VISION 2026: Finding opportunities across Canada and the U.S. in 2026 - Darren Lekkerkerker

Glen Davidson: [00:00:00] Hey Darren, you've got a lot of fans here. That was a rousing applause.

Darren Lekkerkerker: [00:00:05] This is great. I'm super happy to be here. Sorry, that's close to my mouth there.

Glen Davidson: [00:00:09] That's okay, everybody can hear you across the country. Darren, this is great to have you here. I see these lists of Lipper, every time I see Lipper awards I think of you. You're about risk-adjusted returns which is so great. I want to start with North American Equity Class which is your flagship fund. You hit 10 years back in the fall. Congratulations on that, that's wonderful.

Darren Lekkerkerker: [00:00:29] Thank you very much. Time flies.

Glen Davidson: [00:00:32] Ten years. I remember when it started and it seems like yesterday.

Darren Lekkerkerker: [00:00:36] Same.

Glen Davidson: [00:00:36] I know you've learned a lot. I wanted to point out from a Lipper Award standpoint, again about risk-adjusted returns, best over five years in its category. Congratulations on that. That's a wonderful accolade for North American Equity Clas.

Darren Lekkerkerker: [00:00:48] Thank you very much.

Glen Davidson: [00:00:50] Now talk to us about what you've learned over those 10 years. What were you as an investor then and what are you as investor today?

Darren Lekkerkerker: [00:00:58] That's a good question. I would say that I think the investment style and process has stayed pretty much intact or the same during the fund process. That is own a concentrated portfolio of high quality companies that will accrete their intrinsic value and drive returns for the fund. The investment process of meeting with companies, meeting with executives of companies and spending a lot of time with our research analysts who are fantastic. We have the largest buy side team in Canada, they're awesome. I think Nic Bellemare and Max Adelson were profiled during the break. They've just launched a fund. They're former star analysts. Talking with people like that is fantastic. They're experts in their field. That really helps me. I think those core beliefs are the same.

[00:01:54] I think the way to get performance is to ... I think I mentioned this point but you have to have concentration. You have to be right, number one, and then you have to have concentration. You've got to be right and then you've got to capitalize on that. You only have so many great ideas, you need to own them. Generally, in my funds I try to have between 40 to 50 stocks. I think in the American fund it's a little more concentrated, it's 44 stocks. It's a bit more than that in the North American Equity Fund but the top 10 tends to be around 40 to 50% of the fund.

Glen Davidson: [00:02:26] North American Equity, it's about 30% Canada. You can go to zero, can't you?

Darren Lekkerkerker: [00:02:31] That's right. It's 70% US and 30% Canada. That's a long term target and I think there's flexibility depending on where I'm seeing the best ideas, not on macro but generally bottom-up idea driven. It can go 50% US and 50 Canada or it could go to 100% US and zero Canada.

Glen Davidson: [00:02:56] Excellent. Now, on January the 5th you took over responsibility for the American Equity Class and tomorrow an ETF version of American Equity Class or American Equity Fund is launching. Congratulations on that. Tell us about your thoughts, I know it's early on but your thoughts on American Equity as a fund.

Darren Lekkerkerker: [00:03:18] I'm super excited to run the new, well, it's not a new fund but to run the American Equity Fund. I started doing that on January of this year. I'm excited for the ETF that we're going to launch that will mimic that fund tomorrow. For me, the way that I'm going to manage that fund is exactly the same as I've been running the US portion which is, I mentioned, 70% of the North American Equity Fund. It'll be the exact same investment style, the same investment process and the goal is to achieve the same investment outcomes. The outcomes, as you mentioned, have been strong for North American Equity Fund. What are my goals? It's to compound at a high absolute return. I think for those of us in this room to generate wealth that's how you do it. You consistently generate high rates of return and you can compound your capital. That's number one. Number two is to beat the benchmark and to perform well versus peers in the same category. I'm just trying to achieve a similar outcome as I have in the past.

Glen Davidson: [00:04:26] I was on YouTube the other day and a quick video of you popped up. It was like two and a half minutes and it was just sort of the world according to Darren today, or yesterday, whenever it came out, and you said that you're very constructive on markets as you head into 2026. Why don't you tell us about that?

Darren Lekkerkerker: [00:04:42] I'm going to make two points. One, I am bullish on the market. Why am I bullish? Look at the economy. The economy, it's kind of like 2, 3% growth, it's actually accelerating. The Atlanta Fed publishes a GDP now estimate of Q1 GDP, it's like 5%. It's actually accelerating. Why is that? I think we could see rates are lower, about 100 basis points lower year-over-year. Many forecasters have the Fed forecast to lower short term rates. Gasoline is lower. It's a big expense for consumers so it tends to be a bit of a boost for them. There's some stimulus coming for consumers and businesses. GDP looks good, meanwhile inflation, it's elevated above the target but it's been trending lower. You kind of have a really nice setup here. Meanwhile, company earnings are really strong. They've been double digits, I think, for the past three quarters. We're just starting to get into third quarter earnings, it's been really strong so it's a really nice setup. I think you've got double digit company earnings and lower rates so it looks really nice as a setup.

Glen Davidson: [00:05:49] Lots of discussion this morning on the weakness of the US dollar. Do you want to touch on just your thoughts around currency and how that may affect investing?

Darren Lekkerkerker: [00:05:58] I don't want to get too much over my skis on discussing currencies. I think the US dollar is expensive. There's a view that the White House wants it to go lower. It's not clear. I think Trump made a comment offhand yesterday and I think just in the past hour or so the Treasury Secretary in the US actually kind of defended the dollar. It's a little unclear but it kind of seems like maybe the White house wants it lower. I think the other issue is the Fed is going to lower rates. Their rates are generally higher than other central banks but they will get closer and that probably means the dollar could go a little lower. I think two, I would say that's been supportive for gold. I'm sure we're going to get into that.

[00:06:36] Then three, I also just want to comment, I'm happy to talk about macro but I just want to say my process is very bottom-up driven. I think it actually helps me get returns. I think if you're very macro-focused it's been harder to get great returns over the past 10, 15 years because there's always generally a reason to be very conservative. My view is you make money over time by being invested in stocks. Why is that? It's because economies tend to grow over time even though they're cyclical. Earnings power of companies goes up, the stock market goes up over time. What matters most on macro is that inflection point, when things go from good to bad or bad to good. It's really hard to get and they typically happen sooner than you think. Think back to April of last year with tariffs. Stocks were way down. I had a couple friends brag to me how they had sold out ahead of that. I didn't have people brag to me that they were buying up cheap bargains but the turn happened quicker than people thought. Generally, for me I try to focus my time more on company meetings and identifying and owning the best companies that'll drive returns for my funds.

Glen Davidson: [00:07:51] You mentioned gold a couple of minutes ago so I do want to pick up on that. I don't know what it's trading at today but 5,300 was the last that I saw. Is that indicative of concern in the market? Can you comment on gold?

Darren Lekkerkerker: [00:08:02] Yeah, sure, a little bit. I think there's three demand drivers for gold and I think that they're still intact. I think number one, it is related to the US dollar and diversification away from the US dollar both by central banks around the world, retail individuals buying gold. You also have some new players like Tether, which is a stablecoin which has actually been one of the largest buyers of gold in the past two quarters, more than central banks, or more than not central banks cumulatively but more than any of the largest central banks individually. The second driver, I heard Andrew Marchese mention this, has to do with fiscal deficits and monetary stimulus like lower rates, higher fiscal deficits. Gold is an alternative currency to other fiat currencies so it stands out as a beneficiary there. I think third, I would also say elevated geopolitical risk. We're in January 28th and we've already had Venezuela and Greenland.

Glen Davidson: [00:09:05] What's going to happen in February?

Darren Lekkerkerker: [00:09:08] Hopefully calm, more calm.

Glen Davidson: [00:09:13] When I look at your top 10, when I look at your sector weightings, you're focused on technology. There's a theme around AI. What do you say to people who say, Darren, it's a bubble.

Darren Lekkerkerker: [00:09:24] I don't think we're in an AI bubble. That's not to say that one might yet happen, though. I think that AI spending is going to continue. We're actually going to get some really great indications at 4:00 today when some of the hyperscalers report and they'll tell you what their CapEx is or they'll give you some indication of CapEx for this year. It won't be too long before we have a little bit more clues on that. I think AI spending will continue. I think that there are some catalysts in the near term. I also think two of the largest model companies, OpenAI with ChatGPT, as well as Anthropic with the Claude model, they're going to do private round financings or raises like big money and I think that'll highlight the values there. There is some speculation that Anthropic may do an IPO later this year. That could also be a catalyst.

[00:10:10] I think what will happen is you will have changing sentiment on who's a winner and who's a loser. If we think about 2025 for the first half or three-quarters of the year I think OpenAI and ChatGPT was considered a winner. Then I think the Google Gemini model came out and then more recently the Anthropic model came out, actually, in 2026. Those have considered to be higher. I think companies levered to those companies have actually started to outperform. If you think about Google, which is one of the largest positions in my fund, it was a really cheap stock. It was trading well below the market median multiple. It was in sort of mid to high teens multiple in the middle of last year. Since then the Gemini model's come out. They've done really well with their AI chip, the TPU. The search revenue has increased, accelerated. They won the DOJ case so the company won't be broken up. Meanwhile, the smaller businesses like YouTube, Google Cloud, or those cool self-driving Waymo taxis have all done really well.

Glen Davidson: [00:11:14] What about further derivatives around AI because you're getting pretty deep into some specific areas.

Darren Lekkerkerker: [00:11:21] If you think about it, who was the first biggest beneficiary, it was Nvidia. Nvidia was the arm supplier to the hyperscalers. They were selling the chips to the hyperscalers. I think more recently we look at the full AI value chain. If Nvidia is the supplier to the supplier who's their supplier? It's the foundries like Taiwan Semiconductor. Who's the supplier to the supplier to the supplier? It's the semiconductor capital equipment manufacturer. I've been looking there. I also think power. Power is the constraint for data centres. It's become very topical and politicized in the US, just people seeing their electricity bills go up. Within power I looked across utilities, the uranium companies, nuclear services companies as well as companies that provide electrical equipment to the utilities and the engineering and construction companies that build them. I think what I'm looking for is I'm looking for the tightest bottleneck to invest because I think price will go up there most and those companies will be best positioned

Glen Davidson: [00:12:26] When you're looking at these companies you're going out and seeing companies, you're going on trips to see different companies in the field, you're also going to conferences. Do you want to talk about the access that you've had and are having when it comes to company research?

Darren Lekkerkerker: [00:12:46] Glen, before coming here today I was at a large mining conference in Toronto, not too far, 10 minute walk from here. I'm gonna go back there after. I'm meeting with executives who run mining companies. We're focused on their operations, how that'll trend this year, what are their plans for the mine, if they're building a new mine are they gonna do M&A, are they going to return the capital to us as shareholders? In February I'm going to a large industrials conference. Think about it as sort of railways, trucking, airlines, home builders, a lot of old economy companies that are actually doing really well.

Glen Davidson: [00:13:29] All in one place.

Darren Lekkerkerker: [00:13:29] I'm doing that. I've got a couple other ones. One of them that I really like actually takes place at our office in Boston where we invite the 20 largest consumer company CEOs to come. We get to spend one hour with each of them. That's a great meeting, great conference so I'm looking forward to it. We get great access. It's a big benefit that we have because of our size and it allows us to learn more about those companies in that industry.

Glen Davidson: [00:13:58] I want to unpack some of what you talked about which was mining and then we got into consumers. With mining it makes me think of Canada. Thoughts on Canada, as we talked about at the outset you can go to zero, you're at 30 right now in North American Equity Fund per cent allocation. Thoughts on the Canadian market.

Darren Lekkerkerker: [00:14:14] It's actually a little bit above 30 at the moment because I'm finding a lot of great ideas in Canada. For that North American Fund, by the way, don't think of that as 30% of a Canadian fund, just think of it as best ideas in canada. That's how I drive that. Generally, I like Canada right now. I'm finding great ideas in metals and mining, that's both gold miners, copper miners as well as uranium, consumer in the retail area, financials. I like big banks leveraged to capital markets, and industrial companies as well that are leveraged to mining and metals or leveraged to data centres or aerospace.

Glen Davidson: [00:14:58] Copper, let's talk more about that.

Darren Lekkerkerker: [00:15:01] I'm bullish on copper. Why am I bullish on the copper? It's a little bit of a different story than gold although they both have benefited from a softer US dollar. For copper, it's really hard to make and there's been big problems in the past two years at three of the largest copper mines in the world. Two of them have had floods and one of them was just disastrous. Another one's been expropriated. A fourth one was really hard to build because copper is so expensive they're building mines kilometres up in the top of the Andes Mountains. There's no water, you have to ship people, it's really hard to make. The world produced less copper in 2025 than it did in 2024 despite a much higher price. That can tell you, generally in capitalism the price is a signal to produce more and they produced less so it shows you how hard it is to produce. The demand side, China's demand is a little softer right now because the property market is soft there but the rest of the world is a little stronger. There is some kicker from data centres and investment in the utilities grid in the US, too.

[00:16:14] I'm bullish on copper and I'm bullish on the miners. We do a lot of work on the miners. As I mentioned, several of them had problems with their mines so we do intensive work, meeting with the companies, that's what I'm doing later today and tomorrow, to try to avoid investing in the company that has the mine where something goes wrong and instead the company that can be a beneficiary, the cleaner story. That's what I'm looking for. Gold and copper miners have been incredibly profitable. One, the commodity price went up. With commodities you gotta dream the dream, right? Why would you invest in this company if you didn't think the commodity price was gonna go up? Two, you've gotta make sure you can benefit from the miner. In the past there's been periods where despite the price rise the cost went up so much, they didn't benefit as much, but meanwhile the costs have been rising a little bit but fairly subdued so they've been huge beneficiaries, in part because diesel has actually gone down which is a huge cost.

Glen Davidson: [00:17:13] You mentioned earlier about Canadian banks, you were positive, can you dig into that a bit more?

Darren Lekkerkerker: [00:17:17] You also mentioned about conferences earlier. I had the benefit and the luxury of one day getting to meet with the six largest bank CEOs two or three weeks ago. That was really great for my understanding of what's going on in banks. I'm a fan of big banks. I think when the economy does well I think big banks are well positioned. The fundamentals are good. For Canadian banks the net interest margins and net interest income should rise as 5-year mortgages come off and they set at slightly higher rates if you think rates were zero five years ago, those are starting to roll off. Credit looks a lot better today than it did a few years ago when we were worried at the extent of those resets. I think the credit costs are elevated but they should normalize and come down which would be a tailwind to profitability. Capital markets, revenues for banks is very strong, think about equity trading, debt trading, also IPOs and M&A. I think with the metals cycle you should have a very good cycle there for Canada.

[00:18:23] Meanwhile, they're getting operating leverage which just means that their revenues are going up more than their expenses. They're able to generate a lot of cash flow and return it to us as shareholders through dividends, higher dividends and share buybacks. We like that. Meanwhile, the regulator in Canada is under pressure to keep up with the US. In the US we've got a White House that is trying to deregulate the business sector. They are on side of banks which has been a highly regulated sector.

Glen Davidson: [00:18:53] Let's talk about the consumer. Why don't we use an example. Aritzia is in your top 10. Do you want to talk about what made that an attractive purchase for the portfolio?

Darren Lekkerkerker: [00:19:04] Think back to the tariff day. Ahead of that we knew something was coming. I didn't think it would be as broad or as deep as it was but I was trying to prepare my portfolio and I was trying to avoid companies that produce goods, import or export goods and trying to position more towards defensive companies that were services-based and very resilient. I had sold out of Aritzia in the North American Equity Fund. I really liked the company but the stock price got smoked post the tariffs. I was able to pivot the portfolio. This was one of the stocks that I bought in April. I also added to it after April. I'd followed the company a long time since their IPO. I've met with the CEO and founder and I felt that the company had navigated the Trump tariffs well in his first term. They were able to pivot in their supply chain away from China towards other countries. I felt like they could do the same thing. I felt that they had the ability to raise price because they have a strong brand. I also felt that the tariffs, in the way that they were first announced would be negotiated lower, which did happen. The company did really well. They also were able to introduce an app. They started to sell internationally through a website and they introduced several large stores in New York and California.

Glen Davidson: [00:20:35] Question's just come in, just thoughts overall on the energy sector.

Darren Lekkerkerker: [00:20:39] As I said, in resources I think you need to dream the dream if you want to be there. You've got to think price can go higher. We've talked about copper, gold. We haven't talked about uranium but I think that's going higher. With oil and gas there's a lot of supply. I think the bullish arguments are we think the US dollar could go lower still or that it should follow gold and copper but generally it's an industrial commodity and it's determined by demand and supply. We think there's two million barrels of excess supply that OPEC has and so we think if the price goes higher you have more supply that starts to come on which kind of dampens that price reaction. Instead I've preferred metals and mining and invested there

Glen Davidson: [00:21:26] Health care, very topical in the States these days, very volatile, overall thoughts.

Darren Lekkerkerker: [00:21:33] Generally, I tend to like health care companies because they're high quality companies. They tend to be not very cyclical. The exposure that I have in the portfolio, I own three companies right now, two of them are in what's called life sciences. Think of this as not investing in a drug company but in a picks and shovel play. They'll benefit through higher spending on drug R&D by selling services and equipment to the drug industry. Pharma and biotech industry has been doing well so I think that as the end market does better there's a real investment cycle. There's also the potential for reshoring as part of the deal with the White House in terms of the most favoured nation deal. I think that provides demand. I think end markets are improving.

[00:22:31] Meanwhile, historically these companies have been really, really strong at capital deployment. What I mean by that is just buying other companies in their industry where one plus one can equal three. They combine two companies, there are some overlapping costs or they're able to sell more through the existing sales force and it really benefits existing shareholders. The other area I'm investing in is med-tech or medical technology. Here I own a company where they're involved primarily in cardiology and electrophysiology. There's two big product cycles so I've invested ahead of that.

Glen Davidson: [00:23:09] Very interesting. You mentioned quality in relation to health care. How did you become focused on quality as an investor?

Darren Lekkerkerker: [00:23:16] I like to sleep at night. If you own a high quality ... what do I mean by that? I always think back to Warren Buffett and that's how he originally started learning about investing. Probably many of us in this room have read about Buffett. Buffett talks about buying companies with an economic moat. What does he mean by that? It's got a competitive advantage that's sustainable, that can grow over time. Some of the KPIs I would use to measure that would be like does it have a return on invested capital above average? More importantly, is it going up? One of the companies in my portfolio was outside the top 10, I'm not supposed to say the name, there's two. I like investing in aerospace. I think these are really high quality companies. Why? They've got that high ROIC. They're monopolies. If you invest in monopolies you'll make money. Why are they monopolies? Because if you make a part it has to be certified by the FAA and then you provide the aftermarket support through spare parts and services and you're the only one that can do that so you got really high margins and that services business tends to be sticky.

Glen Davidson: [00:24:26] Makes sense, and I'm glad you can sleep at night. We're all very happy for you as investors. Now, I want to ask you about rails because way back when you started North American Equity Fund you talked very glowingly of rail, freight, transportation, so on. Can you talk about them in the context of today?

Darren Lekkerkerker: [00:24:45] It's funny that you said I talked glowingly about rails. There's probably not too many people that talk glowingly about rails, right? It's good that I'm here because my wife has definitely heard a lot about the stock market so it's good that I can talk to you here. In terms of rails, yeah sure, I got super excited. Why was that? CP Rail previously was in my top 10 and that was my big investment.

Glen Davidson: [00:25:09] Many years ago.

Darren Lekkerkerker: [00:25:10] It almost 10 bagged. I don't think it got quite there. It went from sort of last place of the North American railroads to first place in terms of highest margins. They did that through changing the CEO and changing the way the company was run. It was called Precision Scheduled Railroading. Right now I have some investment in one rail. It's not in the top 10. I think the rail macro has been terrible because we've been in a freight recession for the last three years. You really need housing and autos to get moving for that to change. The one that I own has some idiosyncratic both revenue and cost drivers where I think they can do well that aren't shared by the other railways. The other thing that's happening in railways right now is there's consolidation. You've got Canadian Pacific Rail in Canada that bought the Kansas City Southern. In the US you have two rails trying to merge that are very large, which is Union Pacific and Norfolk Southern. That could change the environment if that is granted approval but I think that'll be a process and take some time.

Glen Davidson: [00:26:22] Lots of learnings, lots of learning but I always like asking you about trains. I want to go actually back to the consumer because I'm sure a number of our listeners and viewers and attendees are wondering, what are your thoughts around the K-shaped economy. There really is a divergence in type of consumer out there. Do you have comments on that?

Darren Lekkerkerker: [00:26:41] I do. Interestingly, I think that you can make a lot of money in stocks when things go from really bad to less bad. Actually, you probably make more money when that happens than when things go from good to great or just stay great or stay good. I think things could get a little better for the consumer. I think people are very bearish on the consumer. Some consumer sentiment data came out yesterday in the US and it was definitely soft. I think things could change a little bit. What could change? Let's talk about it. The Fed funds rate, it's 100 basis points lower today than it was a year ago. Forecasters expect them to lower rates again this year. I think that can help. Definitely helps on leverage consumption like autos and housing and related purchases. Gasoline prices are definitely a fair bit lower than last year. The One Big Beautiful Bill is expected to deliver consumer stimulus in the tax refunds as well as stimulus for businesses. I think things for the consumer could possibly get a little better here and so as such I'm more optimistic and positive on some of these left for dead consumer stocks. Some of the areas I'm looking at within consumer are retailers, hotel, other things linked to hotels and travel as well as autos.

Glen Davidson: [00:27:59] Communication services thoughts.

Darren Lekkerkerker: [00:28:02] Communication services for me, the sector is largely like internet and telcos but for me it's largely internet companies. My largest holding there is Google which I discussed earlier. I tend to like these internet companies because they have resilient demand, widening margins. I think the more controversial thing lately has been the amount of CapEx spend required for AI. Not all of them have that but Google does. I own Google in my top 10 and has executed very well.

Glen Davidson: [00:28:37] As somebody who likes to sleep well at night, again, we all appreciate that, can you talk to all of us about how you as an investor deal with the volatility of information that comes at you every day. The volatility of just information, market vol, you name it, how do you digest that? What's the message for all of to do the same?

Darren Lekkerkerker: [00:28:59] There is a ton of volatility in information and it's being exacerbated right now, as we all know, by what I would say is volatility in policy from the White House. I think they have a flood the zone strategy. I think there was three Mondays where I came in where it was Venezuela, credit cards capped at 10% and then Greenland. Three Mondays in a row so sure there's lots. Number one, my central tenet is that I think over time stocks go up and I remember that. Number two, I try to pivot if there's an opportunity. I kind of mentioned I did that during, I almost said COVID, the tariffs. I almost think of them somewhere where you had like a big sell-off and then an opportunity. I did during COVID as well.

[00:29:50] Let's talk about the tariffs, it's more recent. I mentioned Aritzia but I also looked at Shopify. I think Shopify was like another case where the baby was thrown out with the bath water. I think that was thrown out because what did Shopify do? It's software tools for direct to consumer e-commerce retailers. More lately they've gotten into physical retailers as a growth area as well. They themselves don't import and export goods but their customers do. People thought that there would be depressed consumer spending as a result of the tariffs but it was a great opportunity to buy Shopify. It certainly benefited from the reduction in the initial announced tariffs but it's also done well in terms of growing their gross merchandise value, which is where their revenue comes from. Why is that? There's been a number of revenue drivers and meanwhile they've also done a great job at being disciplined on costs and improving margins.

Glen Davidson: [00:30:49] Makes sense, very good perspective. You must be very proud of all that you've achieved. Congratulations on 10 years on North American Equity. Congratulations on the American Equity Fund, taking that on, the ETF tomorrow and all the risk-adjusted awards, Lipper awards, and we're really glad you can sleep at night. Thank you very much, Darren Lekkerkerker.

Darren Lekkerkerker: [00:31:06] Thanks, Glen. Thanks, everybody.