Insights

In our 3rd quarter portfolio commentary, we touched briefly on market concentration and how it might be skewing index performance, particularly in the US. As mentioned, the dominance of a small group of names in the S&P 500 is undeniably linked to the very strong earnings growth being posted by companies participating in the AI infrastructure build-out, but it’s also being compounded by the persistent growth of passive investing.

We’re often asked how we whittle down the vast universe of public equities into a workable list that fits DM’s investment criteria and warrants further investigation. The first step in this funneling process involves screening stocks against a set of “gating factors” to eliminate names which don’t match our core principles of cash flow generation, growth, and effective redeployment. The first of our screens is industry outlook, or whether the company is operating in a part of the economy which is both expanding and likely to maintain its favourable profile into the foreseeable future.

With AI-related stocks dominating both the business news cycle and S&P 500 performance, it’s not surprising that many high quality names have been overlooked despite posting solid results. This is the case for several of the positions in DM US Equity, a profile which is exemplified by Visa Inc., a company we’ve held since the year it went public. In its recently released Q1-26 earnings report, the company handily beat analyst estimates for income and posted its largest revenue increase since 2022. Visa has been a prodigious grower of free cash flow throughout its history and, despite the purported threats of crypto, buy-now-pay-later services, and other fintech innovations, that growth rate has not slowed in recent years.

The vast majority of people in the investment business (all current DM staff included) have only worked in an environment of falling interest rates. Yes, there were interim reversals in this progression and periods where central bankers were temporarily tightening against the grain but, by and large, we’ve all invested against a backdrop where the cost of money was dwindling and competition for investment capital was meagre. Based on the preponderance of recent evidence, it seems very likely that this tailwind has reached its end.

Whether you are (or were) a Venezuelan politico, a software engineer, or anyone who relies on the safe passage of hydrocarbons through a narrow channel in the Persian Gulf, the first quarter of 2026 was one of grave consequence. For investors, the implications of recent weeks and what might lie ahead undoubtedly seem just as harrowing.

Every investing year is interesting in its own way, but 2025 provided a decidedly distinct waypost to mark DM’s first quarter century in business. The inaugural year of a US presidential term is typically strong for stocks but, as we learned during its first go around, this administration doesn’t often lend itself to historical comparison. In fact, it seemed that any chance at a favourable start was dashed in early April when a nuclear scale tariff bomb was dropped on the world and, once investors calculated what this punishing levy would do to global commerce, the S&P 500 quickly shed a fifth of its value.