Dear Partners,

For the month of May, Caravel returned +2.15% compared to +3.89% for the benchmark (+5.26% for the S&P 500 & +2.52% for the SPTSX). This brings year-to-date total net return to +11.39% for the fund and +11.11% for the benchmark, respectively.

I have been travelling a fair bit lately, and so I apologize for the nature of this month’s letter, which is both later and shorter than I’d typically like.

The stock market rally from the March lows continued in May, despite losing some steam from the impressive ‘escape velocity’ conditions achieved in April. Large US-listed A.I. Infrastructure companies contributing most of the absolute performance at the index level spelled a second straight month in which we underperformed our benchmark. As we remarked in last month’s letter, we are skeptical of the durability of this trend, and so we have remained on the sidelines rather than chase the momentum of these stocks with our capital.

Anecdotally, it appears many of the hyperscalers agreed with our argument. 2026 is already expected to be a record year for investment-grade dollar-bond issuance. USD $1.2 Trillion has been sold to date, and USD $2.5 Trillion is expected to be issued before the year is out. About 30% of this amount is expected to support A.I. Infrastructure. Over 13% has been floated by just 5 companies:

We can hardly blame these companies for issuing bonds. After all, credit spreads on investment-grade debt are at ten-year lows.

This means the tradeoff between spending cash and raising additional debt for these companies is very manageable, at less than 1% per year on average (see blue line below).

Source: Bloomberg

Capital markets 101 suggests that companies should raise money when it is most available (in good times), such that they do not need to accept onerous terms from investors to fund their needs (in bad times). Credit spreads and generally low interest rates evidently meet the former condition in the eyes of the world’s largest companies today.

But issuing debt when cheap debt is bountiful is one thing, and issuing equity is another.

Shortly after we wrote about how its exploding CAPEX outlook significantly changed Alphabet’s free cash flow profile in last month’s letter, the company announced a USD $85 Billion dollar equity raise. SpaceX completed history’s largest ever IPO in June, raising $86 Billion. In private equity markets, Open A.I. and Anthropic have raised $120 and $65 Billion, respectively, in 2026 alone.

Typically, blue-chip companies only raise equity for a handful of reasons. These can include:

1. Pulling future growth forward through investment or acquisition.
2. Because they are worried about carrying too much debt.
3. Because they think their equity valuation is elevated, and they want to take advantage.

These companies will list the first reason as their only motivation for issuing shares. We suspect it is a combination of the three. Simply put, we believe that greed is once again driving investor sentiment in the near-term. This has us on guard for what might spoil the party and positioned defensively. We will give a more thorough update on our mid-year outlook and core holdings in next month’s letter.

We thank you for your continued support,

Jack and Glen