Quarterly Check-in April 2026: Beyond the Straight of Hormuz

In our Q1-F26 Quarterly Check-In with Portfolio Manager Sam LaBell, he focuses on the economic implications of the Iran crisis and its impact on oil prices, inflation, and interest rates.

Sam discusses how oil prices trading in the high $70s for December futures represent a balanced market scenario, but warns that a complete closure of the Strait of Hormuz isn’t fully priced in. He presents a detailed analysis showing historical correlations between oil price changes and inflation rates, arguing that interest rates have become the primary tail risk. He also analyzes sector sensitivities to interest rates.

Sam reviewed the performance of our three funds: the Veritas Canadian Equity Fund (a long-only strategy), the Veritas Absolute Return Fund (a long-short strategy), and the Veritas Next Edge Premium Yield Fund (targets an annualized distribution of 8% paid monthly using an actively managed covered options strategy). All three funds have demonstrated lower volatility than their respective benchmarks, which is a key differentiator.

Highlights

00:00 Introduction and Oil Price Analysis Beyond the Iran Crisis ‎

Sam explains that the market entered the year with a 2 million barrels per day oversupply, but removing Iran’s 1.9 million barrels per day in exports, plus production outages, would balance the market at oil prices in the $70s. However, Sam emphasizes that a complete Strait of Hormuz closure affecting 20 million barrels per day isn’t priced in.

04:15 Inflation Effects and Historical Oil Price Correlations ‎

Sam presents a comprehensive analysis of inflation pass-through from oil prices using historical data since 1986. He groups monthly CPI observations by year-over-year oil price changes, showing that oil price drops of 20% or more correlate with 1.4% average CPI inflation, while stable oil prices (0-20% changes) correlate with 2.66-2.75% inflation. More significantly, 20-40% oil price increases correlate with 3.4% CPI, 40-60% increases with 4% CPI, and over 60% increases with 4.1% CPI. He also discusses the effects of oil prices on GDP, as well as savings rates and resilient retail sales.

13:46 Earnings Growth Analysis ‎and Unemployment Trends

“Inflation alone does not sink earnings.” In periods of higher inflation, companies can pass along price increases to consumers and continue to grow their earnings. Sam uses three-year periods since 1980 to demonstrate that high inflation (>5%) correlates with 5.4% average real earnings growth, while the biggest risk comes from 0-2.5% inflation periods showing negative 2.5% real earnings growth and 39% chance of negative nominal EPS growth.

Sam also highlights concerning employment trends, such as in professional and business services.

21:02 Interest Rate Risk and Market Implications ‎

Sam identifies interest rates as the primary tail risk, noting Fed futures expectations have shifted 50 basis points higher since mid-December. This coincides with inflation expectations rising from 2.8% to 3.1%. The S&P 500 forward P/E multiple has contracted from 22.5 to 20 times, with the earnings yield increasing from 4.44% to 5%, which is likely directly tied to higher rate expectations. He calculates that another 50 basis point rate increase would contract the P/E ratio another 9% to 18.2 times, representing significant market risk.

25:04 Sector Analysis and Interest Rate Sensitivity ‎

Highest interest rate sensitivity sectors include utilities and REITs, healthcare, materials and IT. Conversely, sectors with negative interest rate correlation include financials, industrials, consumer discretionary, and energy.

29:40 Fund Performance and Investment Strategy ‎

Sam outlines the performance of our three funds and our strategy that focuses on lowering volatility relative to benchmarks while maintaining strong risk-adjusted returns.

“We have a unique mix of picks, and we tend to be underweight in financials and tech. We find opportunities elsewhere. Our track record is that we’ve lowered the volatility of our performance relative to the benchmak S&P/TSX in each of our funds.”

31:28 Top Performing Long Positions ‎and Short Positions

Sam details successful long positions across our funds, highlighting strong bank performance, including Canadian Imperial Bank of Commerce (NYSE, TSX: CM), Toronto Dominion Bank (NYSE, TSX: TD), and Royal Bank of Canada (NYSE, TSX: RY). Other top-performing long names include TFI International Inc. (NYSE, TSX: TFII), Hudbay Minerals Inc. (NYSE, TSX: HBM), Agnico Eagle Mines Ltd. (NYSE, TSX: AEM), Sun Life Financial Inc. (NYSE, TSX: SLF), and Canadian National Railway Co. (NYSE, TSX: CNR).

Successful shorts included Brookfield Asset Management Ltd. (NYSE, TSX: BAM), Williams-Sonoma Inc. (NYSE: WSM), Shopify Inc. (Nasdaq, TSX: SHOP) and various consumer products companies due to their limited ability to pass through prices and elevated valuations.

39:00 Q&A Session on Tech Positioning and Rates Outlook ‎

DISCLOSURES

Sources: Bloomberg, Shiller EPS data set, LSEG data, Veritas Asset Management Inc. calculations.

Notes: Performance for all funds listed above are for Series/Class F units as of March 31, 2026. Inception, three-year and five-year returns are calculated on an annualized basis using historical daily returns on net asset value per unit, adjusted to reflect reinvested distributions. Correlation is calculated using daily returns between the funds and the index. Volatility is expressed in terms of historical annual volatility. Historical daily volatility is measured by the standard deviation of daily returns. Historical annual volatility is measured by annualized daily data.

The S&P/TSX Composite Total Return Index is a Canadian dollar denominated, capitalization-weighted index that includes the largest float-adjusted stocks trading on the Toronto Stock Exchange, subject to inclusion criteria. The index provides the broadest representation of market-weighted returns for large capitalization Canadian-listed stocks, including reinvested dividends, making it an appropriate index for diversified portfolios that invest primarily in Canadian stocks, such as the Veritas Absolute Return Fund and the Veritas Canadian Equity Fund. We may also refer to exchange traded funds (ETF) that closely track the S&P/TSX Composite total return, such as the iShares Core S&P/TSX Capped Composite ETF which carries a 0.99 or greater correlation to the index. While our funds are benchmarked against the S&P/TSX Composite, we may reference returns for the S&P 500 and NASDAQ Composite, as well as yields on U.S. ten-year Treasury bonds, which we view as relevant investment benchmarks for investors in North American equities. The S&P 500 represents approximately 80% of the total market capitalization of U.S. stocks, and remains the most broad-based indicator of large-cap U.S. equity returns. In contrast, the NASDAQ has a greater proportion of technology and growth stocks, which we view as providing additional insight into investors’ risk appetite. The ten-year U.S. Treasury rate is referenced as a measure of the lowest-risk investment alternative to equities (‘the risk-free rate’). Contact Veritas Asset Management Inc. for more information regarding comparative indices.

The information contained herein is for general information purposes and does not constitute a solicitation for the purchase or sale of securities. The full details of the Fund, its investment strategies and the risks are detailed in the Fund’s current simplified prospectus and fund facts document, copies of which may be obtained from Sedar, your dealer, Veritas Asset Management Inc. (“VAM”) or at Veritasfunds.com. Please read the prospectus before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. All performance data assume reinvestment of all distributions or dividends and do not take into account other charges or income taxes payable by any unitholder that would have reduced returns. The performance of the Fund is not guaranteed, unit values change frequently and past performance may not be repeated. Performance is presented in Canadian dollars, unless otherwise stated, and is net of fees of Series F units of the Fund. VAM is an affiliate of Veritas Investment Research Corporation (“VIR”) by virtue of being under common control that may also from time to time have certain common directors, officers and/or employees. VIR produces and issues independent equity research regarding public issuers to investors and other capital markets participants. VAM is a client of VIR and receives research reports from VIR at the same time as VIR’s other clients. VIR and VAM have implemented policies and procedures to minimize the potential for and to address conflicts of interest, which are available upon request.

Cautionary Note Regarding Forward-Looking Statements

The information in this release may contain forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that Veritas Asset Management Inc., the Portfolio Manager, or any affiliates thereof (the ‘Companies’) believe, expect, or anticipate will or may occur in the future (including, without limitation, statements regarding any targeted returns, projections, forecasts, statements, and future plans and objectives of the Companies) are forward-looking statements. These forward-looking statements reflect the current expectations, assumptions or beliefs of the Companies based on information currently available to the Companies. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Companies to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Companies.

For a list of factors that could cause actual results or events to differ materially from current expectations, please refer to our Prospectus and the section ‘Risk Factors’. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Companies disclaim any intent or obligation to update any forward-looking statement, whether as a result of new information, future events, or results or otherwise. Although the Companies believe that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

Performance to Mach 31, 2025