October 2, 2026

Dear Clients,

This week, I travelled to Europe with a dozen other portfolio managers from several of Canada’s largest investment management firms to meet with the leaders of our portfolio companies. Building on last year’s visit to Japan, these conversations help me better understand the people running the businesses we own, challenge my own assumptions and compare approaches with other experienced investors.

Three themes stood out: the growing cost of security, the spread of artificial intelligence, and accelerating rates of change in consumer habits. Each creates opportunities and challenges for the businesses we follow. The conversations helped put those changes in perspective and raised questions worth sharing.

Geopolitics and the Cost of Security

The conversations with aerospace and defence companies, including BAE Systems, Thales, and Safran, have been sobering. A recurring concern is that investors are underestimating geopolitical risks. Discussions have ranged from the risk of the war in Ukraine spreading, to prolonged disruption around the Strait of Hormuz, and what these conflicts might mean for China’s plans for Taiwan.

These concerns feel more concrete when they come from people making business decisions that reach decades into the future. A factory, an aircraft programme, or a new supply chain cannot change direction as quickly as a political speech. The relationships between defence contractors and governments are complex and vary by country. To understand the investment opportunity, we need to look beyond the spending commitments to how contracts are structured and what companies can earn.

The financial consequences extend beyond defence companies. Governments face competing demands for spending, while businesses must consider whether their supply chains remain dependable as trading relationships change. Adjusting takes time and money. Companies with steady cash flows and manageable debts have more freedom to respond, which is one reason we continue to value those qualities.

AI and the Search for Growth

Artificial intelligence has appeared in virtually every company discussion. The interesting difference has been how far some businesses have had to stretch to explain their connection. It is becoming difficult to find a corporate presentation that does not contain an AI slide.

Some of the opportunities are substantial. Better software and faster research could help businesses do more with the people and money they already have. That would be especially useful in countries with aging populations, worker shortages, and stretched government budgets. These were familiar themes in Japan, and they have followed us to Europe.

For investors, the harder question is who keeps the gains. Does a company become more profitable, or does competition force it to pass the savings to customers? How much must it spend before the benefits arrive? And how much of that future success are we already paying for in the share price?

A useful technology can become widely adopted without producing exceptional returns for every company involved. We need to understand whether a business has something customers will continue to pay for once its competitors have access to the same tools.

We can be optimistic about the technology while remaining selective about the investments.

Changing Consumer Habits

Another theme has been the spread of GLP-1 medicines, including treatments used for diabetes and weight loss. Their effects now reach well beyond the drug companies that make them.

The scale is striking. In research published in November 2025, Circana estimated that 23% of U.S. households included someone using a GLP-1 medication over the course of a year. That is nearly one household in four.

At Danone, the discussion of Greek yogurt offered a useful example. People eating less may become more interested in protein, nutrition, and the value they get from each purchase. That creates opportunities for some products and challenges for others, particularly those that depend on frequent snacking.

For a food company, a small change in what millions of people buy can make a large difference to profits. A familiar brand remains valuable, but it cannot assume that customers will always want the same things.

This is the sort of change that can be easy to miss when looking only at broad economic forecasts. It requires us to understand the customer, the product, and whether the company is keeping up.

What This Means for Our Investments

These meetings reinforce our view that there are good investments to be found in a complicated world. We favour businesses with dependable cash flows, manageable debts, and products or services that customers continue to need. Those qualities give a company choices when conditions change.

Price remains an essential part of that judgment. A well-run company can be a poor investment if the price leaves little room for disappointment. The meetings help us understand what a business might earn over time. We still have to decide what we are willing to pay for those earnings.

Global diversification remains important. The forces discussed here affect countries and industries differently, and the most interesting opportunities will not all appear in the same place. Owning investments across markets gives us more ways to participate in growth, while reducing our dependence on any one outcome.

Bringing the Perspective Home

Meetings like these rarely produce a single conclusion about where markets will go next. They are more useful for uncovering assumptions that deserve another look.

I remain optimistic about the ability of good businesses to adapt. People continue to find ways to solve problems, improve products, and serve customers. There was plenty of that ingenuity on display in London and Paris.

That work continues at home in Victoria as we compare what we have heard with our research. These conversations help us make more informed decisions about the businesses we own, the prices we pay, and the risks we take on your behalf.

Thank you for your continued trust.

Sincerely,

Kevin Burkett
Burkett Asset Management Limited