Mirador Portfolio Management Update for the Second Quarter of 2026

Overview Of Last Quarter

Dear Friends and Clients,

We hope that your summer is off to a good start and that you enjoyed some Calgary Stampeding. Last quarter we issued an update near the end of the quarter because of all the war news. So, we did not send out a quarter-end report. This update continues the data-based focus of our quarterly reporting that we started last year.

Some of you might remember me quoting an old investment adage many years or decades ago; “sell in May and stay away”. Well, that might still have some credibility over very long periods of history and when managing a growth program, but in a world such as we live in today, and managing for high income and stability, many of these old sayings and investment concepts no longer apply. This is certainly what we are seeing this year. Hence, we have remained very active throughout the spring and summer so that we may provide both the income and stability that we know you count on. We have done over 500 transactions YTD to achieve these goals. The main driver of this activity has been volatility caused by the continuing Tariff Tantrums, and the wars in the Ukraine and middle east.

No matter what the “just stop oil” people might be trying to convince us of, oil and gas and the associated hydrocarbon byproducts remain an important input to the manufacturing of many products we depend on, plus oil and gas provides much of the energy needed to keep the economy running. Thankfully, the green and renewable sources are growing rapidly, but they will not take over petro-based sources in our lifetime.

The wars in both the middle east and Ukraine have created stunning volatility in energy prices and many other commodities that are important to the Canadian market and economy. All parties involved in the wars are using the media to make statements that are often more like strategic propaganda than actual truths, which has increased the volatility, making strategic portfolio management even more challenging. The Canadian Mirador Income and Stability fund currently has 12.4 % in oil and gas producers, and 7.4% in pipelines. These Canadian stock positions provide some of the highest dividend yields for the portfolio. I have reduced the oil and gas exposure more than once, when prices have peaked, but I can’t sell all of them. We need to have a decent allocation to this area for the income it provides, so we need to accept the decreased stability in order to maintain the high income.

Additionally, because of the above-mentioned importance of oil in the overall economy, higher oil prices have resulted in fears of inflation, which has driven bond yields higher, and bond prices lower. This is putting downward price pressure on dividend stocks because they loosely trade at a spread to the benchmark bond yields. Also, despite the overall commodity strength, the Canadian dollar has been extraordinarily weak. This is unusual because the CAD has often been highly correlated to oil and commodity prices. I suspect that U.S. politics and the newly appointed governor of the Federal Reserve Board are driving U.S. dollar outperformance; the new governor is suspected to favor higher rates that will attract capital to the U.S. I also suspect that the most recent version of the Canadian Liberal government needs some more time to prove itself to the world investment and economic illuminati so as to further distance itself from the economic disasters of the previous regime.

In Canada, the overall stock market indexes are dominated by banks, precious metals, and oil, and to a lesser extent, base metals. Bank stock dividend yields are incredibly low, so our bank allocation is only 1%. Most precious metal stocks pay no, or little dividends, so our exposure here is limited to the Premium Plus call writing program, except for Lundin gold with its 8% dividend yield, which we own in the Equity Income sub-folio. Day-to-day, week-to-week, and month-to-month, it seems like the gains in one of these sectors is offset by losses in one of the others, making it challenging to achieve overall relative results and stability with a high-income objective.

Similarly, the U.S. stock market has been dominated by artificial intelligence related technology companies which pay little or no dividends. Given this situation, one thing we have done to improve the diversification of the portfolio is we have added an international exchange traded fund (ETF) that has a dividend yield of 8.7% and is denominated in U.S. dollars. This has provided us some reprieve from the awful drop in the Canadian dollar.

The tariff tantrum is still happening, but it has eased off as attention drifts to the wars. But the recent failure of the U.S., Mexico, and Canada trilateral trade agreement will likely be a sort of tariff ploy or strategy that will gain momentum later in the year.

The conclusion of the above is simply that it is an extraordinarily challenging time for anyone to meet a mandate of high income with stability because the companies driving the markets upwards do not pay enough dividends to be in an income fund, and the volatility in some of the high yielding stocks has made stability more difficult to achieve. However, as you will see in the next section, we are managing it all quite well.

As I recall past tumultuous times in the market, I have one more dominating thought. Often it seems as if the problem that causes the final market trouble is not up-front in the news and social media beforehand. Are the wars the most important problem facing the markets? As with the 2008 bear market, there is a fair amount of data suggesting that it is credit issues that are currently causing angst and creating bearish concerns amongst major institutional investors:

• From the Financial Times; Institutions are hunting for new ways to offload risks tied to a glut of data centre debt as the race to build AI infrastructure stretches financing limits among the largest global lenders
• From Bloomberg; For the first time in recent history, primary bond dealers have gone net short on corporate bonds, holding an aggregate net-short position of roughly $4 billion so far this year (versus a typical aggregate net-long position around $15 billion)

Portfolio Stability Data

Greatest Drawdowns as of June 30, 2026

The most important measure for risk management is drawdown. Drawdown is the percentage measure of the decline from the most recent high for a portfolio, index, or security. By reducing drawdown, we make life more comfortable, so our clients sleep better, and we ensure that we have more capital intact for when things improve, which allows us to recover more quickly when the good times return.

Q2 2026 Number of High-Water Marks (HWMs) as of June 30, 2026

There is little benefit to less drawdown if we are not also providing new high-water marks when the markets are positive. A high-water mark is an all-time new high for a portfolio, index or security. HWMs don’t completely indicate performance, but they do measure positivity and consistency, which is helpful when combined with the rolling return numbers that follow later in this letter.

Standard Deviation as of June 30, 2026

Statistically, standard deviation is the square root of the variance. Variance is the spread of a data set from an average and uses the squared value of the spread. Standard deviation is one of the most suitable and common measures of volatility or consistency in data sets such as the weekly returns for a portfolio or index. The lower the standard deviation, the lower the volatility, and the more consistent and stable the results are. The following table shows the weekly standard deviation of Mirador’s benchmark, the benchmark components, and the Canadian Mirador Income and Stability Fund:

Portfolio Income and Results Data

Current Income Picture as of June 30, 2026

Stability in your portfolio value is a key goal of our work so that you remain comfortable with your investments and so that we preserve your capital as well as possible. But, high income is the key result for our investors who depend on the cashflow from their capital in order to live their best lives possible. Income is best expressed in annual percentage terms. The following summarizes the currently indicated annual percent yields on some comparative income alternatives along with the Canadian Mirador Income and Stability Fund. Again, remember that of all these alternatives, the MISF is also the most tax efficient so in non-registered accounts it provides the best after-tax cash in your pockets.

Rolling Return Data as of June 30, 2026

As you might recall, just as draw-down is the most important risk measure, rolling returns are much better for examining results (versus calendar defined periods). Rolling returns are simply the returns for a time period specified prior to the stated “as of date”.

Data Notes: The benchmark is 40% XBB (Canadian Bonds), 30% XIU (Canadian Stocks), 30% SPY (U.S. Stocks)

Summary Comments on the Above Stability, Income, and Overall Results Data

• The MISF drawdown for the quarter and YTD has been the lowest in all comparisons, especially YTD, creating the stability in capital values we all want and focus on
• The MISF has the highest number of HWMs YTD, and for Q2 it was close to the number of HWMs for all components. The higher count for the benchmark HWMs may be a sign that the typically lower correlation between bond and stock prices is returning, which is a good thing
• The MISF volatility (standard deviation) is significantly lower than all comparisons except for bonds. But the volatility of bonds is low because the returns have been so low (see the XBB rolling return numbers). Not many people would be happy with achieving low volatility by making no money!
• Mirador’s income is substantially higher than all the similar alternatives shown
• The current yield of the MISF of 7.15% is down from the January 1st, 2026, level of 7.5 due to the 4.97% increase in the unit value YTD. Including income, the YTD total return is 8.80%
• Our income is very tax efficient (approximately 9 to 9.5% interest equivalent)
• Our shorter-term rolling returns (4 and 12 week) have suffered due to the oil, precious metals, and materials volatility mentioned in this note’s opening comments
• Our medium-term rolling return (26 weeks) is in-line with the equity components of the benchmark and 40% better than our overall benchmark
• The longer-term returns continue to surpass the benchmark but lag the equity indexes mostly due to the returns for technology and banks, sectors without enough yield for us to participate in.

Current Subsystem Allocations for the Mirador Income and Stability programs:

Sector Allocations for the Mirador Income and Stability programs

Please note that the above energy sector allocation includes nuclear, alternative / green energy, energy infrastructure, pipelines, as well as oil and gas production companies.

Subsystem and Sector Allocation Comments

Since the last report we:

• Decreased Equity Income
• Shifted more of Equity income from the riskier high yield category to the more stable dividend growth category
• Shifted from Equity Income to Fixed Income Preferreds – it has been challenging to find common stock opportunities with the yield-to-risk that we look for, so we increased preferred shares to help maintain the cash flow needed for the distribution
• Added U.S. denominated international dividend stock exposure.
• Market exposure is -15%, reflecting our continued concerns about:
  • Higher oil price and the wars causing inflation and resulting in bond yields rising, making them more attractive relative to stocks, which might lower stock prices
  • The possibility of an AI technology bubble is still being considered, and recent technology new issues have been a disaster – a sign of dwindling interest and demand.

Based on relative strength and relative income analysis, the main changes to sector exposure were as follows:

• An increase in technology allocation using Premium Plus (this was earlier in the quarter when the technology momentum was strong
• Reduction in oil stocks due to price appreciation that decrease the yields
• Increase in real estate when there was a correction in the sector.

In the Wealth Planning Department…

Joyce has been reviewing the cash draws and RRIF payments for all client consolidated portfolios to identify any opportunities to increase the overall tax efficiency. In addition, she is ensuring that as much of the draws as possible are covered by the Mirador Income & Stability fund monthly distribution, reducing the need to draw on capital.

Joyce is also currently working on the Mirador Q2 2026 statements and will send them out as soon as they are complete.

On the Personal Side…

Joyce is enjoying more time at the Kananaskis cabin with paddle boards, kayaks and hiking. We now have Starlink up there, so she is fully able to live and work remotely. We both enjoyed a recent Alberta Securities Commission workshop on recent compliance developments as well as cybersecurity.

Out here in the hills southwest of Longview the rain arrived just in time and the pastures are deep with grass. Neighbors have started swathing hay and some canola. If we get another good rain in the next few weeks maybe there will be a second cut of hay.

Jessica arrived home from Europe in mid-March and then had a skiing accident. She is still concentrating on recovery, so her plans to travel and work at a resort are on hold for now.

Emily graduated from grade 12 and was accepted to the U of C. She continues to do well with rugby. This summer she will represent Alberta in the Canadian championships in Guelph. She has also been invited to a national team camp on Vancouver Island. Emily is also committed to the U of C rugby team and starts training with them in August.

That’s it for Q2 2026. As always, phone or reply to this email to just say hello, or if you have any questions, comments or ideas.

Sincerely,

Stan 403-608-4664

Joyce 403-978-6798