I'm looking for three things. One, is this a high quality business, do they have a high or rising return on invested capital, do they have a durable, competitive advantage? Two, management. As part of our investment process we interview all the management teams before we invest. During the investment period what are we looking for? We're looking for management teams that have alignment with us as shareholders, ideally, they own a ton of shares. You want them going to bed at night thinking about how do they grow the share price, how do they grow the intrinsic value per share? You don't want them going to bed at night thinking about just growing the size of the company to grow their paycheck. Two, we're looking at capital allocation. How do the invest the excess free cash flow of the the company? Ideally, for me, I want them to give it back to us, return it to us as shareholders through share buybacks is usually what I'm looking for.

[00:01:51] The third thing is valuation. Is this a great business at a fair price, what's the free cash flow yield? Generally, when I think about returns, Kat, I'm trying to underwrite to a forward return of greater than 15% a year. How do I do that? I think over long periods of time share prices track the growth in free cash flow per share so we model that out for the next several years. We look really far, usually farther than Wall Street which is kind of one to two years ahead. What's the algorithm for free cash flow per share growth? Then I think about the multiple that it's trading at. Can it sustain this multiple over time, or even better is it a cheap stock where maybe it can even increase its multiple, although I'm a little more reluctant to underwrite higher multiples into the investment case.

Kathryn Black: [00:02:40] With that 15% being that key number there. Lots of data layered in that foundation which is an exceptional process that you've laid out. I think what's also very unique about your process is you've spent some time in private equity prior to joining Fidelity so you really have that ownership mindset. You talk a lot about how you view these companies as being an owner. Speak to us a little bit more about that.

Darren Lekkerkerker: [00:03:03] By the way, I like the 15 because it's really good compounding math. If you think about compounding, that's how you make money over time in stocks. You own a good stock or a good fund that can compound for a high rate of return over time. So 15% after five years is a double, after 10 years is a quadruple. That's why I like the 15.

Kathryn Black: [00:03:20] Those are pretty good numbers.

Darren Lekkerkerker: [00:03:21] That's why I like the 15. In terms of the ownership mindset, in terms of the investment process I want to think like an owner, not like someone who owns a stock for the next quarter but someone who's a minority owner in a business. It changes the way you select companies, it changes the ways you manage your fund. I have more of a concentrated fund. Typically, I own between 40 to 50 stocks and the top 10 are usually between 40% to 50% of the fund. I think in order to have superior results, superior defined as high absolute returns, higher than peers and higher than the benchmark, you need to, number one, have good ideas and number two, you've got to make sure you own a lot of those good ideas so that you can really benefit from them.

Kathryn Black: [00:04:10] I'm just picking out all these key numbers, 40 to 50 stocks is primarily what your portfolios will look like, with the top 10 being 40 to 50% of allocation, really important numbers there. Let's touch on the geographical flexibility that you have. We are based in the US currently, we live in Canada, you get to toggle back and forth. Talk to us about how you play that flexibility within the fund structure.

Darren Lekkerkerker: [00:04:34] I run multiple funds. I think your question's about the Fidelity North American Equity Class. That fund, the long term target structure, there's a lot of flexibilities you mentioned but the long term target structure is 70% US, typically I tend to be larger cap stocks, and 30% Canada. Don't think of that as 30% of a Canadian fund, just think of it as me owning the best ideas that I can find in Canada, and it usually should comprise about 30% of the fund. There's a lot of flexibility, as you mentioned. The US can go down to 50% or up to 100%, Canada can go up to 50%, and I can have up to 20% global.

Kathryn Black: [00:05:16] Okay, great. Lots of flexibility on all spectrums. North American Equity Class isn't actually your only mandate, you have two others. You took over the American Equity Fund and ETF January 5th this year, which is an exciting new hobby, endeavour, challenge, whatever you want to call it for you. You also co-manage the Global Natural Resources Fund with Joe Overdevest. We'll dive into both but maybe just talk to us about the American Equity Fund since it is, I'd say, your new baby right now.

Darren Lekkerkerker: [00:05:45] That's right, a new baby, okay.

Kathryn Black: [00:05:47] A new child.

Darren Lekkerkerker: [00:05:47] Okay, number three, I guess. I took that fund over on January 5th. I've run the Fidelity North American Equity Fund for more than 10 years, as you mentioned. I like looking at 10-year performance because you can kind of see over long periods of time different market cycles and different styles and how did someone do. If we deconstruct the performance the US did a lot better than that fund average and higher than the S&P 500. I want to apply that same style and process that I have in the North American fund in the US Equity Fund. It should look very similar to the US portion of Fidelity North American Equity Fund.

Kathryn Black: [00:06:50] A bit more concentrated on the focus.  Excellent. You have always been very clear around the fact that you're a bottom-up stock picker. You don't pay a ton of attention to what's happening in the macro environment. However, there is just so much happening, you need to be market aware as to what is going on. Just talk to us about the current macroeconomic conditions. What are you seeing in these times of volatility and how do you approach that?

Darren Lekkerkerker: [00:07:14] I think the way that you characterized my viewpoint and the importance of macro is probably very fair. You're right, it has been a volatile year but it has been good year. Overall I would that I'm positive, I'm bullish. Look, I get that there are several challenges but where am I focused? I am focused on bottom-up company fundamentals and those are right now fantastic. In terms of company earnings, we are in earning season, we're probably more than halfway through it in the US. Company earnings have been very strong. They're up around 20% this year over the prior year which is very strong. They've also been revised up since the beginning of the year. I think it's about 9%. Usually in a typical year analysts are very optimistic at the beginning of the year and slowly during the year those estimates get revised down as we see reality. This year reality's been better and it's been revised up. That makes me bullish.

[00:08:17] Overall on the economy, I think the economy is resilient. Clearly, Iran and the conflict in the Middle East and high near term oil prices does represent a challenge. My view is that over time that it will de-escalate. I do think the US political cycle does matter. It is complicated, seems like a bit of a stalemate at the moment but I think it'll de-escalate. If we look at the Fed Atlanta GDP now the estimate for Q2 is 3 1/2% so it shows that the economy is pretty resilient. Earnings have been very strong and revised up. Just generally in terms of sectors, where am I optimistic, where am I looking, where am I hunting? I'd say technology, technology and communications we can group them, industrials and financials.

Kathryn Black: [00:09:06] We're going to dive into all of those because there's a lot to unpack. We've set a really strong foundation of the data that you look at, you couple that with being market aware. Bullish, it sounds like, on what's happening in the environment. Your best ideas, you just mentioned technology. Let's start with technology, AI. We'd be remiss if we didn't talk about AI. What's your view on the potential runway in that area?

Darren Lekkerkerker: [00:09:30] I'm bullish on AI. In terms of technology I think this year is different than past years. I think in past years you could say, hey, I'm bullish on AI, I'm bullish on tech. You could broadly own tech and do well. I think now we're seeing a bifurcation within tech. Where are we seeing that? We're seeing it within the compute and the buyers of compute and maybe the companies that are impacted by compute. What do I mean by that? The sectors that provide compute, semiconductors and computer hardware, as well you can say within industrials the names that supply power to data centres. All these names have done really well as there has been a huge insatiable demand for AI. We can see that last week.

[00:10:13] We saw the hyperscalers, they reported, we saw Google, which is a top 10 position of mine, Amazon also in the top 10, Meta and Microsoft reported. We could see for the cloud business the bookings were up massively, massively in the quarter. We could also see revenue and margins being revised up but you could also see CapEx being revised up. CapEx being revised up is one of the market's focus. As a result you saw a mixed investor reaction to those, with Google trading up a lot, Meta down and then kind of Amazon, a little positive, and Microsoft in the middle, but it is very positive for the compute supply chain as CapEx is being increased. All four of them talked about very, very strong demand and a desire to continue growing compute and internal demand for compute.

Kathryn Black: [00:11:12] Maybe just as a segue to that, software has gotten beaten up a little bit. Obviously, we've seen positive earnings come out but software versus hardware in the sense of where you're focusing your attention.

Darren Lekkerkerker: [00:11:24] I'm more focused on semiconductors and hardware than software. I think software has been tagged with this tagline of death from AI and it's just kind of hard to refute. Within software I do have some ownership. I do own Shopify, that's in the top 10. I've owned it for a long time. I really like the business. They've done a great job in terms of growing the gross merchandise value and kind of slowly adding to their solution. It's done really well. I think also because it's not like a seat-based software company, instead it's really as a per cent of payments and it powers the e-commerce and revenue for these companies. I feel very good about it so I own that one. Generally, I'm very underweight software and I'm more focused on the compute which is in semiconductors, hardware and data centres.

Kathryn Black: [00:12:24] Excellent. You mentioned industrials, do you look at industrials as a derivative or a way to play the AI chain? Maybe dive into what areas in the industrial sector are catching your attention.

Darren Lekkerkerker: [00:12:40] Partly yes but not fully. What are the areas I'm interested in within industrials? I think one is data centres. Data centres is seeing unprecedented growth. We're seeing massive growth in bookings. Where are we seeing that in industrials? Number one, the construction stocks, engineering and construction stocks in the US, also in Canada. In Canada it's less to do with data centres and more to do with sort of nation building projects and other sort of mega projects. We're seeing that in the US too, mega projects. I'd say two in the machinery stocks, think like big, yellow, massive equipment stocks. That's benefiting from data centres but it's also benefiting from construction, it's also benefitting from resources. We are seeing a lot of activity and demand in the industrial economy which is benefiting these stocks.

[00:13:33] I'd also say the third area is in aerospace. That's probably a lesser weight in my portfolio than it would have been in years past. It's been a really strong contributor over the past four years, the aerospace stocks. I've also shifted a little bit from owning the companies that are more focused on the aftermarket which is companies servicing planes that are in the current fleet versus having exposure to the OEMs, like Boeing and Airbus, supplying them parts, the new planes. I kind of think there is a little bit more upside there as the aftermarket stocks have done extremely well.

Kathryn Black: [00:14:13] Take us a layer deeper, why the aerospace? What's the thesis for aerospace?

Darren Lekkerkerker: [00:14:18] Generally, I think aerospace is the highest quality area to invest in industrials because of two reasons. One, secular demand for air travel. More people want to travel so as a result you've got to build planes. The OEMs have been terrible investments, like Boeing and Airbus, although better recently, mind you, because they've had a lot of challenges with regulation, safety, unions, balance sheets. The parts and service suppliers, especially the ones that have been focused on the aftermarket, have done really well. Here it's a second reason why they're high quality. You have very, very sticky demand and high margins. Let's also think back to Warren Buffett when you invest. Warren Buffet said, own a monopoly, you'll make a lot of money over time. These are like sneaky monopolies because these parts are regulated by the FAA so you can't have just any competition on them so they tend to have very high margins.

Kathryn Black: [00:15:15] Excellent. At the beginning of the session we talked about financials. You had mentioned financials at the top. We heard the Global Asset Allocation team talk about how they are starting to overweight Canada, actually, and get more back into our homeland. What are you seeing in the financial space? I know you had some exciting meetings at the beginning of 2026. Talk to our advisors here today about your views on that.

Darren Lekkerkerker: [00:15:41] We have a lot of meetings. I find them really exciting.

Kathryn Black: [00:15:46] I can tell you find them exciting, you light up.

Darren Lekkerkerker: [00:15:49] One advantage of working at Fidelity is because we are a very large global active manager all these companies, they want to talk to us. They want capital, they want to see Fidelity's name on the shareholder list so they come talk to us. We meet them at our office, on Zoom, at industry conferences, and we also host our own industry conferences which are not available to the general sort of investing audience which is a nice benefit for us. You're talking about financials. I think you're right. We talked early in the year and I was lucky enough to have a day to meet with all of the big six Canadian bank CEOs.

[00:16:32] I think Canadian bank fundamentals are strong. We saw the US bank's report and they had really strong earnings. Why is that? I think net interest income is positive and growing. I think capital markets revenue is strong. I think the cost discipline is good so they're showing margin gains. I think the credit is something that I want to keep my eye on and watch there very carefully. I think they're returning a lot of capital to shareholders. The Canadian banks have done really well. CIBC has been the top bank, it's in my top 10 this year so that's been great for the fund.

Kathryn Black: [00:17:09] The sentiment from these CEOs is relatively positive in what you're hearing.

Darren Lekkerkerker: [00:17:13] Yes.

Kathryn Black: [00:17:14] Excellent. Let's pivot a little bit. Let's talk about Global Natural Resources. You co-manage with Joe Overdevest, some of you may know Joe as well. We've been seeing a resource rally recently. Energy, I mean, you can't go anywhere without hearing about this in the news right now. Talk to us though about your views on just the resource sector because it's not just energy, there's metals and other variants in there. Where's your perspective on all of that?

Darren Lekkerkerker: [00:17:42] I've been running this fund for a long time, since 2007, actually, with Joe Overdevest, as you mentioned. Joe does the energy, does a great job. I do the materials, metals and mining side. I used to be a material, metals and mining analyst for Fidelity in Boston during the super cycle in the mid-2000s [audio cuts out] copper mining. It was a lot of fun.

Kathryn Black: [00:18:06] That was probably an exciting time.

Darren Lekkerkerker: [00:18:07] It was a super exciting time. We're in a bit of a resource boom now so it's exciting again but there was times at the low point of the cycle where people were like, you covered that? I'm like, well, actually, this was like the tech stocks of the 2000s.

Kathryn Black: [00:18:20] Is there any deja vu from what you experienced back then to what you're seeing today?

Darren Lekkerkerker: [00:18:23] There is a little bit. Where do we see that? You see that when commodity prices go high. Part of the reason is it's a hard business, they're hard to produce. Where are we seeing that? We're seeing that in copper right now. If you look at copper and you look at the 10 largest mines in the world I think there's four of those mines that are either not producing or are producing well below their nameplate capacity. That's due to mine expropriation. I find geopolitics becomes more complicated when commodity prices go high, by the way. Two, I think it's just difficult to keep producing at this level. Sadly, there's been a few mining accident disasters which due to safety reasons they need to produce at a lower rate and make sure that the mine is safe and also get the mine ready. So hard to produce, hard to bring on.

[00:19:18] The other deja vu I can see, I remember in the mid-2000s I covered tech resources, and they bought a company called Ore Resources to get this mine, the QB2 mine, Quebrada Blanca if I can try to pronounce that. It only just came on. It only just came on last year and it ramped up this year, that was 20 years ago. It shows you how hard it is to bring it on so yeah, there's deja vu. Just let me wrap that up by saying I'm bullish on resources. I would kind of rank them in terms of gold, uranium, copper and I will put them ahead of energy. Energy's done extremely well year-to-date in part because of the conflict and the lack of supply due to the Strait of Hormuz. I think you're seeing oil prices very, very high and I think that the returns from here will be a little harder to come by just given prices are high.

Kathryn Black: [00:20:11] That's fair. We actually have a question from the audience. You just mentioned gold in your list there, maybe dive a little bit more into the case for gold. We saw it have a run last year. Do things remain in the sentiment or have things tapered off?

Darren Lekkerkerker: [00:20:26] I like gold. We saw gold do a big run-up, we saw pullback in March during the conflict. I think the drivers of the gold rally before the conflict I think will remain intact. What are those? I think it's three things, Kat. I think it's one, it's diversification away from the US dollar. We're seeing central banks, we're even seeing some new players in the crypto world, you're also seeing family offices and retail moving away from US dollar, US dollar Treasuries and towards gold. Two, you're seeing around the world populist governments on both the left and the right have large budget deficits, high debt. I think that makes people attracted towards gold as a store of value versus fiat currencies. Then three, elevated geopolitical risks. It's clearly been a theme for the past two years.

Kathryn Black: [00:21:20] You just mentioned geopolitical risk. That's obviously had an impact on the consumer. Let's talk about the consumer for a little bit here. How are you viewing that and what is your take on the consumer space at this time?

Darren Lekkerkerker: [00:21:32] I think it's mixed. I came into the year wanting to get bullish on the consumer because the consumer had been in a really sort of, I don't know if rough is the right word but let's say a softer place. I could see that the One Big Beautiful Bill would elevate stimulus to the consumer in the form of higher tax refunds in the US. I was thinking that rates would come down. I think the picture is a little different now. We have higher gasoline prices, you are getting that stimulus. The rate picture is a little more complicated. I think it probably will but I'm not going to prognosticate on this. I'll leave that to our GAA team who does a great job. I think for the consumer it's mixed. Let's think within consumer, what are the big buckets.

[00:22:19] I think the biggest bucket is housing. It's complicated. Housing prices are coming down, mortgage rates are still high in the US and people are locked into lower mortgages. We're seeing lower housing starts and very low housing transactions so I'm still a little cautious on that space. The autos, we had seen a depressed Autostar, the number of autos produced in the US. There's some incentives this year but now you have higher gasoline prices. For the part suppliers, they're getting hit with some of the commodity inflation so that's a little bit mixed. I think there's some interesting idiosyncratic ideas within consumer. I own Aritzia. I like retail, I like apparel but you really have to do a lot of legwork to get the stocks right here because not all of them are gonna work, obviously. What do I look for? I look for a brand that has a lot pricing power because it's well known. I look for a story where they can roll out the stores either in Canada, in the US or globally. I'm trying to find ones that are at a great part of their growth curve.

Kathryn Black: [00:23:36] Excellent. We've talked about a lot of things that you like and that you're looking at, question in from online, are there any areas that you may be avoiding? You did just touch on housing, autos and having some skepticism perhaps there but is there anything that's an absolute no in your process right now?

Darren Lekkerkerker: [00:23:56] Nothing comes out as an absolute no but I have touched on a few areas where I said that I'm becoming a little more cautious. Housing, autos, we also mentioned software before. Other than that I don't own anything in utilities. I have found that although there is a bit of a utilities renaissance because there was great power demand again after many years without having that I found the better way to play it has been through investing in industrial companies with leverage to building out that grid or supplying it.

Kathryn Black: [00:24:37] Company management is, obviously, along with the data, the other big piece that you need to be comfortable with. You need to get to know, be a part of those meetings that you get so excited about which is great to see. It's vital to your process. Just talk to me about maybe what are the things that get you excited about a management company and what are perhaps detractors from you saying, I don't wanna go anywhere near that management company even though maybe the business on paper looks great.

Darren Lekkerkerker: [00:25:04] Great question and something I've thought a lot about. I was actually lucky enough that when I was an analyst and I started at Fidelity we had this training that was provided by former CIA members where they were trained interviewers, teach us how to interview management teams, how to ask questions, how to interpret responses both verbal and nonverbal. I've thought a lot of about it but in terms of the management teams, I mentioned earlier that I do want to see alignment. I want them to be really excited about growing the per share value of the company and I want to feel like we're almost in a partnership with them, us as the owners and them as the management of the company. Companies that are executing well, they own a lot of stock. In terms of capital allocation they're investing that really well either by buying back shares, increasing the dividend or occasionally doing M&A that makes sense. It's in a related business, it's on strategy, they're buying it at a good price, it's accretive to earnings per share.

[00:26:13] What I don't like is management teams that are growing the size of the business just for the sake of growing the size of the business. They probably get paid more that way. I'd rather see them get paid through growing the share price. Two, management teams that do bad capital allocation, I've seen that. I've sold on this over the past couple years. There was a company that I owned in medtech earlier this year where they made  an acquisition that was like a surprise, it didn't seem like a fit, and it made me worry that they were going to miss numbers on their two key products so I sold that.

[00:26:53] There was another company in consumer two years ago that was a producer of consumer durables for consumers. They made an unrelated purchase, very different business. It made me think, okay, I don't think this investment thesis is on track. I sold that one, turned out to be ... it's not always the case but oftentimes when you see a unrelated acquisition it can be to diversify or change the narrative. That's not what we want if we have a certain investment thesis. Another one, sorry, I guess I'm excited on this. I track their insider buying and selling and I hate to see management teams that they sell a lot before bad news. I don't feel like we're in a partnership. I'm trying to do the best by our unitholders so that's where I'm focused.

Kathryn Black: [00:27:52] It's almost like dating where you want to know what you're looking for but also what you're not looking for. When you see that misalignment you need to be able to pinpoint that. You had mentioned earlier, and Patrice actually brought it up too, these unique consumer conferences that you do get access to. There was one recently in Boston, a bunch of CEOs from a variety of companies on the consumer side, maybe just talk about the setup of that event. I think it's just such an exclusive way that you and Fidelity get that inside scoop as to what management is thinking, what they're hearing, and really understanding the sentiment of where the economy's at. If you can just touch on that conference for us.

Darren Lekkerkerker: [00:28:31] Patrice and I went, it was great. We were in a room with eight other colleagues and we met with the 20 CEOs of the 20 largest consumer companies in the US. These are companies like Coke, Home Depot, Lowe's. That was fantastic. I think my takeaway was that the consumer would be more resilient than I would have thought to the higher gasoline prices. That certain area sounded really interesting and better than I maybe would have thought, like travel and leisure in some areas sounded a little more challenging like food and beverage.

Kathryn Black: [00:29:03] We have two minutes left, let's maybe just talk about overall. You have Global Natural Resources, you have American Equity, and you have North American Equity, how do these fit into an investor's portfolio? Where do you see them playing a part with regards to the exposures?

Darren Lekkerkerker: [00:29:18] I've been running the Fidelity North American Equity Fund for a long time. I'm the largest shareholder of that fund, that's been a discretionary decision. For me, that's larger than my house. That's my biggest asset. I find that fits well for a one-stop shop. It's for a Canadian investor. It's 70 US, 30 Canadian. I think if investors are more positive on the US or if they want to have a fully one benchmark fund then Fidelity American Equity Fund makes sense. I think Global Natural Resources is more of a specific play on resources. I also manage the equity portion of Fidelity Canadian Balanced Fund which is the more conservative fund. It's half equities, half bonds for Canadian investors.

Kathryn Black: [00:30:01] Excellent. I think you always put proof in the pudding in the sense that you are the largest personal holder of your mandate which I think is excellent because you are invested in the investor success and, obviously, indirectly yours as well. Darren, thank you for being here today. Appreciate your time. We wish you all the best for the rest of 2026.

Darren Lekkerkerker: [00:30:20] Thanks, Kat. Thanks, everyone.