• Introduction – The Power of a Good Story

  Every investment thesis is a story. The hard part is knowing when yours has gradually changed.

• Market Commentary - The Price of Passage
  From oil to fertilizer to food: how a narrow strait became the world's most consequential bottleneck.

• Portfolio Review
  A review of key portfolio changes during the quarter, including new investments, trims, and exits.

• Performance Review
  An overview of the companies that most influenced portfolio performance this quarter — both positively and negatively.

• Feature – BQE Water
  The funnel is filling, not emptying — an update on BQE Water and why we are staying the course.

• Factsheet
  A concise snapshot of the portfolio, including sector exposure, top holdings, and historical performance.

Introduction

The Power of a Good Story

We all like a good story. A book. A film. Something shared over dinner that stays with you long after the table is cleared. Stories are how we make sense of the world and how we connect with the people in it.

Investing, for all its numbers and spreadsheets, is no different. Stories are everywhere in this business, and they are not incidental. They are often the thing driving the decision.

When we meet with a CEO, they are telling us a story about a company’s past and its outlook for the future. It might be a turnaround story, an innovation story, a consolidation story, or a tale about hidden assets the market has not yet discovered. As investors, we are building our own version of that story, the investment thesis, the reason we own what we own. Sometimes it aligns with the prevailing market view. Sometimes it runs against it. But it is always a story.

Stories can carry risk, and we see two danger areas in particular.

The first is being seduced by someone else’s story. A well-constructed investment pitch can be a masterclass in selective emphasis: it leads with the opportunity, addresses the objections quickly, and ends with a picture of what the upside looks like. Add a sense of urgency — this opportunity won’t last long — and the pressure to act before you have done sufficient work can be significant. This is the oldest technique in sales, and it is used in investing for the same reason it is used everywhere else: it works. Our research process is deliberately slow and methodical, not always working to our advantage, but as a consistent check against moving too fast on a compelling story.

The second danger is less discussed, because the storyteller is you.

Once an investment is made, it is entirely natural for the thesis to evolve as circumstances change. In our world, when this happens unintentionally it is called thesis drift. It tends to be gradual, and it tends to be invisible. A company you bought for three clear reasons has seen one of those reasons slowly erode. A competitive advantage has narrowed. A management change has altered the leadership within the business. And yet, when you consult your memory, you find a way to accommodate these changes — you always expected some competition, you knew the founder would eventually step back. You have not changed your mind. You have simply updated the story, in real time, without noticing.

This is why we journal. This is why we maintain a written investment thesis rather than relying on memory, which is a poor and partial historian. We also use a thesis tracker, a living record of the key assumptions behind each investment, and the specific indicators we watch to assess whether those assumptions are holding. The goal is not rigidity. An investment thesis can evolve. But that evolution should be deliberate and the assumptions underlying a changing risk profile should be recorded and underwritten. What we want to avoid is arriving somewhere we did not intend to go, holding a position we would not have built under the current set of facts.

Most investors have a process for evaluating other people’s narratives. Fewer have one for scrutinising their own. We highlight this part of our process to demonstrate how we try to mitigate these behavioural biases. Our process is not perfect, but we are sharing this because we believe transparency about how we think is as important as transparency about what we own. Our trusted clients deserve to know not just the story, but how carefully we are watching it.

-Robert

Market Commentary

The year began on solid footing. Markets were pricing in multiple U.S. rate cuts, earnings expectations were constructive, and broad indices sat near all-time highs. Then, the mood shifted quickly as the risk of a war with Iran escalated and energy prices began moving sharply higher.

The Price of Passage

The Strait of Hormuz is 34 kilometres wide at its narrowest point. For decades, roughly a fifth of the world’s seaborne oil and liquefied natural gas has reliably passed through it each day. Since late February 2026, that has changed. The US-Israel military campaign against Iran effectively closed the strait, and the consequences are now working their way through every layer of the global economy.

Second Order Effects

Brent crude, which started the year around $73 per barrel, has surged past $100 and briefly touched $126 — its highest level in four years. The International Energy Agency has called it the largest supply disruption in the history of the oil market. What receives less attention, but may prove equally consequential, is the impacts to the fertilizer industry. About a third of the world’s basic fertilizers pass through the Strait of Hormuz, and Gulf producers stand among the world’s largest producers of urea and ammonia. Fertilizer prices jumped 20 to 30% in the first month of the conflict, arriving at the worst possible moment, the beginning of the Northern Hemisphere planting season. Food prices are a lagging indicator of fertilizer costs. We are watching the fuse burn.

Inflation’s Oldest Story

Energy-driven inflation is not new. The 1973 OPEC embargo, the 1979–80 oil shocks, and the post-COVID energy surge of 2021–22 all followed the same pattern: an energy shock transmits into transport costs, into industrial inputs, into food, and eventually into consumer prices broadly. Central banks then face an uncomfortable choice — tighten into a slowing economy, or let inflation run.

The mechanism is the same today. Higher oil prices raise fuel costs for trucks, ships, and aircraft. Freight surcharges rise, squeezing retailers and consumers alike. Airlines face margin compression. At the household level, real wages erode when energy inflates faster than incomes. For companies with energy-intensive or logistics-dependent operations, the pressure on margins — and ultimately on earnings multiples — is real and accumulating.

Our Portfolio in This Moment

No portfolio is fully insulated from a shock of this magnitude, and we would not pretend otherwise. What we can say is that ours was not built for any single scenario. It was constructed from the bottom up to be resilient across an entire cycle — and we shift it gradually to where we see value in the market, not in reaction to the news of the day.

We hold meaningful exposure to gold equities, which have historically offered both capital preservation and operating leverage in inflationary environments. We also own businesses with high-quality earnings streams — companies with pricing power, low capital intensity, and the ability to protect their margins even as input costs rise.

The situation in the Strait of Hormuz remains unresolved, and the ripple effects into food, freight, and consumer affordability are still building. We are watching closely. Our discipline, as always, is to stay balanced, trust the quality of what we own, and remain patient for the opportunities that dislocations tend to create.

Portfolio Review

The Forterra Canadian Small/Mid-Cap portfolio returned 1.2% gross of fees in Q1 2026, against an 11.4% gain for the S&P/TSX Small Cap Index.

The gap is largely explained by one word: oil. The Energy sector surged over 30% as war in Iran roiled global oil markets. With Energy representing roughly 28% of the index, that move carried significant index weight. We have no direct exposure to oil and gas producers — a deliberate and long-standing decision. Smaller producers face structural headwinds: limited resource diversification, higher costs of capital, and few of the scale advantages enjoyed by the majors. Our energy exposure is indirect, primarily through North American Construction Group and, to a lesser extent, Velan. We do not expect to outperform in periods driven by oil and gas prices, and we remain underweight this segment of the market.

The quarter was otherwise busy. We added two new companies, exited a long-held position, and made adjustments across several existing holdings. The dominant story — and the most frustrating — was goeasy.

We sold goeasy in March after the company announced write-downs within its LendCare loan portfolio. It was a poor outcome for a position we have held, in various forms, for nearly a decade. The financial loss is one thing. The deliberate deception is another. Management and the board withheld material information about the health of the loan book, allowing investors to operate on a false premise. Restructuring, board changes, and litigation are underway, but we suspect the accountability will fall well short of what is warranted. All board members, including chairman David Ingram, should resign.

We own the error. goeasy was our smallest position when the news broke, but size does not excuse the lapse. A short report had raised serious red flags. We chose to rely on our own decade-long familiarity with the company rather than weigh that signal more seriously. That was a mistake. We will apply greater scepticism to the areas of reporting where management exercises discretion — unaudited metrics, qualitative disclosures, guidance. And we will stay humble about what remains unknowable: some people are simply willing to deceive, and determined fraudsters are difficult to detect in advance.

The most notable addition this quarter was Zedcor, initiated in January. Zedcor deploys mobile surveillance towers to industrial and commercial customers across North America, operating on a rental model that generates recurring revenue. We first encountered the company a few years ago, when its projections seemed overreaching and its management overconfident. We liked the business model but put Zedcor on the watchlist rather than the buy list.

What followed was a prolonged exercise in patience. Quarter after quarter, Zedcor beat expectations. The stock climbed. We watched.

Then, in January, a two-day, 25% selloff gave us our entry point. The catalyst was a rumour that Ring, Amazon’s consumer doorbell camera brand, planned to launch a competing product. We moved quickly to assess the threat. Ring serves homeowners and was promoting a new product that could be used by small businesses; Zedcor serves larger industrial and commercial sites with a fully managed, enterprise-grade solution — the two are not genuinely comparable, and we found no evidence that Amazon was pursuing this market in any meaningful way. The market’s reaction was indiscriminate. Ours was not.

This is the watchlist working as intended: patient observation, followed by decisive action when the moment arrives.

Zedcor’s competitive edge lies less in proprietary technology than in service execution. Customers are migrating away from static cameras and human guards toward real-time, managed monitoring — a long-cycle shift that we believe has substantial runway ahead.

In other portfolio changes during the quarter, in January, we trimmed some gold exposure to manage position sizes. In March, we initiated a position in a small healthcare company that we believe is entering a meaningful inflection in its growth trajectory. We are still building the position and will share more detail in a future commentary.

Performance Review

The quarter’s standout performer was Firan Technology Group, up 61%. Strong results, new contract implementations, and plans to expand capacity across both its aerospace and defence segments drove renewed investor confidence in the stock. Even after that run, we continue to see room for further appreciation.

Two gold holdings added to returns: G Mining Ventures gained 18% and Elemental Royalty rose 13%.

On the other side of the ledger, goeasy was the largest detractor despite being the portfolio’s smallest position — a reflection of just how severe the decline was. Shares fell 62% before we exited. The company had concealed material deterioration in its loan book. When the write-downs were announced, the market responded accordingly. Shares fell a further 23% from our exit price by quarter-end and continued lower into Q2 as the full picture came into view.

Magna Mining slipped 22% on a disappointing quarter and a cautious outlook for the McCreedy mine. Velan fell 15% after the controlling Velan family agreed to sell their stake to Birch Hill, a private equity firm, at a meaningful discount to market value. We continue to believe the shares are undervalued.

Feature - BQE Water

BQE Water — Revisiting the Thesis

We first featured BQE Water in our Q3 2024 commentary. Eighteen months on, the company has become a meaningful position in the portfolio — a reflection of our growing conviction in both the business and the people running it. This is not a re-introduction so much as a progress report: what has happened, what has changed, and why we still see a compelling opportunity ahead.

For those who need a brief reminder: BQE Water provides water treatment solutions to the global mining industry. The company designs, builds, and operates water treatment plants on mine sites, earning long-term recurring revenue, with the mining company covering the capital cost of the plant. With over 25 years of operating history, four proprietary technologies, and 30 plants built globally, BQE has established itself as a technical authority in a niche where relationships, expertise, and a track record of performance matter more than scale.

Restating the Thesis

The core thesis has not changed: a capital-light business model, recurring revenue with strong margins, a durable competitive moat, and a management team focused on doubling revenue over three years. What has changed is our confidence. When we first wrote about BQE Water, much of the upside was prospective — a pipeline of projects we believed would convert. Since then, that pipeline has begun to convert in a meaningful way, and the company has added capabilities and contracts that were not in the picture eighteen months ago.

Tracking the Thesis

We track the progress in operations revenue as a key driver because we believe growing recurring revenue is the most valuable part of the business. It provides a foundation to build upon each year. These contracts are generally stable, easier to predict, and can last decades. As operations revenue grows, it will become a bigger portion of the overall business, and we believe will drive a higher valuation for the business.

The headline numbers for operational revenue in 2025 require some explanation. Operations revenue declined from $10.5 million in 2024 to $7.3 million — a drop of roughly 30% that we flagged internally and examined carefully before drawing any conclusions.

The decline had two specific causes. One larger contract was reduced in scope from full operations support to a supervisory model, reducing the associated revenue. Management agreed to renegotiate the contract, moving from an operating role to a supervisory one. The revised scope has reduced revenue but preserves similar margins. BQE decided to take the long view, believing that once the mine begins production in three to four years, the operator’s need for more support may grow, particularly as the water management process becomes more complex. Maintaining a presence onsite and keeping an amicable relationship was also a factor. This is a base metals mine and once in production could run for 30+ years.

The other factor that contributed to the lower operational revenue was the Minto Mine contract coming to an end during 2024.

Neither reflected competitive displacement or a failure of BQE’s technology — both were site-specific circumstances rather than any erosion of the company’s position or client relationships.

What made us comfortable looking past the operational decline was what was happening on the other side of the ledger. Technical services revenue grew over 300% in the same period, including short-term operational contracts at the Eagle Mine. Technical services work is not just consulting revenue — it is the front door to future operational contracts, and another key metric that we track. BQE’s track record shows that technical engagement converts to long-term operational revenue as projects advance. A surge in that activity, even as one or two operational contracts stepped back, tells us the funnel is filling, not emptying. We chose to look through the short-term revenue mix and focus on what the pipeline was signalling.

How the Company Has Evolved

Several developments since our original feature have strengthened the investment case.

Aquatic Toxicology. BQE acquired an aquatic toxicology team, adding a new service line that engages clients earlier in the mine assessment and permitting process. This matters because it widens the funnel — BQE is now building relationships and demonstrating expertise before they would normally be in the conversation. It also deepens the company’s ability to serve as a single point of technical accountability for mining companies navigating complex environmental requirements.

Building the Team. Management has been deliberate about adding experienced leaders in areas like talent management to support the next leg of growth. In a business where the limiting factor on growth is the pace at which new plants can be commissioned and operated, having the right people in place is not a support function — it is the growth function.

Experience at Eagle Mine. BQE Water’s emergency response at Eagle Mine showed the industry, First Nations partners and government regulators what BQE is capable of. It is now an industry reference case, one that demonstrates BQE Water’s ability to design and operationalize solutions under pressure. BQE Water continues to work onsite today, but we also believe that there is a high probability that they will be there for the long-term. As Eagle Mine makes its way through receivership and into the hands of its new owners, water management will continue to be a critical part of the process. BQE Water has also completed the preliminary design work for the new permanent water plant, further entrenching its position on site.

Longer-term Contracts. The most significant recent milestone is the award of a 20-year operational contract with the BC government for the water treatment plant at the Britannia Mine site. A two-decade contract with a government counterparty is an exceptional demonstration of the recurring, durable nature of BQE’s operational model. It also demonstrates something else – BQE Water can win contracts on water plants that are already in operation. In the case of the Britannia water treatment plant, they displaced an incumbent, a leading multinational, by identifying efficiencies that deliver savings over the long term. More recently, BQE Water announced it had signed a 3-year operating agreement with Canadian Royalties to run five seasonal water treatment systems in Quebec – again displacing an incumbent.

Pipeline. The pipeline of opportunities remains the broadest it has been. There is a greater sense of urgency in the industry. Western countries are looking to secure access to critical minerals. Gold developers want to move quickly while gold prices are high, and the financing window is open. BQE’s pipeline includes a dozen SART and cyanide destruction projects at various stages. Management recently reported active discussions on four other Canadian sites for operations service agreements in 2026. The pace of activity has changed dramatically since we first started our research a few years ago.

Valuation — The Asymmetry

BQE Water’s shares have appreciated meaningfully (~50%) since our original feature, and at approximately $80 per share, the company now trades at a market capitalisation of just over $100 million. With roughly $19 million in cash on the balance sheet and minimal debt, the implied enterprise value is approximately $85 million — that’s approximately 10x trailing 12-months adjusted EBITDA or about 8x our 2026 adjusted EBITDA estimate.

We think the fair value range is 10-12x adjusted EV/EBITDA, informed by comparable engineering companies that are larger and more diversified but carry less recurring revenue, lower margins and a slower growth profile.

Management has set a clear objective: double the business by 2028. That would require >25% growth for three consecutive years. Our estimates are lower than this as we are trying to be conservative. The chart below shows our fair value range.

We typically look out 2 years in this exercise; here we extend to 2028 because management has set explicit targets.

Our upside scenario assumes management reaches its goal of doubling revenue by 2028 and gains operating leverage, with adjusted EBITDA margins expanding to 25% and resulting in EBITDA of $20 million. Applying a 12x multiple, that implies a share price of $208. We consider these assumptions aggressive, but they are illustrative of a full doubling scenario.

The top end of our fair value range assumes that management reaches $16 million in adjusted EBITDA, just short of doubling, at a 12x multiple, implying $168 per share. The lower end of the fair value range assumes they get to $15 million in adjusted EBITDA and 10x multiple, implying $135 per share. The implied adjusted EBITDA CAGR over the three-year period is 22%-25%. For context, BQE Water grew adjusted EBITDA at a 30% CAGR between 2019 and 2025.

The downside, in our view, is meaningfully cushioned. If BQE Water achieves only high-single-digit adjusted EBITDA growth, reaching $10.5 million in 2028, a 7x multiple implies approximately $75 per share – with roughly 25% of that value represented by cash.

Optionality

Company Maker Projects. In our previous feature we highlighted that ‘company maker’ projects could dramatically change the trajectory of the company, and they still can. We put less emphasis on this today; the timing and probability of these large projects coming online are genuinely difficult to estimate. We continue to monitor several that remain in development, and consider any progress purely as option value.

Capital Allocation. The company is now sitting on $19M in cash and it doesn’t require capital to grow. We believe that if the company can execute on acquiring a small disciplined engineering firm, it could move the needle in several ways. BQE Water would be able to capture more of the construction-phase work that it currently shares with partners and it would capture more value and increase the scope of the technical services team. An acquisition like this could cost between $10-25 million depending on the size and profitability of the firm – but it could add $2-4M in adjusted EBITDA.

BQE Water could also buy back their shares or initiate a dividend given they don’t need the capital to grow and they have a base of recurring revenue.

Take-Out Target. As we highlighted in our last write-up, we believe that BQE Water could become a target as it continues to grow. The company will begin to be on the radar of larger firms now that they have crossed the $100 million market cap level and are nearing $10 million in adjusted EBITDA. We think a strategic buyer might want to add BQE Water’s expertise to their roster at this point in the cycle, given BQE Water’s higher-than-industry-margins and growth rates. We think a strategic buyer could pay a hefty near-term multiple for the company and still make it accretive.

Summary

BQE Water is a growing company with a durable competitive advantage, a strong balance sheet, and a management team executing against a clear and credible plan. The business generates high-quality recurring revenue in an industry where expertise and trust are difficult to replicate. The model is capital-light, the balance sheet is clean, and the pipeline of operational and technical work is the broadest it has been.

We are realistic about the pace of development — mining projects take time, and plants take time to commission. But we are seeing the thesis develop: in contracts won, in capabilities added, and in the growing recognition within the mining industry that BQE Water occupies a category of its own.

The company comes with plenty of optionality. Potential company-maker projects remain in the pipeline. And the balance sheet, at its strongest point in the company’s history, gives management the flexibility to act if the right opportunity presents itself.

We do not need any of that optionality to make the investment case. But we like having it.

Forterra Investment Management Inc. is registered as a portfolio manager with the Ontario Securities Commission and the British Columbia Securities Commission. This commentary is for information only. It is general in nature, reflects the author's views as of the date of publication, and is not investment, financial, legal, or tax advice, nor a recommendation or solicitation to buy or sell any security. Any companies or securities mentioned are used to illustrate the author's thinking, and Forterra and the accounts it manages may hold positions in them, which can change without notice. Investing involves risk, including the possible loss of capital, and past performance does not guarantee future results. Full disclosures are available on the About page.

• Introduction – Annual Review
  We look back on the last year and reflect on our progress towards our long-term goals.

• Books That Influenced Our Thinking in 2025
  We review two books that helped us understand China’s growing global dominance.

• Portfolio Review
  A review of key portfolio changes during the quarter, including new investments, trims, and exits.

• Performance Review
  An overview of the companies that most influenced portfolio performance this quarter — both positively and negatively.

• Feature – VersaBank
  We review a non-traditional bank that is at an inflection point, expanding its point-of-sale financing solution into the U.S.

• Factsheet
  A concise snapshot of the portfolio, including sector exposure, top holdings, and historical performance.

Introduction

Annual Review

This time of year is an opportunity to step back and reflect on our performance, our progress toward our longer-term goals, and what the past year tells us about our investment process.

We know we will not outperform every year, and 2025 presented several challenges. Below, I review our results relative to both our benchmark and our peers. I also examine how our decisions during the year added to or detracted from performance, and whether we remain on track toward our long-term objective of compounding capital.

Compounding Performance

Our primary objective is to compound capital over time. We aim to double capital over a five- to seven-year period, which requires annualized returns of approximately 10–15%.

While a steady path would be ideal, we know that any five-year period is likely to include one or two difficult years, which is why we frame our goal over a longer window.

The portfolio’s absolute return of 17.4% in 2025 contributed positively to this objective. Since inception, the strategy has delivered an annualized return of 13.1%. An initial investment of $100,000 on July 1, 2018, would have grown to more than $250,000 today.

Measured against our core objective of compounding capital over time, we remain confident that we are on track to meet this objective.

Performance vs. Benchmark

We underperformed our benchmark, the S&P/TSX Small Cap Index. The index delivered an exceptional year, which returned 50.2%. That outcome was driven by its growing concentration in gold and silver companies, which approached 35% of the index by year-end. The Materials sector rose 136.9% in 2025, largely reflecting the strength in precious metals.

None of the more than 30 industry peers we track were able to outperform the benchmark in 2025. This is not a year in which we would expect to outperform.

The benchmark remains a useful comparison over the medium to long term, but it can be misleading over shorter periods when performance is dominated by a single theme or sector. A year ago, we were ahead of the benchmark across all measured time periods, and by a wide margin over five years and since inception. One extreme year has materially lifted the benchmark’s long-term numbers.

Since inception, now seven and a half years ago, we remain ahead of the benchmark. Over time, as returns normalize and become less concentrated in a single sector, we remain confident in our ability to outperform.

Performance vs. Peers

We underperformed our peer group in 2025. We track approximately 30 Canadian small-cap strategies that we consider representative peers. Many peers in the market are hedge funds or institutional managers that do not publicly report performance, so this group is indicative rather than exhaustive.

Our portfolio is intentionally concentrated, holding between 16 and 18 companies over the past year, compared with 40 or more positions for most peers. In a year with a few setbacks, most notably Colabor and Mattr, that concentration had a more pronounced impact on our results than it did for more diversified portfolios.

Among the strategies that outperformed, common characteristics included very broad diversification, often 80 or more holdings, sector exposure that closely resembled the index, and, in many cases, a tilt toward higher market-capitalization companies. We will never build a portfolio with 80 holdings, mirror index sector weights, or focus on mid-caps simply for the sake of size. Our edge lies in identifying smaller companies early, before they are widely recognized.

We are disappointed with our relative performance this year. Some of the factors that drove peer outperformance are not ones we are willing to adopt. Portfolio concentration hurt us in 2025, but it has been a meaningful contributor to strong performance in prior years. We know we will not outperform every year, and this was one of those years.

Performance vs. Ourselves

Each year, we also evaluate what we call the Static Portfolio. This measures the performance of the portfolio as it stood on January 1, assuming no trading occurred throughout the year. The goal is to assess whether our trading activity added or detracted value.

Over time, I’ve found that a two-year comparison is often more informative, given our longer investment horizon. This year, I was particularly interested in the results. Much of the year was spent trimming strong performers such as G Mining Ventures and K92 Mining, while adding to positions like Mattr as they declined.

Looking at both one- and two-year static portfolios, our active results were in line with the static outcomes. In both cases, G Mining Ventures and K92 Mining would have exceeded 10% position sizes, with G Mining Ventures reaching nearly 20% of the portfolio. If we cap position sizes at 10%, roughly where we limit them in practice, our active management outperformed the static portfolios across both time frames.

In reality, we would never allow two highly correlated gold companies to represent 32% of the portfolio. Managing that risk is critical, and we are pleased that trimming did not come at the expense of long-term performance. Capital was redeployed into new ideas and selectively added to core positions at appropriate times. We are satisfied that our actions are adding value through time. We aim to continue to strike the right balance between letting our investments compound over the long-term and course correcting when necessary.

I want to thank our clients for placing your trust in us. My capital is invested alongside yours, and I aim to continue to compound capital over the long-term.

-Robert

Books That Influenced Our Thinking in 2025

As the global economy continues to shift from a largely unipolar, U.S.-centric structure toward a more multipolar world, it has become increasingly important to understand the role China plays today — and the trajectory it is on. To that end, two books stood out to us in 2025: Apple in China: The Capture of the World’s Greatest Company by Patrick McGee and Breakneck: China’s Quest to Engineer the Future by Dan Wang.

Both books place China squarely at the centre of the narrative, but from very different perspectives. McGee tells the story through the lens of Apple, the world’s most iconic consumer technology company. Wang approaches it through China’s long-standing identity as a nation of engineers and builders. Together, they paint a compelling and, at times, uncomfortable picture of China’s evolution into a manufacturing and technological superpower.

Importantly, both books dismantle the outdated notion that China’s primary competitive advantage lies in low-cost labour and low-quality production. That may have been closer to the truth fifteen or twenty years ago, but it is no longer an accurate framework. Instead, they highlight China’s willingness to think in decades, its capacity to align policy with capital investment, and the advantages conferred by an autocratic system that can pursue long-term objectives with remarkable consistency.

A 2015 Beijing policy document titled Made in China 2025 captures this mindset succinctly: “Without a strong manufacturing industry, there will be no country and no nation.” China’s ambitions are clear — dominance in manufacturing and technology and increasing self-reliance across critical industries.

Apple in China: The Capture of the World’s Greatest Company — Patrick McGee

At its core, Apple in China is the story of how Apple came to outsource its manufacturing, and how that decision ultimately led it into deep dependence on China. While the subject matter may not sound like a page-turner, McGee’s writing makes it exactly that.

The book traces Apple’s manufacturing journey from the U.S. to Asia. First in Japan — where Apple’s demanding design standards further elevated already capable suppliers — to Taiwan, and eventually to mainland China. In China, generous government subsidies and an unmatched willingness to build infrastructure at scale made the country an irresistible destination for Apple’s supply chain.

A central figure in the story is Foxconn, the Taiwanese contract manufacturer that helped Apple establish its footprint in China. Rather than limiting itself to low-margin final assembly, Foxconn aggressively pursued vertical integration. That strategy required an enormous workforce, which in turn led to close coordination with Chinese regional governments. Entire cities were built around Apple’s production needs, complete with dormitories, cafeterias, transit systems, and entertainment complexes.

As Apple’s scale grew, so did its bargaining power. Margins were increasingly pushed lower for suppliers like Foxconn, as volumes surged. Foxconn accepted this trade-off because it was playing a much longer game. By manufacturing Apple’s most complex products, it was effectively training its workforce to operate at the highest level of global hardware engineering.

Today, McGee argues, Apple has few viable alternatives. No other country can match China’s combination of scale, speed, and technical capability at Apple’s required cost structure. While Apple has announced plans to diversify production into India and elsewhere, the book suggests it could take more than a decade before any meaningful volume is shifted. In that sense, Apple has been “captured.”

Viewed through Apple’s experience, the book offers a sobering reality check for investors. It has implications not just for consumer electronics, but for any industry involving advanced manufacturing where China already has a foothold — from smartphones to electric vehicles. Companies attempting to compete with Chinese manufacturers face a daunting challenge.

A striking example is Xiaomi. Founded only in 2010 and often referred to as the “Apple of China,” Xiaomi is now a global smartphone leader. In 2021, it did something Apple has yet to accomplish: it launched an electric vehicle. A quick search for a “Xiaomi factory tour,” or Marques Brownlee’s recent video Driving Xiaomi’s Electric Car: Are We Cooked?, offers a revealing look at just how fast this transition is happening — particularly as many legacy automakers continue to struggle to produce compelling EVs.

Breakneck: China’s Quest to Engineer the Future — Dan Wang

If Apple in China explains how the world’s most valuable company became embedded in China’s manufacturing ecosystem, Breakneck helps explain why that ecosystem exists in the first place.

Dan Wang’s book is less about any single company and more about a cultural and institutional mindset. It examines China through the lens of its engineers, builders, and system designers - people who are focused on solving problems at scale. Wang argues that China’s rise is best understood not as a story of imitation, but as one of relentless iteration, execution, and learning-by-doing.

A recurring theme throughout the book is that China excels at what Wang calls “engineering-driven growth.” Rather than relying on breakthrough innovation alone, China focuses on making things work, then making them better, faster, and cheaper. This approach rewards speed, adaptability, and pragmatism — traits that are deeply embedded in China’s industrial culture.

Wang contrasts this with Western economies that increasingly prioritize finance, regulation, and services over manufacturing. In China, engineers still sit close to power. Technical competence is respected, and large-scale projects are seen as nation-building exercises rather than political liabilities. This helps explain China’s willingness to invest aggressively in infrastructure, automation, logistics, and manufacturing capacity, even when near-term returns are uncertain.

From an investment perspective, Breakneck provides critical context for understanding why Chinese companies can scale so quickly once they find product-market fit. It also explains why China has been able to close the gap, and in some cases surpass global competitors, in industries such as renewable energy, electric vehicles, batteries, telecommunications equipment, and advanced manufacturing.

The book is particularly useful in framing China’s long-term self-reliance goals. Rather than seeking dominance for its own sake, Wang argues that China’s priority is resilience: ensuring it can build, supply, and maintain critical systems without external dependency. This lens helps explain policy decisions that might otherwise appear inefficient or heavy-handed when viewed through a purely market-driven framework.

Taken together with Apple in China, Breakneck reinforces a central takeaway: China’s competitive advantage is not a single technology or company, but a system. It is a system that aligns labour, capital, policy, and infrastructure toward clear objectives — and one that improves through repetition and scale.

For investors, this has meaningful implications. It challenges assumptions about where durable competitive advantages will emerge, how long they can persist, and which regions are best positioned to compound industrial capabilities over time. In a world that is becoming less globalized and more fragmented, understanding these dynamics is no longer optional.

Portfolio Review

The Forterra Canadian Small/Mid-Cap portfolio returned 6.7% gross of fees in Q4 2025, compared to the S&P/TSX Small Cap Index’s 10.2% gain.

The Materials sector drove index performance, rising 22% and now representing over 40% of the index on strength in gold, silver, and copper. While the portfolio has exposure to these commodities, we remain underweight relative to the index.

It was another busy quarter. We exited two positions, initiated two new ones, and both trimmed and added to several core holdings.

We sold our position in Colabor Group in October following a third-quarter update that announced the replacement of the CEO and a requirement from lenders that the company raise at least $15 million to recapitalize its balance sheet. Colabor was already the smallest position in the portfolio and given the increased probability that equity holders would be wiped out as debt holders assumed control, we exited the position to preserve what value remained. Colabor entered creditor protection in early January after failing to raise the required capital in December, which led to a further collapse in the share price.

Our process emphasizes risk management through position sizing and ongoing assessment of fundamental business risks. In Colabor’s case, those fundamentals deteriorated rapidly. Our discipline—keeping the position small, avoiding additional capital deployment once the news turned negative, and exiting promptly when the thesis broke—limited but did not prevent the loss.

This experience offers important lessons. While we believe the situation was exacerbated by poor leadership decisions and an ineffective board, that does not change the fact that our thesis was wrong. The greater mistake would be failing to reflect on it. This is a difficult and uncomfortable part of investing, and one that is rarely discussed. Mistakes are inevitable, but learning from them is essential. As investors who view this work as a lifelong apprenticeship, this reflection is how we improve our craft.

We trimmed our position in G Mining Ventures as the share price continued to move higher, managing its size within the portfolio.

We initiated the position in G Mining Ventures less than three years ago at an average cost of $3.40, and it ended 2025 at $41.49. The outcomes of both Colabor and G Mining Ventures demonstrate that our investment process can produce large losses and exponential gains. These results are also reminders that we are not as foolish as our worst investment may imply, nor are we as brilliant as our best investment might have us believe.

With proceeds from trimming G Mining Ventures, we initiated two new positions: Elemental Royalty, a gold-focused streaming and royalty company, and Rio2 Limited, a mining company nearing production at its Fenix Gold project in Chile. We also added to Magna Mining as our conviction in the company’s long-term prospects increased.

We continue to see compelling opportunities in mining despite the sector’s recent revaluation. The portfolio’s growing exposure to gold and copper focuses on companies with distinct paths to value creation beyond commodity price appreciation alone.

In November, we exited Mattr following a cautious third-quarter outlook. After touring the company’s new Xerxes facility in South Carolina and meeting with management, we concluded that the risk profile had changed materially. Our original thesis centred on the strength of the Shawflex business, once considered the company’s crown jewel. What was previously a source of stability has become a source of risk.

Rising trade tensions and global tariff uncertainty have increased operational risk, particularly while CUSMA remains unresolved. We see a meaningful chance that this uncertainty persists through most of 2026, with rolling extensions making long-term capital allocation decisions more difficult.

While Mattr could recover and re-rate, we also see risk of further deterioration before improving. Management has acknowledged the difficulty in forecasting this environment and has suspended share buybacks to prioritize debt reduction. This reflects fewer available options and a necessary focus on balance sheet sustainability,

We invest through uncertainty when we can reasonably assess how it may resolve. In this case, we do not see clarity until trade agreements are finalized. We will continue to monitor Mattr closely, but we remain on the sidelines.

Performance Review

Gold and silver equities outperformed in Q4 as precious metals momentum continued. The largest contributor to performance was G Mining Ventures, which rose 50% during the quarter. Despite its strong run, we continue to see upside as the company advances toward production at its Oko West project.

K92 Mining was also a strong contributor, gaining 35%, while Rio2 Limited, the newest gold position in the portfolio, rose 65% from our initial purchase in early October.

Velan rose 19.6%, after announcing valve orders exceeding $20 million for the Pickering Nuclear Generation Station refurbishment. Subsequent to quarter end, the Velan family agreed to sell their controlling position in the company at a significant discount to market value to Birch Hill, a private equity firm. We view the discount as a measure of the family’s single-minded focus on selling the company quickly and Birch Hill’s shrewd negotiating. We continue to believe that the shares are undervalued – as does Birch Hill – given that they just underwrote a long-term investment where they expect to make a multiple of their capital over the next decade.

BQE Water rose 18.3% after securing a 20-year contract with the British Columbia government for the operation and maintenance of the Britannia Mine Water Treatment Plant, reinforcing the company’s differentiated capabilities. VersaBank gained 20.6% after reporting positive earnings and providing a favourable outlook for 2026. See our Feature section for more on our investment thesis.

The largest detractor was Colabor, which declined 70% before we exited in October. The company mismanaged an acquisition intended to drive growth, taking on excessive debt without sufficient cash flow to support operations. Lender demands for equity issuance further pressured the share price.

Mattr also detracted, falling 37.5% before we sold in November on tariff uncertainty. goeasy declined 24.3% following a mixed earnings release with elevated credit provisioning that raised concerns about future credit losses. In December, the newly appointed CEO stepped down for health reasons, adding further uncertainty. We continue to view goeasy as a strong long-term business, while recognizing that sentiment-driven volatility can be pronounced in the short term.

Feature - VersaBank

Company Overview

VersaBank is unlike any other Schedule I chartered bank in Canada. Its core business is providing point-of-sale funding to finance companies through its Receivables Purchase Program (RPP). The company has successfully scaled this model in Canada over the past 15 years and has recently launched the same RPP solution in the U.S., a market that is more than ten times the size of Canada.

Like a traditional bank, VersaBank earns the majority of its income from the spread between interest earned on loans and interest paid on deposits. That is largely where the similarities end. VersaBank’s deposit base is primarily composed of deposit brokers and wealth managers seeking competitive term deposits (GICs with terms of up to five years) from an insured Schedule I bank. VersaBank has longstanding relationships in this channel and a track record of offering competitive rates.

The company also operates a specialized, technology-enabled deposit solution for insolvency professionals, who are required to hold trustee funds with a Schedule I bank. These deposits tend to be less rate-sensitive and have become an increasingly important source of funding. Combined, these two deposit channels grew at an average rate of approximately 17% in 2025.

On the asset side, the loan portfolio is dominated by the Receivables Purchase Program. VersaBank partners with finance companies that originate point-of-sale (POS) loans for large consumer purchases such as HVAC systems, roofing, and water heaters. The finance company originates the loan and benefits from quick, efficient access to funding from VersaBank—often faster and less complex than alternatives such as securitization or warehouse facilities.

VersaBank also maintains a portfolio of multi-family residential mortgages and loans, which are predominantly CMHC-insured and carry low credit risk. While this has been a stable line of business for many years, management expects future loan growth to be driven primarily by the RPP in both Canada and the U.S.

History

The company was founded in 1979 as Pacific & Western Bank of Canada, a provincially licensed trust company based in Saskatchewan. In 1993, President and CEO David Taylor, along with a group of investors, acquired the bank. In 2002, it was granted a Schedule I bank charter, with its head office established in London, Ontario.

VersaBank went public in August 2013. At the time, the business was primarily focused on commercial real estate and multi-family lending, alongside the early framework of what would later evolve into the Receivables Purchase Program. Its deposit strategy—raising funds through deposit brokers via competitive term deposits—was already in place, and in 2013 the bank began diversifying deposits by developing solutions for insolvency trustees.

At the time of its IPO, VersaBank employed 83 people across London, Waterloo, and Saskatoon. It also operated a wholly owned subsidiary, Versabanq Innovations Inc., which held its proprietary deposit-management software. Following an amalgamation in 2016, the company was renamed VersaBank.

Competitive Advantages

Risk Management Technology

VersaBank’s RPP structure is central to its competitive advantage. For each partner, the bank carefully defines underwriting criteria and uses historical loss experience to determine appropriate holdback reserves. This structure allows VersaBank to rapidly purchase receivables, freeing up capital for originators and enabling them to scale more efficiently.

Loans that become more than 90 days past due can be put back to the originator, materially reducing VersaBank’s exposure to credit losses. This mechanism helps explain the bank’s historically low loss experience. While the RPP model is complex and initially took time for us to fully understand, we believe it represents a meaningful and underappreciated advantage.

Innovation and Niche Focus

VersaBank has a long history of identifying niche opportunities where it can apply its existing capabilities. The RPP solution, refined over 15 years in Canada, is now being adapted to the U.S. market. The company is also enhancing the platform using AI to enable near-instantaneous funding decisions, which could expand partner relationships and increase wallet share.

On the deposit side, VersaBank developed proprietary technology tailored to insolvency professionals, creating a lower-cost and stickier funding source. The company has also pursued innovation through digital assets, developing Real Bank Deposit Tokens (RBDTs) and VersaVault, a secure digital asset custody solution.

This entrepreneurial mindset is unusual in banking. VersaBank operates more like a founder-led fintech than a traditional Schedule I bank—and that cultural difference is part of its edge.

Investment Case

Our investment thesis rests on two primary pillars: U.S. growth and operating leverage.

U.S. Growth

The U.S. point-of-sale financing market is estimated to be more than ten times the size of Canada’s. VersaBank has already established partnerships, since entering the market earlier in 2025, with many more potential relationships ahead. While competition is greater and alternatives such as securitization are more readily available, VersaBank’s speed and efficiency provide a compelling complementary funding solution.

In addition to RPP growth, VersaBank has begun purchasing senior (A-tranche) securitizations, which are highly capital-efficient and accretive given current net interest margins. We expect approximately $1 billion in U.S. credit asset growth in 2026, split between RPP and securitizations, with customized RPP solutions accounting for a greater share over time.

We believe this growth can drive book value per share from approximately $16.50 today to roughly $25 over the next three years.

Operating Leverage

With just 130 full-time employees and no branches or consumer-facing infrastructure, VersaBank is highly scalable. As a condition of receiving its U.S. bank charter, the company is divesting its small cybersecurity division, which we estimate could reduce annual operating expenses by $8–9 million.

Although the recent corporate redomiciling to the U.S. introduces incremental costs, we expect net operating expenses to decline overall. Improved efficiency should drive returns on equity meaningfully higher. We believe 15%+ ROE is achievable within three years (and 20%+ within five years), from ~10% ROE today. This trajectory would support a strong valuation multiple expansion.

Optionality

VersaBank has several sources of upside not included in our base case:

Stronger Growth in the US – VersaBank could experience greater market penetration and signup new partners at a faster pace.

RPP Innovation – VersaBank is in the process of improving the speed of funding in the RPP offering using artificial intelligence, which has the potential to increase its appeal and widen the potential partnership opportunities.

Digital Asset Market Penetration – There is a greater openness to digital asset solutions today, and VersaBank has a leadership position with multiple solutions in the piloting stage. VersaBank’s Real Bank Deposit Tokens (RBDTs) function like a stablecoin but are backed by a bank and pay interest. VersaBank recently announced that it has signed an agreement with Stablecorp to serve as the custodian of their QCAD stablecoin. This agreement is an endorsement from a company whose investors include Coinbase, Circle and DeFi Technologies.

Risks

Partner Risks – VersaBank works with a relatively small number of POS partners for its RPP solution. This counterparty concentration poses a risk if there is a departure or a failure. VersaBank’s partners on the deposit side are also somewhat concentrated and losing key channel partners could be disruptive.

Execution Risk – VersaBank is known for building technology-focused solutions. New products need to be properly structured and tested before going live with clients. There also needs to be a strong business case for new solutions.

Regulatory Risk – VersaBank operates in a highly regulated federal banking environment. Compliance is necessary, along with anticipating and adapting to new policy changes.

Macroeconomic Risks – Employment levels and the health of the consumer influence both demand for point-of-sale financing and loan performance, particularly in a sharp downturn.

Valuation

VersaBank currently trades at approximately 1.3x book value and 12.5x 2026E earnings, reflecting growing investor confidence following the successful expansion of its U.S. business having achieved its US$290 million U.S. loan and securitization target.

We track a detailed financial model to understand the moving parts, but we believe a long-term perspective is more informative than focusing on near-term quarterly results. If VersaBank can sustain or modestly expand its net interest margin and achieve operating leverage as it scales in the U.S., we expect continued growth in book value per share and a rising return on equity.

Over the next three years, we estimate book value per share could grow at roughly 15% annually, driven primarily by U.S. asset growth and improving efficiency. Under this scenario, and assuming no valuation multiple expansion, we estimate fair value of approximately $32.50 per share. If the market assigns a modest premium multiple of 1.5x book value, consistent with financial companies growing in the mid-teens with improving ROEs, shares could approach $37.50 by 2028.

We take a longer-term view and consider where the business could be over the next three to five years. Our 15% growth assumption is above VersaBank’s historical book value growth rate of closer to 8%, reflecting what we see as a structural inflection point driven by U.S. expansion. The pace of growth is inherently uncertain, but even if this trajectory is achieved over five years (closer to 10% annual growth), we still see an attractive return opportunity.

Importantly, our base case does not fully reflect the company’s embedded optionality. If U.S. growth accelerates, RPP innovation expands the addressable market, or digital asset initiatives gain traction, the value of the business could be materially higher. In an upside scenario, we believe the stock could potentially double over the next three years, making the risk-reward profile compelling.

Final Thoughts

VersaBank is a rare example of a truly differentiated bank. It lacks branches, does not serve retail customers, and partners primarily with private financial intermediaries. In many respects, it resembles a fintech—driven by innovation, efficiency, and niche focus—while still making money the old-fashioned way, through a positive net interest margin.

Companies without clear comparables are often misunderstood and mispriced. VersaBank is no exception. It took time for us to fully understand the business model and its risk controls, but that effort has been rewarded. The company is far better positioned today than it was just two years ago, with a clearer growth runway, improving economics, and meaningful operating leverage ahead.

We believe VersaBank is approaching an inflection point. If management continues to execute without credit missteps, the combination of growth, improving returns, and increasing visibility should speak for itself.

• Introduction – Five Years of Reflection
  We look back on the past five years — the challenges of building something new and the rewards that have come with it.

• Market Commentary – Gradually, Then Suddenly
  We explore how change often builds slowly before accelerating rapidly, and how this dynamic relates to the signs emerging in today’s markets.

• Portfolio Review
  A review of key portfolio changes during the quarter, including new investments, trims, and exits.

• Performance Review
  An overview of the companies that most influenced portfolio performance this quarter — both positively and negatively.

• Feature – Firan Technology Group
  We highlight an aerospace and defence company well-positioned to benefit from strong industry tailwinds and to continue compounding value over time.

• Factsheet
  A concise snapshot of the portfolio, including sector exposure, top holdings, and historical performance.

Introduction

The Long Game: Reflections on the First Five Years

It has now been five years since I left the bank—an experience that, at the time, came with uncertainty and imperfect timing. The world was in the midst of the pandemic, and it wasn’t the easiest moment to start a new venture. But in hindsight, that period of disruption created space to pause, reflect, and think differently about what I wanted to build.

Leaving behind the familiarity of a large institution is never simple. There are the practical concerns—losing the security of a steady paycheck—and the personal ones, like letting go of the identity tied to your role. There’s also the quiet loss of community: the daily exchange of ideas, the mentorship, and the energy that comes from working alongside talented colleagues.

Still, there were parts of that world I was ready to leave behind: the pressure to put profits ahead of people; products designed for shareholders before clients; and the layers of bureaucracy and politics that too often rewarded conformity over merit.

Entrepreneurship brings a different kind of pressure. The safety nets are gone, and every outcome, good or bad, rests on your shoulders. Social media can make it look glamorous, but the reality is more humbling. The work is demanding and, at times, isolating. You wear every hat, and there’s no “out-of-office” mode.

Yet the rewards have far outweighed the risks. I have the privilege of working directly with clients, helping them reach their goals and navigate an increasingly complex world. I get to spend my time doing what I love: researching, analysing, and thinking critically about companies. And I’ve found a renewed sense of community through mentors, clients, and peers who challenge and inspire me.

Five years later, I’m proud of the journey. It hasn’t been easy, but it’s been worth every risk. The work is challenging, purposeful, and deeply rewarding. I’m exactly where I’m meant to be.

Thank you to my clients and supporters for your trust.

-Robert

Market Commentary

Gradually, Then Suddenly

“How did you go bankrupt?” Hemingway’s character is asked in The Sun Also Rises.
“Two ways,” he replies. “Gradually, then suddenly.”

That phrase captures something profound about how change unfolds in complex systems, whether biological, social, or financial. Shifts that appear slow and manageable often mask deep structural imbalances building beneath the surface. And when those systems reach a critical point, the change that follows feels abrupt, even shocking, though it was long in the making.

Today’s market environment feels increasingly defined by these “gradual” dynamics. The mounting sovereign debt, eroding faith in paper currencies, and the gradual return of gold to central bank vaults. Each trend alone may appear benign; together, they could suggest a world inching toward a new equilibrium that could arrive “suddenly.”

Understanding Sudden Change

1. Complexity and Phase Transitions

In physics and systems theory, phase transitions occur when gradual changes reach a threshold and trigger a qualitative shift like water freezing, sandpiles collapsing, or ecosystems flipping states. Markets, too, are complex adaptive systems: capital flows, policy decisions, and investor psychology build tension over time. The “sudden” moments, the crises, crashes, or paradigm shifts, are not random shocks but the natural release of accumulated stress.

2. The Tipping Point

Sociologist and acclaimed author Malcolm Gladwell popularized the term, but the underlying concept is older: social and economic systems often hold steady until enough actors change behaviour, at which point the shift becomes self-reinforcing. Investor sentiment, technological adoption, or policy confidence can all follow this pattern. The first few central banks buying gold are ignored; when a dozen more follow, it begins to shape market expectations. The same holds for investor rotations away from U.S. mega-caps or diversification away from the dollar. A few isolated moves can suddenly become a flood.

3. The Minsky Moment

Economist Hyman Minsky (1919–1996) spent his career studying how stability breeds instability. His insight was simple yet powerful: prolonged periods of calm encourage risk-taking, leverage, and complacency. As financial actors move from “hedge finance” (safe borrowing) to “speculative” and then “Ponzi” finance (reliance on ever-rising asset prices), the system becomes fragile. A Minsky Moment occurs when confidence breaks, typically triggered by a seemingly small event, and asset values reset abruptly.
Examples abound: the 1998 LTCM collapse, the 2008 mortgage crisis, even the 2020 liquidity shock. What unites them is the illusion of safety preceding the storm. Today, one could argue that sovereign debt markets, AI-driven valuations, or geopolitical complacency may be nurturing their own Minsky-like dynamics.

The Gradual Trends Taking Shape Today

The Debt, the Dollar, and the Drift Toward Gold

The gradual rise of U.S. government debt is perhaps the most visible “slow burn.” For decades, deficits have grown with little consequence. No inflation spiral, no funding crisis, no apparent limit to investor demand. Yet debt-to-GDP now exceeds 120%, and interest payments rival defence spending. Markets have adjusted gradually to this new normal, but the fiscal math remains unsustainable without higher growth, higher taxes, or inflation.

Simultaneously, confidence in the U.S. dollar’s permanence as the world’s reserve currency is eroding. No single event marks the transition, it’s visible instead in gradual diversification: China and India settling trades in local currencies, and the steady buildup of gold reserves across emerging markets. Central banks bought more gold in 2022–2024 than in any comparable three-year stretch since the 1960s.

Individually, these actions are unremarkable; collectively, they signal hedging against the long-term viability of the dollar-centric order. Like Hemingway’s character, the erosion of monetary dominance may happen “gradually”, until it happens all at once.

The Magnificent Seven and the AI Investment Boom

A second area of slow accumulation lies in market concentration and capital allocation. The “Magnificent Seven” stocks -Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Nvidia - now account for nearly 35% of the S&P 500’s market capitalization. Such dominance evokes the “Nifty Fifty” of the early 1970s, a group of blue chips once thought invincible until inflation and recession exposed their vulnerability.

Meanwhile, corporate spending on artificial intelligence has exploded. The optimism may prove justified, but capital cycles are prone to over-building. The parallels to the 1990s telecom buildout or 19th-century railway mania are striking. Vast infrastructure investment preceding a painful shakeout. AI may follow the same pattern: gradual enthusiasm morphing into sudden repricing when expectations collide with financial reality. How does one begin to measure the return on the enormous capital that is being spent today? The race may make sense for a few players in a “winner-take-most” outcome that we often see in technology, but what happens to the rest of the players and most of the capital?

Implications for Investors

The challenge is recognizing when “gradual” transitions near the breaking point. Investors should not assume that long-running trends be it fiscal expansion, dollar dominance, or AI-led growth, can persist indefinitely without adjustment. Nonlinear shifts often emerge from familiar places.

• Valuation Discipline means stress-testing assumptions to evaluate the true range of outcomes. It also means focusing on cash flows and hard asset values and away from relative metrics like prices/sales ratios which can “suddenly” become less relevant.

• Diversification beyond dominant investment themes, whether that is the Magnificent Seven, AI spending or the flight to gold. Real diversification requires investments that are not concentrated in a theme and are not correlated to one another.

• Patience and scepticism remain virtues in markets that reward momentum. Trends can persist, but as complacency builds it is often punished harshly.

As in complexity theory, stability and fragility coexist. The most dangerous moment often feels the safest. “The water is warm – come on in” said the frog to all who will listen.

Living in the “Gradual”

We may well be living through the “gradual” phase of several major transitions -fiscal, technological, and monetary. None appear urgent until they are. The goal for investors is not to predict the exact “suddenly,” but to recognize the structures that make it inevitable.

Economist Rudi Dornbusch put it best:

“Things take longer to happen than you think they will, and then they happen faster than you thought they could.”

At Forterra, we are treading carefully, focused on where we see compelling value and looking for companies that have true measures of resilience.

In markets, as in history, change rarely announces itself. It creeps, accumulates, and then, all at once, it’s here.

Portfolio Review

During the third quarter of 2025, the Forterra Canadian Small/Mid-Cap portfolio returned 6.1% gross of fees, underperforming the S&P/TSX Small Cap Index, which gained a remarkable 20.9%. The index’s strength was largely driven by its heavy weighting in gold and silver companies, which rose on average more than 40% during the quarter. The S&P/STX Composite Index advanced 12.5%, continuing to deliver the strongest returns across the developed markets both for the quarter and year-to-date.

Market volatility continued to create opportunities to trim and add to portfolio positions. During the period, we exited two holdings, initiated one new position, and added to several high-conviction names.

We sold our position in Sylogist following another disappointing quarter of results and guidance. We first invested in Sylogist several years ago, building the position in the $6 per share range as the company began repositioning towards a SaaS-based business model. While we recognized this transition would take time, management repeatedly overpromised and underdelivered, forcing multiple revisions to its outlook. With credibility eroding and our revised outlook implying limited upside, we concluded the stock was close to fair value near $8 per share and exited the position.

Since our sale, shareholder OneMove Capital has called for a special meeting to overhaul the board. While activism could catalyze change, we see no easy fixes and view it as a potential distraction. Management is capable, but the company’s growth narrative needs rethinking. The stock has declined over 25% since our exit; for now, we remain on the sidelines pending more clarity on strategic direction.

We also trimmed and eventually sold Andean Precious Metals as it quickly exceeded our fair value range. We had acquired shares in March and April around $1.65, which we viewed as an absolute bargain. As silver prices surged, Andean’s shares rallied sharply, eventually surpassing $5 in August. We reduced the position to manage risk and ultimately exited entirely. Momentum traders had driven the stock far beyond our valuation range, leaving little upside outside of further commodity price increases. While our timing is never perfect, the decision was grounded in risk management and valuation discipline. Andean ended the quarter at $8.30, lifted further by rising gold and silver prices.

We trimmed the Trisura Group position around $44 to align its portfolio weight with its upside potential. The stock has traded between $30 and $45 over the past four years; we previously added in the low $30s. With Trisura now re-establishing a pattern of strong operating results, we expect it to break out of this range and continue to view it as a core holding.

We added to North American Construction Group following a weak quarter, viewing most challenges as temporary and largely beyond management’s control. Having seen this team execute through past cycles, we used the pullback to increase our position with confidence in the company’s long-term outlook. We also added to Foraco International, as the market continues to overlook its strong margins, new contract wins, and disciplined execution. We view Foraco as a highly asymmetric way to gain diversified mining exposure, without relying on any single commodity, region, or operator.

Similarly, we added to Atlas Engineered Products as cyclical headwinds tested investor sentiment. While the stock weakened, we see a company using this period to strengthen its competitive position. When construction activity rebounds, we believe Atlas will emerge as a stronger market leader. Buying when others are fearful is never easy, but our research-driven, long-term approach gives us conviction and helps mitigate the risk of being wrong.

We initiated a new position in Magna Mining, a Sudbury-based copper and nickel producer. Through a series of acquisitions, Magna has transformed itself into a copper-producing company with a flexible, low-cost mining plan. The team, many of whom were instrumental in building FNX Mining, has a proven track record of operational success. With a solid balance sheet and permitted, past-producing assets ready to restart, we believe Magna is well-positioned to become a leading low-cost mid-tier base metals producer.

Finally, we added to Firan Technology Group, which we see as well-positioned to benefit from robust demand in both the aerospace and defence sectors. (See our Feature Section for more on Firan.)

Performance Review

Precious metals continued to shine in the third quarter, propelling gold and silver companies to new heights. The largest contributor to performance was once again, Andean Precious Metals, which rose another 78% before we sold the position in August.

G Mining Ventures, the gold miner with a producing mine in Brazil and a development project in Guyana was up 55% over the period. We continue to see value in the company as they get closer to bringing their Oko West project into production. Foraco International also contributed to performance in the quarter, up 13% amid renewed optimism in the mining sector.

Polaris Renewable Energy rose 13% as it moved closer to bringing online several projects with strong expected returns over the next 12-18 months.

The largest detractor over the period was Colabor Group, as shares slid 36% amid multiple setbacks: softer growth, a repriced contract, a delayed acquisition closing, a cyberattack and a temporary forbearance agreement with lenders. After the quarter-end, the board chair passed away suddenly, the CEO was dismissed and several board members resigned. Despite the ongoing sell-off, we exited the position given our view that lenders -not shareholders- are likely to be prioritized in any turnaround effort. The company’s situation has changed materially over the past six months. It was the smallest position in the portfolio as we viewed the risk as elevated, but manageable before all these events unfolded, minimizing the impact to the portfolio.

We will reassess to see if there is an opportunity for equity investors to benefit from the turnaround, but in the meantime, we will observe from the sidelines. It pains us to take losses like this, but we realize it comes with the territory. It is a reminder to risk-manage positions, remain highly sceptical and to take losses early if things are going off track fundamentally.

North American Construction Group also detracted value, falling 9.3% on a weaker quarter. As noted earlier, we added to the position, viewing the pullback as a buying opportunity. We remain positive on the company’s long-term prospects and have created value in the past by taking advantage of similar periods of volatility.

Feature - Firan Technology Group

Firan Technology Group (FTG) is a Toronto-based manufacturer of electronic products for the aerospace and defence industries. Its FTG Circuits division builds printed circuit boards, while FTG Aerospace manufactures illuminated cockpit panels and electronic assemblies. The company focuses on niche markets where their customers qualify products based on technical specifications and consistent quality.

FTG operates 11 facilities across North America and Asia, including one facility under development in India. Approximately 60% of revenue comes from the aerospace industry and 40% from defence. They serve an impressive roster of clients, many of which it has partnered with for decades.

History

FTG traces its roots back to 1983, when it was founded as Helix Circuits. The company rebranded and listed on the Toronto Stock Exchange in 2003, marking the beginning of its current strategic focus on aerospace and defence. Since then, FTG has expanded through both acquisitions and organic growth, opening new facilities to meet rising demand. Over time, its global footprint, production capacity, and ability to deliver higher-specification products have all grown significantly.

FTG has delivered robust growth in recent years, with revenue increasing from $90 million in 2022 to $162 million in 2024 -a 34% compound annual growth rate (CAGR) driven by both organic expansion and acquisitions. Despite a pullback during the COVID years, FTG’s 10-year revenue CAGR remains around 9%, while EBITDA has grown closer to 15% over that period.

Looking ahead, we expect ~18% revenue growth in 2025 and 10–12% in 2026, with earnings growing roughly 15% annually. The balance sheet remains conservative, with less than 1x leverage, providing ample financial flexibility.

COVID and Supply Chain Challenges

FTG faced meaningful headwinds during the COVID period, when global supply chains were severely disrupted. While FTG managed its own supply chain relatively well, many large aerospace programs it supplied were slowed by their own production issues. Boeing also dealt with quality issues on their 737 MAX program creating further disruptions.

This period of inconsistent results and lower profitability pressured the company’s market valuation. Now that these challenges are behind it, FTG has demonstrated renewed revenue growth and margin expansion through operating leverage. We believe that historical trading multiples during the COVID period are not a good reference point when assessing FTG’s future value.

Competitive Advantages

Qualification and Certification Barriers
Aerospace and defence are highly regulated industries with significant barriers to entry. It can take years for suppliers to qualify for major programs, as both OEMs and Tier-1 suppliers require rigorous certification. Over two decades, FTG has built a strong reputation for reliability—a quality not easily replicated.

A Tier-1 avionics supplier to both Airbus and Boeing recently chose to move its business from a competitor to FTG, a process that took several years. This new contract should add approximately $5 million in annual revenue beginning in 2026, demonstrating FTG’s growing reputation and market share gains.

Technology Leadership
FTG continues to evolve alongside its customers, manufacturing increasingly complex circuit boards and aerospace components. This close collaboration fosters innovation and strengthens customer relationships, further enhancing FTG’s competitive position.

Manufacturing Flexibility
With production facilities in Canada, the U.S., and China, FTG can serve major clients efficiently while optimizing production for cost, labour availability, and technical expertise. For example, production of cockpit assemblies for COMAC’s C919 aircraft is currently being migrated from Toronto to Tianjin, China. This flexibility is a strategic advantage amid rising global trade barriers. While some cost adjustments occur, these have largely been absorbed by customers.

Investment Case

Annuity-Like Programs – Most FTG products are sold into large aerospace and defence programs that can run for decades. Because qualifying new suppliers is difficult, these relationships are extremely sticky, roughly 80% of FTG’s work is sole-sourced. We believe this re-occurring and durable revenue base remains underappreciated by the market.

Strong Cyclical Tailwinds – The aerospace industry has seen steady growth coming out of the weakness brought on by the covid-induced supply chain issues. Both Boeing and Airbus have order backlogs that are over a decade long based on today’s run-rate of production. Even in an economic slowdown, we expect any cancellations to be replaced by other customers moving up the queue, supporting a long, steady growth cycle.

The defence sector also remains robust amid the war in Ukraine and rising geopolitical tensions in the Middle East and Asia. We expect NATO members to continue ramping up defence spending, extending the cycle and making it less correlated to broader economic trends.

Operational and Capital Allocation Track Record – FTG has a long and successful history of growth through expansion and acquisition. Its growth has been thoughtful, and the capital allocation record shows that there has been discipline. FTG managed to complete acquisitions despite a low valuation and limited access to capital, demonstrating disciplined execution. The company has also shown sound judgment in its buy-versus-build decisions when pursuing growth opportunities. Their previous expansions have been successful, and we expect that the expansion into India will also prove successful in the long-term.

We’ve also observed a culture of continuous improvement, from optimizing plant layouts to sharing technical expertise across sites. Recent examples include shifting production between facilities to drive long-term efficiency and plans to insource some manufacturing from the FLYHT acquisition. These initiatives require effort and time, but demonstrate FTG’s operational discipline and long-term mindset.

Optionality

Potential Acquisition
With a strong balance sheet, FTG has room for another acquisition. Management has expressed interest in expanding into Europe, potentially to deepen its Airbus relationships and tap into rising defence spending across the continent. While our base case does not rely on additional M&A, we believe it is likely over time.

After-Market Sales Opportunities
FTG’s recent FLYHT acquisition introduces products now coming to market after years of development. While our growth assumptions are conservative, aftermarket sales—given their higher margins—represent potential upside to earnings if adoption accelerates.

New Program Wins – FTG has been qualified on new programs over the last 12-18 months that have yet to see any orders placed. While it is hard to predict the timing and the magnitude of orders, we expect that FTG will continue to get qualified and win content on new and existing programs. Our investment case assumes market-like organic growth on their existing base of business – all new programs would represent upside to our forecast.

Early Progress in India

FTG’s new Hyderabad facility is in development. Although we have modest near-term expectations, India’s ambitions to expand its aerospace and defence industries could create early opportunities. Any traction here would provide additional upside to our investment case.

Risks

• Operational Execution: FTG’s reputation is built on reliability. Any quality issues could materially impact customer relationships and future contracts.

• Customer Concentration: While the client base has diversified, losing a top customer would remain significant. This risk should decline as FTG grows.

• CEO Succession: CEO Brad Bourne has led FTG for over two decades. Recognizing succession planning as a key priority, the board and management have strengthened the leadership team by hiring a new CFO and division heads for Aerospace and Circuits, each having potential of eventually assuming the top role.

• Tariffs and Trade Barriers: FTG has not been materially affected by tariffs to date, but remains exposed to potential changes in CUSMA or other trade agreements.

Valuation

FTG’s current valuation remains attractive at <7.5x 2026E EV/EBITDA and a ~10% 2026E free cash flow yield (excluding growth capex), for a business growing at double-digit rates.

We take a long-term approach and have a three-year target price of $20 per share, based on:

• 8x 2029E EV/EBITDA

• Our 5- Year DCF model (12% discount rate, 3% terminal growth rate)

• ~15% EBITDA CAGR (2026–2029)

• ~15% ROIC

This forecast assumes 10–12% organic revenue growth and modest expansion-driven contributions, with no M&A or outsized program wins. Upside to $24 per share could materialize if an accretive acquisition occurs or growth exceeds expectations. Conversely, even with slower growth, the downside appears limited, potentially to around $7 per share if multiples compress.

Overall, we see FTG as an asymmetric opportunity: steady progress with attractive long-term upside and limited downside. We don’t expect quick catalysts, but rather consistent compounding over several years. Even if it takes four years instead of three to reach our $20 target, we will be satisfied shareholders.

Pushback on Valuation

Some investors believe FTG’s re-rating opportunity has passed, given its ~100% share price gain in the 12 months ending September 30, 2025. While understandable, we think this view overlooks key context.

FTG’s historical valuation was depressed by pandemic-era supply chain issues that caused inconsistent earnings. The company is now larger, more stable, and better understood by investors. With a market cap above $250 million and improved liquidity, FTG is attracting a broader shareholder base.

Our valuation assumes only a modest multiple expansion—from ~7.5x to 8x EV/EBITDA over the forecast period. This seems reasonable for a company expected to deliver consistent, double-digit growth. Notably, FTG’s closest peer, TTM Technologies, trades around 15x 2026E EV/EBITDA. While FTG could justify a higher multiple, our thesis does not rely on one, it’s attractive even under conservative assumptions.

Final Thoughts

As noted in prior commentaries, we look for asymmetric opportunities, investments that can double in value over a three- to five-year horizon. We believe FTG fits that profile.

Our investment thesis is informed by direct discussions with CEO Brad Bourne, senior leadership, and board members, as well as on-site visits to FTG’s Toronto Circuits and Aerospace facilities earlier this year. We’ve also conducted extensive competitive analysis, supply chain research, and end-market evaluations.

We don’t expect explosive near-term growth, but we do see FTG as a long-term compounder, a company steadily building value for patient investors over the next 3–5 years.

We’re using this space to share quick updates on our portfolio between our longer, more detailed quarterly commentaries. The second quarter brought plenty of earnings reports and company updates, which, as expected, created some short-term volatility. We leaned into that volatility where we saw opportunities and reduced exposure where valuations felt stretched or fundamentals had shifted.

Sylogist was one of the disappointments this quarter. Growth hasn’t materialized as management promised, and their credibility with investors has suffered. We concluded the stock was fairly valued around $8 and sold our position. Now, OneMove Capital has called for a special meeting to overhaul the board. While activism could spark change, we don’t see an easy fix; in fact, it could be more distraction than solution. Management isn’t incompetent, but their growth narrative needs a rethink. We may revisit the story once expectations are reset and there is greater value on offer, but for now, we’re on the sidelines.

North American Construction Group also delivered a weak quarter, though its challenges were mostly one-off and beyond management’s control. Having watched this team navigate everything from wildfires to aggressive competition, we know they can be nimble and overcome challenges. We remain confident in their long-term execution and used the pullback to add to our position.

We took a similar opportunistic approach elsewhere. Foraco International’s results were as expected—better than Q1 but still below last year—as its South American business repositions for growth. The market seems to be overlooking strong margins, contract wins, and disciplined execution. We see Foraco as a highly asymmetric way to gain mining exposure without betting on a single commodity, region or mining company – so we added to our stake. We also increased our position in Firan Technology Group, which we believe is well positioned to benefit from the aerospace recovery, defense spending tailwinds, and its recent FLYHT acquisition. Larger peer TTM Technologies’ re-rating from 6x EV/EBITDA to 12x underscores the market’s growing appreciation for long-duration programs, and we think Firan is even better positioned.

Not every winner stayed in the portfolio. Andean Precious Metals, which we bought earlier this year for its strong balance sheet and compelling valuation, has rallied so sharply that the stock now trades beyond our fair value range. Future upside would depend heavily on commodity prices, much of which we believe is already reflected in the share price. We exited with a ~240% gain since March—a textbook example of being cautious when others are greedy.

Some investments require more patience. BQE Water continues to impress us with its strong technical services division, even as some investors sell due to a lack of immediate operational revenue. We’re content to wait, as the company trades at an attractive valuation despite having compelling growth prospects. Mattr’s quarter was more complex, with cautious guidance around copper tariffs weighing on shares. We see multiple levers for management to pull and believe recent multi-year investments are just beginning to bear fruit, reinforcing our long-term conviction. Atlas Engineered Products has also struggled with cyclical headwinds, testing investor patience. But while others are fearful, we see a company using this downturn to strengthen its position. We added significantly to our stake, confident that when building activity rebounds, AEP will emerge as a leader. It’s never easy to buy when others are selling, but our research-driven, long-term approach gives us conviction—and helps mitigate the risk of being wrong.

Colabor Group faced what can only be described as a perfect storm: softer growth, a repriced contract, a delayed acquisition closing, a cyberattack, and a temporary forbearance agreement with lenders. We believe most of these challenges are temporary and expect the Alimplus acquisition to be a powerful growth driver over time, helping Colabor scale and deleverage. For patient investors, this is deep-value territory. Execution will be key, but we anticipate a much stronger business 12 months from now.

Velan shareholders had positive news. Flowserve, its larger peer, had been pursuing Chart Industries earlier this year until Baker Hughes intervened with a higher bid. Flowserve’s US$266M break-fee provides both the capital and the incentive to revisit a potential bid for Velan.

While the market overall feels fully priced, we continue to hunt for opportunities where expectations are too low, or growth is misunderstood. Bargains are scarce, but we’re uncovering pockets of value and making progress on new ideas. Stay tuned.

Strategy Milestone: Seven Years of Progress

June 30^th marks the anniversary of our flagship Forterra Small/Mid-Cap strategy. As we do each year, we take this opportunity to reflect on our performance. Since inception seven years ago, the strategy has outperformed our primary benchmark, the S&P/TSX Small Cap Index, by an annualized 4.5%.

To put this in perspective, a $100,000 investment in the strategy would have grown to $222,315, versus $166,400 for the benchmark. Additionally, we outperformed the broader S&P/TSX Composite Index over the same period.

We aim to deliver returns above the benchmark, but more importantly, we strive to double the value of the portfolio every 5-7 years. By both measures, we have succeeded. That said, we recognize that market conditions change, and periods of underperformance are inevitable. We celebrate our progress, but we remain focused on the work ahead, never resting on our laurels.

It's All Relative. Or Is It?

Measuring performance relative to a benchmark can be useful for a few reasons.

First, it helps explain short-term results, which is why we reference the S&P/TSX Small Cap Index – it is composed of smaller Canadian companies that are within our investment opportunity set.

Second, benchmarks are also helpful over the long term when comparing active strategies to passive ones, which is why we include the more popular S&P/TSX Composite Index as a secondary reference.

But we believe benchmarks tell only part of the story.

Our strategy is structurally different. It doesn’t resemble the benchmark and isn’t intended to. That’s why we consider a five-year horizon to be the starting point for meaningful comparison. Over shorter periods, our performance may diverge sharply from what is working in the market.

· The S&P/TSX Small Cap Index includes 241 companies. We own 16.

· Half of the portfolio holdings are not in the index at all.

· The portfolio’s active share exceeds 95%, with less than 5% overlap.

Being different is a prerequisite for outperformance. We don’t spend time analyzing index components. Instead, we focus our energy on identifying long-term wealth-creating companies.

More importantly, we believe in absolute returns. You can’t spend relative returns in retirement. That’s why our primary goal remains: double capital every 5-7 years, equivalent to a 10-15% compound annual return. Achieving this is easier in bull markets and harder in downturns.

A focus on absolute returns means avoiding the risk of permanent capital loss. This can be challenging in small-cap investing, where things can change quickly, volatility is amplified, and even high-quality businesses may suffer in risk-off environments. It’s also harder when broad markets are near record highs (see Market Commentary), increasing the chance of pullbacks.

Over the past year, we underperformed our benchmark. This was due to our more conservative valuation discipline, which led to holding a higher cash buffer in the portfolio — a decision that weighed on short-term results. Additionally, the benchmark’s 10% higher exposure to precious metals significantly impacted relative performance.

We’ve seen periods of relative underperformance before, and we will again. It’s part of the investment process. We continue to aim for long-term outperformance, but never at the expense of capital preservation or our goal of achieving long-term capital growth.

Market Commentary – All-Time Highs

The market closed the second quarter of 2025 with a growing list of indices and indicators hitting—or hovering near—all-time highs. As market cycle expert Howard Marks often reminds us, understanding where we are in the cycle can be more useful than trying to predict what comes next. We pay close attention to market signals—not to forecast, but to understand the environment in which we’re investing. These signals help us assess when the market is driven by fear and when it's driven by greed.

Let’s take a closer look at what the market is telling us:

S&P 500 and S&P/TSX Composite – At All-Time Highs

The rebound from April’s lows through June marked the second-fastest recovery in 75 years for the S&P 500. In less than three months, the index climbed from bear market territory to a record high. The return of optimism wasn’t gradual—it surged back. Canada’s S&P/TSX Composite followed a similar pattern, also reaching new highs.

NASDAQ – At All-Time High

With technology companies leading the rally, the NASDAQ is also at an all-time high. Optimism surrounding the AI revolution and continued strength in mega-cap tech remains a dominant theme.

Bitcoin – At All-Time High

Bitcoin continues to confound traditional analysis. On the surface, the message is clear: investors expect the price to rise. But it may also reflect a hedge against U.S. dollar weakness, an inflationary buffer, or a speculative bet on a favorable regulatory environment—particularly under a potentially crypto-friendly Trump administration. Speculative crypto tokens have also surged, further reflecting risk-seeking behavior.

Gold – Near All-Time High

Gold’s message is similarly complex. On one hand, its rise can be viewed as a hedge against inflation and currency risk. On the other, it’s attracting momentum-driven buying. Notably, central banks are accumulating gold at the highest rate in decades—suggesting deepening concern about fiat currency stability.

Copper – Near All-Time High

Often called “Dr. Copper” for its predictive power on economic health, copper is sending mixed signals. Prices remain high—driven less by current economic strength and more by long-term structural demand. The global shift to electrification (EVs, data centers, grid upgrades) is expected to drive copper demand, even as current macro indicators flash mixed signals.

U.S. National Debt – All-Time High

With the passage of the “One Big Beautiful Bill”, U.S. debt levels are climbing further into uncharted territory. While the U.S. dollar’s status as the world’s reserve currency has allowed greater fiscal flexibility, the rising gold price may suggest that the world is beginning to hedge against the limits of U.S. exceptionalism. In May, Moody’s became the final major rating agency to downgrade U.S. government debt from AAA status.

Warren Buffet’s Cash Pile – All-Time High

Berkshire Hathaway’s growing cash position can be read as a signal of caution. With so much cash on hand and so few investments being made, the implication is that compelling opportunities are scarce at current valuations. In fact, at a Berkshire Hathaway meeting in 1995, Buffett clearly said, “…and when you see cash on our balance sheet of any size, that’s an acknowledgement by Charlie and me that we have not found anything, in size anyway, attractive at that point. It’s never a policy of ours to hold a lot of cash.”

Where Are the Lows?

Amid all the highs, a few metrics are testing historic lows—telling their own part of the story.

S&P 500 Dividend Yield – 25-Year Low

Yields have not been this low since the height of the dot-com bubble. This suggests that valuations are stretched, and that investors are accepting less compensation for equity risk.

U.S. Investment Grade Credit Spreads – 20-Year Low

Investment-grade bond spreads are at their tightest levels since 2005. Investors are accepting minimal premium for credit risk—signalling a stretch for yield and complacency in fixed income markets as well.

Signals in the Noise

Collectively, the data suggests that asset prices are elevated, with few signs of investor caution. Our own research echoes this—momentum is dominating sentiment, and many companies on our watchlist have pushed beyond fair value.

That said, all-time highs tend to lead to more all-time highs, statistically speaking. Bull markets often continue far longer than expected—sometimes for years. That’s why we don’t try to time markets. Instead, we stay vigilant.

For us, this environment is a clear signal to remain disciplined on valuation and to be wary of crowded trades. Enthusiasm and optimism are powerful forces, but they’re also signs to stay grounded. We continue our research with patience, knowing that better buying opportunities often emerge when fear returns.

Even in this market, we can find underappreciated companies, though they are just a little harder to come by. Our watchlist list remains ready, waiting for the next pocket of pessimism to create better opportunities.

Portfolio Review

During the second quarter of 2025, the Forterra Canadian Small/Mid-Cap portfolio returned 7.1% gross of fees, underperforming the S&P/TSX Small Cap Index, which gained 11.8%. The S&P/TSX Composite Index rose 8.5%, broadly in line with gains across many large-cap global markets. Meanwhile, the technology-heavy Nasdaq rebounded sharply, rising 17.7% as investors largely “bought the dip” following market weakness in the first quarter.

Ongoing market volatility during the quarter created opportunities to trim or add to existing positions. We also exited two holdings over the period—with one outcome proving more successful than the other.

We exited our long-held position in EQB Inc., as we viewed the risk/reward to be more balanced going forward. The recent departure of CFO Chadwick Westlake was a concern, highlighting succession risk around long-serving President and CEO Andrew Moor. Additionally, we anticipated a more challenging operating environment for EQB over the next few years, as a wave of mortgage renewals is expected to place pressure on both consumers and housing prices.

EQB was a highly successful long-term investment for us. After monitoring the company for several years, we initiated a position during the COVID-19 market selloff in March 2020. Although we exited that initial investment shortly thereafter at a profit, we re-established a position in September 2020 at a modestly higher price, having reassessed the long-term opportunity. We held the stock until April 2025, generating a cumulative total return of 155% over four and a half years—equivalent to a compound annual growth rate of approximately 23%.

Tragically, Mr. Moor passed away suddenly in late June, leaving a significant leadership gap at the bank. The board acted swiftly, appointing Chadwick Westlake—who had recently taken on the role of CFO at OpenText—as President and CEO of EQB, effective August 25, 2025. We had the pleasure of meeting Mr. Moor on several occasions over the past five years, and his energy, vision, and leadership will be deeply missed. His commitment to building a challenger bank in Canada is a lasting legacy.

We believe EQB will be in capable hands under Mr. Westlake’s leadership. While we do not see the risk/reward as compelling at this time, we will continue to monitor the company for potential re-entry opportunities.

We exited our position in Data Communications Management (DCM) in early June after our original investment thesis broke down. We had expected the merger with specialty print competitor MCC to drive modest growth, pricing power, and cost synergies through plant consolidation and workforce reductions. We also believed free cash flow would improve, allowing the company to deleverage. Additionally, we saw upside potential in DCM’s emerging digital services business.

However, several challenges emerged. The MCC acquisition included $20–30 million in low-margin revenue, which was later shed to protect margins—undermining the original synergy targets and making the acquisition price appear less attractive in hindsight. Integration took priority over growth, with plant closures, workforce reductions, and salesforce restructuring proving more disruptive than anticipated. Despite the repeated plan for ~5% growth, there has been no organic growth over the past two years.

DCM’s performance was also hurt by labour disruptions at Canada Post, a major client and an important shipping partner. A postal strike in late 2024, followed by a steep rate hike in early 2025 and the threat of another strike in April 2025, led to delays and cancellations in customer projects. We see three long-term risks stemming from this:

· Accelerated declines in bill/statement printing, as utilities, telecoms, and banks aggressively push digital adoption.

· Reduced marketing mail volumes due to significantly higher postage costs.

· Structural changes to Canada Post’s delivery model, potentially ending daily home delivery in favour of more profitable parcel services.

While we initially expected a short-term disruption, the instability at Canada Post now appears to be a potential long-term headwind for DCM’s core business.

On other fronts, the digital services segment has yet to make a meaningful contribution, and we don’t see this changing materially in the next 2–3 years. Capital allocation decisions were also disappointing. Instead of paying down debt or repurchasing shares, DCM issued a special dividend. While this benefited shareholders in the short term, we believe it came at the cost of long-term value creation.

To be clear, the story is not broken— it’s just no longer compelling. Management deserves credit for a complex integration and for improving margins. But organic growth and capital allocation have fallen short, and these are critical for future returns.

As part of our investment process, we reflect deeply on missteps. This case reinforced several lessons: investing in structurally declining industries is hard and it comes with more inherent downside risk; synergy targets are often aspirational; and when a key partner like Canada Post comes under pressure, exposure is difficult to mitigate.

Our total return on DCM, including dividends, was -33%. While losses are an inevitable part of long-term investing, it is a humbling experience. Our focus is on learning from mistakes and minimizing their impact. By analyzing where our thesis failed, we aim to sharpen our decision-making and improve outcomes over time.

We opportunistically added to Champion Iron in April as lower iron ore prices and trade tensions sent the shares to a three-year low. In the same month, we also added to BQE Water, Atlas Engineered Products, Andean Precious Metals and Polaris Renewable Energy.

In May and June we incrementally added to Foraco International and Colabor Group as shares came under pressure. We trimmed our positions in K92 Mining and Andean Precious Metals as these shares ran hard on the back of higher prices for gold and silver.

Performance Review

The largest contributor to performance over the quarter was Andean Precious Metals, which soared 78% during the period and was up 113% from when we added to the position in April. The company benefits from exposure to both silver and gold, both of which posted gains in the second quarter. Similarly, K92 Mining, a junior gold producer, rose 24% over the period.

Specialty insurer, Trisura Group rebounded in the quarter, up 33% on strong earnings and an improving outlook. Mattr also recovered from recent lows, gaining 17% as concerns about tariffs eased and investors refocused on the company’s longer-term value potential.

Champion Iron was a notable detractor, falling 16% as iron ore prices declined 8% during the quarter. Markets anticipated weaker demand for iron ore out of China, pushing short-term investors to the sidelines. We take a longer-term view and expect that Champion’s higher-purity iron ore will command a premium that will be more resilient than the standard index price.

Industrial valve manufacturer Velan also detracted from performance, as it drifted 9% lower over the quarter despite posting strong year-end results in May. We suspect part of the weakness was due to long-term shareholders taking profits as shares reached near five-year highs after an erratic run over the past three years. We continue to see significant upside for Velan, as global investment in nuclear energy and LNG infrastructure supports what we believe will be a new cycle of growth for the company.

Feature – Atlas Engineered Products

Long-Term Thinking in a Cyclical Industry

Atlas is a market leader in Canada for manufactured and engineered structural wood components, serving residential and commercial builders. Its products—trusses, wall panels and engineered wood products—are used in single-family homes, townhouses, low-rise multi-family buildings, and agricultural structures. Over time, Atlas has built a network of ten businesses across Canada, consolidating a fragmented industry to unlock meaningful scale advantages.

We began researching Atlas over three years ago. Since then, we've visited the company’s head office and toured several of its facilities, including the Atlas Building Systems plant in Nanaimo, BC, and the Pacer and Clinton plants near London, Ontario. It took time to fully understand the cyclical nature and regional variations of the business. Roughly a year ago, we initiated a small position in our portfolio, which we’ve since added to incrementally during the second quarter.

While this investment may require patience, it reflects our long-term approach to investing in cyclical businesses. It also underscores our willingness to think independently and to do the work well in advance of making an investment.

A Brief History

Atlas was founded in 1999 and is headquartered in Nanaimo, British Columbia, where it became a dominant player on Vancouver Island. It went public on the TSX Venture Exchange in 2017 with the goal of consolidating the fragmented truss manufacturing industry under the leadership of founder Hadi Abassi. Since then, the company has made a series of acquisitions:

· Clinton Roof Truss (Clinton, ON) – February 2018

· Satellite Building Components (Merrickville, ON) – August 2018

· Pacer Building Components (Ilderton, ON) – November 2018

· South Central Building Systems (Carman, MB) – March 2019

· Novum Building Components (Abbotsford, BC) – July 2020

· Hi-Tec Industries (Lantzville, BC) – February 2022

· Leon Chouinard & Fils (Eel River Crossing, NB) – August 2023

· Truss-Worthy Construction Systems (Colborne, ON) – June 2025

· Penn-Truss MFG (Saltcoats, SK) – July 2025

What They Do

Roof & Floor Trusses - (63% of Revenue in 2024)

Atlas designs and builds roof and floor trusses—precision-engineered components tailored to meet strength and code requirements. These are not off-the-shelf products; they are custom-built for each project. Atlas has the capacity to handle complex designs and deliver them efficiently for on-site assembly.

Prefabricated roof trusses began to gain traction in the 1950s, and by the 1980s, they became standard in most residential construction due to their consistency, strength-to-weight efficiency, and labour-saving advantages. On-site, hand-framed trusses are now increasingly rare.

Wall Panels - (10% of Revenue in 2024)

Atlas also manufactures prefabricated wall panels—pre-assembled stud-and-sheathing units designed for quick and precise installation. These panels can reduce framing costs by up to 25% and cut build times by as much as 35%.

Wall panels were once a niche offering, but adoption has accelerated over the past decade, driven by labour shortages and the demand for faster, more efficient construction. This is a growing segment for Atlas: wall panels have gone from 0% of revenue in 2022 to 10% in 2024, showing steady adoption across its customer base.

Engineered Wood Products - (27% of Revenue in 2024)

While Atlas does not manufacture engineered wood products itself, it distributes a wide selection of structural components, such as glulam beams, LVL (laminated veneer lumber), and I-joists. These products are often integrated into truss and panel designs and are shipped together for ease of installation.

Atlas’s scale allows it to secure preferential pricing and terms from suppliers, which enhances margins and improves working capital efficiency.

Management Team

Founder, President, and CEO Hadi Abassi is a straight-talking entrepreneur with over 25 years of experience in building materials and construction. He is supported by CFO Melissa MacRae, COO Gurmit Dhaliwal, and a team of regional managers and sales leaders. The board includes Don Hubbard (Chairman), who brings over 40 years of industry experience, and Paul Andreola, who advises on capital markets and capital allocation.

Our Thoughts on the Cycle

Successfully investing in Atlas will depend, in part, on the Canadian housing cycle. That said, our investment thesis is not based on trying to time a recovery. Rather than predicting when or how the cycle will turn, we’re focused on whether Atlas can strengthen its competitive position throughout the downturn. Judging by where the shares are trading, most investors appear to be taking a different approach. In our view, if you're waiting for irrefutable evidence that the housing market is recovering, you may already be too late.

Private equity interest in the Canadian truss market peaked post-COVID, but we are now starting to see reduced M&A activity and fewer new entrants. Many smaller players are beginning to struggle and may look to exit. Atlas, meanwhile, has continued to acquire and invest, taking a counter-cyclical approach that we believe will enhance its long-term competitiveness.

The Investment Case

An Industry Ripe for Consolidation and Automation

With over 200 smaller companies, the Canadian truss industry is highly fragmented, and market dynamics are region-specific. Most competitors are small, privately owned businesses that generate $3 to $15 million in revenue and face succession issues.

Historically, truss plants have been labour-intensive. As labour costs rise and skilled labour becomes harder to find, companies are under increasing pressure to automate parts of the manufacturing process. While most Canadian plants have adopted basic automation—such as saws and stackers—larger players like Atlas have gone further, incorporating laser-guided positioning systems, movable guided pins, and roller tables.

Atlas is now taking a significant leap forward by introducing advanced robotic manufacturing at its new facility in Clinton. As barriers to entry in this market continue to rise, Atlas is raising the stakes. Most competitors are not in a position to respond, and we expect that some will exit the market as a result.

Over the long term, we expect the industry to consolidate around a few large regional players. As this happens, scale advantages should widen, smaller firms will struggle to compete, and pricing power will tilt toward firms like Atlas.

Atlas is the only public company consolidating in this Canadian market niche, and we believe that it is uniquely positioned to grow through strategic acquisitions, by taking market share and gaining wallet share.

Scale Advantages Are Taking Hold

We believe that Atlas is benefiting from powerful scale advantages in buying power and efficiency and soon it will be an industry leader in automation. We see a path for these advantages to grow stronger as Atlas continues to scale.

Buying Power

Atlas negotiates superior supplier terms and benefits from vendor-managed inventory (VMI) programs that reduce risk, lower working capital needs, and improve availability. Atlas also benefits from being able to carry a wide variety of engineered wood products at very good rates.

Efficiency and Network Scale

Its proprietary ERP system improves project tracking and staffing efficiency. Plants can collaborate on orders, share design talent, and replicate best practices across the network. Only large-scale players can invest in the systems to track KPIs and closely manage their margins.

Invest in Automation

A new greenfield plant in Clinton will house a state-of-the-art automated truss line. Once completed in mid-2026, this plant is expected to double truss output with half the labour. Management expects a payback period of under two years. This automated line will give Atlas a cost advantage that it can choose to pass on to customers (*scale economies shared) to take market share while still enjoying attractive margins.

*Scale economies shared is a concept coined by Nick Sleep and Qais Zakaria, referring to a business model where companies achieve cost advantages through scale and deliberately pass those savings on to customers (e.g., via lower prices or better value), creating a virtuous cycle of customer loyalty, increased volume, and compounded growth. Costco and Amazon are common examples.

Share of Wallet Growth

There is significant room for organic growth through greater adoption of wall panels and engineered wood products. We believe that this “wallet-share” growth is not cycle-dependent and can create more resiliency in the business. Atlas has recently expanded its sales team to better pursue these cross-selling and expansion opportunities.

Optionality

We prefer investment cases with multiple ways to win. Atlas offers several:

· Strategic M&A: Atlas could use acquisitions to expand into regions where it has less exposure (e.g. Alberta). We do not assume any further acquisitions in our base case, but well executed accretive acquisitions could fuel growth.

· U.S. Expansion: Atlas already has limited sales into Michigan (under CUSMA), but there is an opportunity to expand further into other states (Maine, Vermont, North Dakota, Washington).

· Wall Panel Tailwinds: If demand for wall panels accelerates—particularly in response to labour shortages—Atlas is well-positioned to scale up supply quickly.

· Automation Success: If the Clinton plant exceeds expectations, it could become a blueprint for additional automation across Atlas’s network.

· Housing Cycle Inflection: While not our base case, a recovery in Canadian housing would unlock greater sales, provide margin upside and drive higher plant utilization.

· Takeout Potential: Large U.S. players are consolidating. Atlas could become an attractive acquisition target, but we believe management has a long-term vision to build a much larger company.

Risks

Competitive Response to Automation

If competitors respond by matching Atlas’s automation investments in an effort to lower their unit costs and stay afloat, it could have negative consequences. Returns on invested capital would decline, and the payback period for Atlas’s automation projects would be extended.

Prolonged Downturn

A slow or stalled housing recovery could weigh on results for years. Affordability remains a key challenge, driven by high land, materials, labour, and development costs. While governments are trying to address these issues by reducing red tape and increasing incentives, these efforts may not be successful.

Execution Risk in Automation

All new projects come with challenges, and Atlas has experienced this firsthand. An earlier partnership with automation specialist House of Design was intended to retrofit automation into two existing facilities. However, House of Design encountered its own difficulties and was ultimately forced to dissolve.

This time, Atlas has partnered with Trussmatic, a Finnish company whose technology has been successfully deployed in over 20 automated lines globally. Trussmatic is considered an industry leader. That said, even with a strong partner, project delays and slower ramp-up periods remain risks.

Capital Allocation Missteps

Atlas could make a poor acquisition or deploy capital too quickly and find itself over-leveraged with debt. It could also dilute shareholders by raising capital in an untimely manner. We believe that Atlas’s management and board have been judicious with capital to date, but we intend to monitor this closely.

Key Person Risk

Founder Hadi Abassi owns over 10% of the company and plays a central leadership role. There is no obvious successor in place. Like most small founder-led companies, this risk is difficult to avoid. We believe the board would work to replace him, but the task would not be easy.

Valuation

We evaluate Atlas’s valuation in several ways.

DCF Analysis: Using conservative growth, capex, and cash flow assumptions, our discounted cash flow analysis yields a long-term value of ~$2.20/share. This approach is helpful for understanding the business model but is sensitive to macro assumptions.

Relative Valuation: Shares currently trade at ~5x 2026E EV/EBITDA, compared to 7–8x for larger peers. Applying a multiple of 7.5x to 2026 and 6.5x to 2027 estimates implies a valuation range of $1.40–$1.60/share.

We believe the downside is limited. Even in a stressed scenario—e.g., cost overruns and delays pushing EBITDA lower in 2026 —shares might trade at ~$0.60–$0.65, or ~4x reduced 2027 estimates. With shares currently trading between $0.80–$0.90, the risk/reward profile remains attractive.

Final Thoughts

Given the long-term asymmetry we like the prospects, despite the uncertainty around the cycle. In some ways, we are also thinking counter-cyclically. In a market near all-time highs, Atlas is quietly getting stronger –but is trading closer to its 52-week lows.

Atlas is one of the smaller positions in the portfolio because of its cyclical exposure and its microcap status. However, it represents the type of business we want to own: one that improves its position through the cycle and acts with discipline and foresight.

Atlas is building through the downturn, and we’re happy to build our position alongside it.

Strategy Factsheet