North American
Portfolio

North American equities advanced in August as AI and energy earnings supported growth expectations, while higher yields, oil above US$90 and a series of utility and policy shocks exposed the valuation and regulatory costs sitting underneath the build-out. The month was constructive on the surface, but it reinforced the same distinction the portfolio has been drawing since July: durable earnings power is being rewarded, while assets carrying open-ended regulatory, financing or discount-rate risk are being marked down individually rather than carried along by the index.

AI earnings and capital expenditure remained the principal support for the market. Technology-heavy benchmarks outperformed, but semiconductor breadth weakened markedly into month-end: the SOX finished only 1.98% higher after retreating 9.68% from its intramonth high. That pattern is consistent with a repricing of the path to returns rather than a collapse in demand — the same distinction between capacity and cash-flow conversion visible in the AI Infrastructure sleeve this month.

Rates and inflation reasserted themselves as a headwind. Kevin Warsh's Jackson Hole remarks pushed the market toward a materially higher probability of a September rate increase, and the 10-year Treasury finished near 4.76%. Higher oil reinforced the same inflation and discount-rate channel, tightening financial conditions for long-duration equities just as AI earnings were validating the demand side of the thesis.

Energy provided clear sector leadership as Brent traded above US$90, supporting producers and services, while utilities lagged. PG&E's sharp decline on California wildfire-liability legislation was the month's clearest illustration of how regulated-equity risk can overwhelm an otherwise-supportive structural power-demand thesis: the same electricity that AI infrastructure needs can carry liabilities that have nothing to do with AI at all.

Industrial scarcity remained the physical constraint linking AI infrastructure to energy-transition capital expenditure. Cooling, electrical balance-of-plant, grid connection and dispatchable generation all continued to act as bottlenecks on the pace of deployment, reinforcing the portfolio's preference for businesses solving those specific constraints over generic AI or power-demand beta.

Policy dispersion added a further layer of idiosyncratic risk. Federal support for critical minerals coexisted with biofuel-waiver uncertainty and a court block on New York's climate-superfund law, underlining that policy support for the energy transition remains uneven across jurisdictions and issue areas even as the underlying demand drivers strengthen. For the Nexus thesis, August's lesson was consistent with the region's July message: favour businesses converting demand into contracted, near-term cash flow and solving physical bottlenecks, while treating rate-sensitive and regulation-exposed exposures with continued caution.