Bristol Gate U.S. Dividend Growth Equity
Mandate commentary
Q3 2026
Highlights
① Strong company fundamentals were overshadowed by weakness in semiconductor equipment and industrials amid unusually narrow market leadership.
② Earnings growth provided a powerful tailwind for equities.
③ Inflation, energy costs pushed long-term yields higher.
Mandate overview
Our approach remains grounded in a proprietary model designed to identify the high-dividend-growth companies of tomorrow. Dividend growth is style-agnostic, allowing the portfolio to invest across sectors where durable cash flows can support rising distributions. During the quarter, the strategy lagged the S&P 500 Total Return Index, with the shortfall concentrated before mid-September, as semiconductor-equipment holdings sold off and industrial holdings declined with their sector. Fundamentals remained strong: 21 of 22 holdings beat analysts’ earnings expectations and nine raised full-year guidance. Stock selection in information technology was the largest relative detractor, while the overweight to industrials also weighed. These effects were partly offset by strong stock selection in industrials, and by having no exposure to utilities and real estate and little exposure to consumer discretionary.
Mandate: lagged benchmark
Performance contributors
Microsoft was the largest contributor, rising 37.8%, as revenue grew 18% and Azure and other cloud services advanced 43%.
Cintas and McKesson gained 15% and 13.1%, respectively, supported by strong earnings, higher guidance and dividend increases.
Performance detractors
KLA fell 35.3% despite beating expectations and raising its outlook, as semiconductor-equipment stocks sold off during the quarter.
Applied Materials declined 29.2% despite solid results, while GE Aerospace also detracted amid broad weakness in industrials.
Total gross returns:
Total return (USD) | QTD | YTD | 1YR | 3YR | 5YR | Since INC. (NOV. 14, 2016) |
BRISTOL GATE U.S. DIVIDEND GROWTH EQUITY | -3.54
| 3.39
| 7.97
| 13.28
| 8.19
| 12.50
|
Mandate positioning
We purchased Garmin and sold Verisk during the quarter. Garmin adds a diversified portfolio of category-leading products, a debt-free balance sheet and attractive dividend-growth potential. We sold Verisk because we identified better prospects for returns and dividend growth elsewhere. Portfolio fundamentals remain attractive, supported by earnings durability, balance-sheet strength and dividend coverage. We continue to focus on businesses that fund growing dividends from growing cash flows and believe the portfolio’s combination of fundamental quality and compounding dividend growth remains well-suited to a wide range of market outcomes.
Market overview: earnings growth provided a powerful tailwind for equities
The third quarter showed that the current business cycle still has support, but risks have shifted. Growth held up, earnings improved and corporate investment remained firm, but higher oil prices, persistent inflation and rising long-term yields made the path forward less certain. Equities advanced as earnings provided fundamental support, even as higher rates raised the bar for further gains.
Canadian equities benefited from gains in resources and financials. Higher oil prices supported energy, while precious-metals companies were among the strongest performers. Bank earnings were supported by capital-markets activity, trading income and contained credit costs. U.S. equities also advanced, supported by strong earnings and continued technology investment. Higher yields weighed on more rate-sensitive areas.
International markets remained constructive overall, with parts of Asia benefiting from continued demand across the AI technology supply chain. Fixed income faced greater pressure as rising government bond yields outweighed coupon income, while credit remained comparatively resilient. Across markets, the central tension increasingly became earnings strength versus higher inflation and interest rates.
Market outlook: inflation, energy costs pushed long-term yields higher
With the recent earnings strength, the bar for market performance is higher. U.S. valuations are at the upper end of their historical range and have come under pressure from higher bond yields. Investor sentiment points to strong earnings growth going-forward, which could support equities in the near term, but the magnitude of gains may be muted.
The U.S. Federal Reserve and Bank of Canada each face two rate decisions this year, and persistent inflation has shifted central banks toward a tighter policy stance. Long-term yields remain a pressure point for equities, while also improving the income available from bonds.
The U.S. midterms may add to market volatility, but the path forward will be shaped by the economic cycle, inflation and interest rates.
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