Amplus Q1 2026 Commentary — Discipline Amid Dislocation

We extend our thoughts to those affected by the ongoing conflict in the Middle East.

March proved to be a highly volatile month. As noted in our mid-month update, both equities and fixed income experienced elevated turbulence. Yet in a pattern that has become increasingly familiar, volatility did not dampen supply—in fact, it accelerated it. The second week of March saw a surge in bond issuance, including Salesforce coming to market with a multi-tranche deal to fund share buybacks at levels management viewed as attractive.

What stood out was not just the volume of issuance, but the terms required to clear the market. Salesforce’s transaction came with approximately 30 basis points of concession—a notable signal in a market still digesting risk. Despite this, the deal was well-received. Internally, we leveraged insights from Devon, who focuses on disruption risk, and Scott, our Founder and CIO, who has extensive experience underwriting technology companies. Devon has long expressed caution around CRM, while Scott reflected that earlier in his career, it would have been difficult to imagine asset-light software companies raising debt of this magnitude at such attractive levels.

That observation feels particularly relevant today.

In public credit markets, a meaningful portion of leveraged loans are now trading below par—many at notable discounts—highlighting growing concerns around credit quality, particularly within software. These asset-light businesses, historically viewed as resilient due to recurring revenue and high margins, are now facing a more complex environment: higher financing costs, evolving competitive dynamics, and potential disruption from emerging technologies. Notably, recovery rates for first-lien loans on a trailing twelve-month basis are 32.8%, well below the 25-year average of 61.0% and the post-GFC average of 56.1%.

SOFTWARE REMAINS A DRIVER OF RETURNS

Beneath the surface, private credit has played a key role in supporting this ecosystem, often providing flexible capital with less immediate price discovery. While private markets do not reprice daily, history suggests they tend to follow public market signals with a lag. The growing dispersion in loan prices may be an early indication of where stress is building.

History rarely repeats itself exactly—but it often rhymes.

Periods marked by volatility, abundant capital, evolving narratives around “defensive” growth, and increased willingness to finance asset-light models are not new. What changes are the instruments, the sectors, and the narratives used to justify them.

Today’s environment may not be a repeat—but the rhythm is familiar. As always, it is important to monitor where early signs of strain are emerging. In the case of Salesforce, we selectively participated in the 3-year and 7-year maturities. Within days, the bonds tightened by approximately 15 basis points, allowing us to exit at what we viewed as fair value and capture a modest profit.

Performance and Quarterly Review

For Q1 2026, the Amplus Credit Income Fund (ACIF) returned +0.93%, delivering positive performance in each month despite significant market volatility. For context, the Canadian Corporate Bond Index returned approximately +0.1%, while most equity indices declined by mid-single digits over the same period. Canadian investment-grade spreads initially tightened by 7 basis points in January but ultimately widened to finish the quarter 9 basis points higher. U.S. investment-grade spreads widened by 11 basis points.

Our defensive positioning led to modest underperformance early in the quarter but ultimately enabled us to generate positive returns by preserving capital during the drawdown.

As discussed in our mid-month update, rising energy prices drove a meaningful increase in inflation expectations, pushing interest rates higher by as much as 70 basis points across parts of the curve. At one point, markets were pricing in four 25-basis-point rate hikes in Canada over the next 12 months. More concerning has been conflicting economic data, which pointed to slowing growth even prior to the onset of geopolitical tensions—raising the risk of a stagflationary environment.

Historically, stagflation presents a challenging backdrop for central banks, as policies aimed at curbing inflation often conflict with those needed to support growth. In response, we increased portfolio yield by approximately 120 basis points, primarily through rotating out of commercial paper and into attractively priced short-dated bonds. This shift also allowed us to reduce portfolio leverage.

We also took advantage of market dislocations to reduce Canadian exposure while selectively adding U.S. dollar-denominated issuance, where relative value appeared more compelling.

On the supply side, the U.S. investment-grade market recorded over $600 billion in issuance during the first quarter, with activity accelerating significantly in March. Concessions widened, and high-quality issuers such as Amazon came to market at levels materially cheaper than historical norms. While maintaining a cautious overall stance, we reallocated capital from Canadian holdings to participate in these opportunities. For example, while spreads widened by approximately 5 basis points in March, our Amazon position tightened by 7–8 basis points, generating roughly 13 basis points of relative outperformance.

RECORD IG SUPPLY IN 1Q 2026
WE ARE TRACKING 1Q-2026 SUPPLY OF ABOUT $650BN – THE HIGHEST ON RECORD GOING BACK TO 2010

U.S. CORP IG ISSUANCE ($BN)

We also observed that, during periods of volatility (liberation day), higher interest rates attracted yield-focused buyers, allowing cash bonds to outperform synthetic exposures. Accordingly, we tactically increased credit exposure through credit default swaps on the investment-grade index to better capture dislocations.

RETAIL DEMAND HAS BEEN MATERIALLY STRONGER IN IG THAN IN LEVERAGED FINANCE

As credit markets outperformed, we also looked to enhance carry through options strategies. While dynamically hedging the portfolio with puts across various ETFs, we selectively monetized elevated implied volatility by selling options where skew was in our favor. This approach allowed our hedging program to generate an incremental ~0.05% return, as realized volatility in March ultimately came in below the levels implied by option pricing.

Forward Outlook

As the global economy navigates a supply-driven oil shock—with prices approaching $100 per barrel—we are mindful of the potential emergence of a new inflationary regime and its broader implications for commodities and monetary policy.

Elevated energy prices are likely to persist, gradually feeding into broader inflation—particularly in food. Fertilizer prices, a key input into agricultural production and heavily dependent on diesel, have risen approximately 40% in 2026. As a result, we expect food prices to remain elevated.

SPRING PLANTING IS THE WORST TIME TO BE SEEING THIS

The impact extends beyond commodities. Higher energy costs are also affecting consumer discretionary sectors such as airlines and textiles. Jet fuel prices, for example, have returned to post-pandemic highs, prompting fare increases and flight reductions.

FUTURES MARKETS SIGNALLING BROADENING PRICE PRESSURES

FUEL PASS THROUGH TO AIRFARE

While central banks may initially view rising oil prices as a temporary supply shock, we believe the effects could prove more persistent. As inflation broadens beyond energy and food, policymakers may face increasing pressure to respond, resulting in continued volatility in interest rates.

Amplus is well positioned to navigate this environment. We believe these conditions will create opportunities across both interest rate and credit markets.

As our Founder and CIO, Scott Morrison, often reminds us: “we don’t know what we don’t know.” This reinforces the importance of preparation and adaptability. While history does not repeat itself exactly, it often provides valuable context for what may lie ahead.

With uncertainty defining the start of the year, we are proactively positioning portfolios for a range of potential outcomes. Across all Wealhouse strategies—including Lions Bay, Voyager, and Amplus—our focus remains on maintaining agility and discipline to best serve our investors over the long term.