When it rains gold, put out the bucket, not the thimble.

 

2026 is shaping up to be another year of strong returns, with investment performance trouncing the market by a wide margin for the third time in the past five fiscal years, alongside substantial capital redeployment.

The first highlight of the period was selling into strength. As the Hormuz crisis sent energy prices soaring, we divested a large part of our oil and gas holdings, which had anchored our portfolio since the pandemic.

That includes the bulk of our shares in Peyto Exploration & Development, sold at an eightfold return, dividends included, after seven years. We also sold Lotus Creek Exploration, formerly Gear Energy and acquired around the same time as Peyto, for a less mind-blowing but nevertheless satisfactory gain.

Our shares in Brazilian oil major Petrobras, bought last year, went the same way after a return close to triple digits. The reasoning behind that purchase was laid out in the 2025 partner letter.

After Suncor, discussed in our 2020 letter, it was only the second time in our career that we saw a growing, highly profitable oil major trading at under six times distributable earnings. Petrobras proved a superb investment too, even if Brasília is a rougher neighborhood than Alberta. Then again, it is always hard to separate luck from merit in such fortunate outcomes.

Energy, Canadian in particular, remains central to our asset base, if on a smaller scale. It rests on natural gas and liquids producer Petrus Resources, one of our largest positions at cost, and a stable shareholding in pipeline operator South Bow, together representing between a sixth and a fifth of net asset value.

Petrus may well become a future Peyto, with which it shares a founder. It is led by maverick entrepreneur Don Gray, whom we have long followed and admired, and in which he and his brothers hold a majority stake. In 2026, Petrus signed a particularly shrewd acquisition that strengthens its growth prospects and diversifies its production mix.

South Bow was bought in 2024, in a special situation and at unusually cheap prices, as detailed in that year’s letter. It is performing in line with expectations, with lavish dividends so far and satisfactory capital appreciation.

The second highlight was a series of other exits. We sold our shares in French asset manager Amundi and in bank BNP Paribas at significant short-term gains. Both were bought in late 2025, the former for its hefty dividend yield and the latter at a steep, and in our view unwarranted, discount to tangible book value, a case we made at length in last year’s letter.

Then came Montreal-based Knight Therapeutics, let go with regret, at a modest profit and for reasons other than fundamentals. Finally, we parted with our oldest shareholding, Orca Energy, which returned multiples of its original purchase price in dividends alone, though its adventures in Tanzania are ending on a sad note—a turn of events that, frankly, came as no surprise.

The third highlight was two excellent investments, in HP and Accenture. We held the first only briefly, while the second remains in the portfolio. Both are textbook examples of the opportunities we look for.

When we bought HP in early 2026, it was overlooked, underloved and undervalued. Consider the record. From 2016 to 2025, the decade following its separation from HP Enterprise, the maker of computers, printers and ink cartridges generated $34 billion in aggregate free cash flow. All of it went back to shareholders through dividends and buybacks, the latter almost halving the share count.

In March 2026, fears over tariffs and memory costs pushed the stock to six times earnings, with the entire company worth only about $18 billion despite clockwork earning power of roughly $3 billion a year, a raised dividend and highly accretive buybacks. Put differently, in ten years it had returned to shareholders nearly twice what it was now worth.

In September, mercurial as ever, the market changed its mind and the stock rallied. We sold promptly what had become our largest position at cost, for a very substantial profit.

At Accenture, fears that artificial intelligence will permanently impair the business, rather than enhance its ability to implement new technologies and navigate complexity at scale, pushed the world’s leading technology consulting group to a single-digit multiple of distributable earnings not seen since the 2008-2009 financial crisis. This, despite an impressive record of capital returns and of value created through M&A.

Investors may well be underestimating how much work technological disruption tends to generate rather than destroy. Besides, this is far from Accenture’s first scare of the kind, or the first time a new technology has threatened to make parts of its business obsolete.

Buying the stock at $120, as we did in June 2026, looked close to a no-brainer. With hindsight, given the spectacular rise that followed, we should have been more aggressive, perhaps building a position as large as HP. Call us slow learners. To some extent, we repeated the mistake we made six years ago with another consulting group, Publicis, which showed all the same hallmarks, as we explained in our 2020 letter.

The fourth highlight of this exceptionally busy year was the continuing redeployment of our assets toward three of the most distressed sectors of the moment—software, consulting and, in Western Europe, construction.

In software, we added to Constellation Software’s spinoffs Lumine and Topicus. Both, as discussed last year, have delivered outstanding results as usual, which the market remains slow to recognize, spooked by fears that AI will permanently disrupt vertical market software publishers.

We also built a significant position in Netherlands-based professional information giant Wolters Kluwer. It isn’t every day that a serial compounder and card-carrying dividend aristocrat trades like a busted bank. This one comes with dominant, deeply entrenched franchises in healthcare, tax advisory and legal, and treasure troves of proprietary data.

The group is working overtime to convince everyone that AI is a tailwind, not a guillotine. Two-thirds of revenues, management says, are already tied to AI-enabled services. But investors remained unimpressed, and in the twelve months before our purchase, market value was also cut by roughly two-thirds.

You would think sales had evaporated. They have not. Revenue kept growing near its ten-year average clip while margins hit a record high—awkward evidence for those who argue that AI agents will hollow out information providers. If anything, automation seems to fatten margins rather than starve them.

From 2016 to 2025, revenue rose from €4.3 billion to €6.2 billion. Pre-acquisition free cash flow nearly doubled, from €703 million to almost €1.4 billion. The comfortably covered dividend quadrupled. Shares outstanding fell by almost a quarter. Earnings per share tripled. All the while, return on equity stayed in the stratosphere, with limited reliance on leverage.

That is a fine record for a mature company. It softens, though does not erase, the sting of aggressive buybacks executed at more than twenty-five times earnings during the post-pandemic euphoria. At the time of our purchase, the stock changed hands at roughly ten times cash earnings.

For a high-return, entrenched operator long treated as untouchable, that is a basement multiple. The last time it traded this low was 2009, in the thick of the subprime crisis, when the world looked as if it might end.

For Wolters Kluwer, as for Accenture, this is not the first technological scare. When cloud computing swept through enterprise software, shareholders already feared its franchise would evaporate. Instead, the company used the shift to accelerate profit growth. If anything, it cemented its standing, and AI may very well prove another blessing in disguise.

In consulting, besides Accenture and Alten, also covered in previous letters, we initiated a position in IT services provider Neurones. Founded and led by Luc de Chammard, whom we’re proud to call a friend and a mentor, Neurones in our view exemplifies how a business should be managed. It remains on track to deliver solid growth, runs the most conservative balance sheet in its industry and trades at under six times operating earnings. But it is French, small—what’s €900 million in revenue nowadays?—and illiquid, and hence left for dead.

In construction, alongside our longstanding investment in Grenoble-based building materials distributor Samse, to which we added in 2026, we initiated new positions in British floormaker James Halstead, which generates 43% of it revenue in the United Kingdom, and French developer Kaufman & Broad.

Listed in London, James Halstead is a century-old enterprise built on the honest trade of making floors, and it remains in family hands. Mark Halstead, the fourth generation to chair the company, presides over Polyflor, Expona, Performa, Megastrong and assorted other wonders of the flooring world.

Its record rests on prudent but shrewd stewardship, excellent returns on operating assets, a balance sheet heavy with cash and a dividend history that stretches back a long way. None of this has prevented it from trading at bargain multiples, here too reminiscent of the subprime crisis.

We share a lot with James Halstead’s leadership, especially candor and forthrightness, and we appreciate it when Mark Halstead reminds shareholders that “our business in life is not to get ahead of others, but to get ahead of ourselves.” That is an ethos that rings loud at Standard.

Kaufman & Broad, led by seasoned chief executive Nordine Hachemi, is the most agile and best-capitalized property developer in France. Like its peers, the group faces an apocalyptic backdrop in its sector, yet it has navigated the storm with limited damage. Our purchase was driven primarily by a double-digit dividend yield, which we regard as sustainable, at the dawn of what we see as an inevitable and positive policy change on construction permits.

The fifth highlight was two purchases outside those three sectors, chosen primarily for their solid income-producing characteristics. We bought shares in Paris-based investment manager Eurazeo and regulated gaming operator FDJ United.

Earlier this year, Eurazeo traded at a heavy discount to net asset value at the peak of the private credit panic, a market to which it has little exposure. It is also running one of the most aggressive buybacks we have ever seen, dramatically shrinking its share count at that discount. FDJ United, meanwhile, offered a near double-digit dividend yield, by any measure an unusually generous level for what remains a state-sanctioned monopoly.

The sixth highlight was a series of investments, in even amounts, in large US-listed companies, namely animal health leader Zoetis, North American brewer Molson Coors and sportswear giant Nike.

Priced at lofty multiples for more than a decade, Zoetis commands an enviable growth record and a superb return on equity earned without leverage, buttressed by sizable competitive advantages in R&D and distribution. Its shares were recently beaten down to eleven times earnings on criticism surrounding Librela, its flagship treatment for canine arthritis. In our view, that offers a compelling entry point for fundamentals-minded, long-term investors.

The world’s fifth-largest brewer, Molson Coors holds 25% of the North American market, where it is also diversifying beyond beer. Despite its defensive profile, with stable earnings power and privileged relationships with distributors, declining beer volumes left its shares at deeply depressed multiples in autumn 2026. That prompted our second investment in the company in six years, on the premise that it can repurpose its platform.

In October, Standard also bought shares in Nike, at the time perhaps the most reviled stock in the S&P 500, betting that much of its debacle was self-inflicted and therefore fixable. None of its rivals can match the Swoosh’s ubiquity, marketing firepower and breadth of offering. If margins recover to their historical averages, even on conservative assumptions, shareholders stand to be rewarded with substantial capital appreciation, and generous dividends along the way.

Standard is ending the current fiscal period with debt equivalent to less than a tenth of its net asset value, in line with its controlling family’s strict policy of keeping leverage low. At market value and across all vehicles, its assets under management are denominated 52% in euros, 30% in Canadian dollars, 11% in US dollars, 5% in British pounds, and the remaining 2% in Swiss francs.

The gains realized on sales this year will result in a substantial tax bill for the company and its owners. We therefore expect investment activity to be lower in 2027 than over the past twelve months.