Dear Partners,

For the month of July, Caravel returned -1.95%, compared to +0.58% for the benchmark (-0.06% for the S&P 500 & +1.22% for the SPTSX). This brings year-to-date total net return to +6.97% for the fund and +11.50% for the benchmark, respectively.

I have already begun working on a special edition of this broadcast for August’s letter, so I will keep it short and sweet for July. As Erica Sinclair would say, “just the facts.” 

The S&P 500’s flat performance in July masked a good deal of volatility beneath the surface. Many high-momentum trades unwound aggressively over the majority of the month before rallying sharply in the final days. This is perhaps best categorized by Micron (NASDAQ: MU), the semiconductor stock we wrote about in a recent letter that has become the poster child for the acute memory shortage plaguing many of the world’s most prominent AI companies. MU fell 36% through July 29^th before rallying nearly 12% over the final two days of the month. The episode is partially attributable to the collapse of a relatively new but increasingly prominent hedge fund ironically named Situational Awareness. The fund, run by an ex-OpenAI employee in his mid-twenties, had an incredible run of performance over the first half of 2026 by identifying some of the market's best-performing stocks (including MU), and, importantly, utilizing a high degree of leverage to amplify their returns. I won’t give a lecture on leverage in this letter, but suffice it to say, we would only have needed to read Situational Awareness' offering memorandum to know it wouldn’t have been a product for us. We chuckled when we read that Citadel’s Ken Griffin was ultimately the one who offered to buy many of Situational’s distressed positions. Ken certainly didn’t do it out of the goodness of his heart. The US market seems to have subsequently stabilized despite continued geopolitical tension and rising bond yields globally. We maintain a cautious posture here in light of these dynamics.

Canada, on the other hand, has been a pleasant surprise lately. Though there have certainly been bright spots in all sectors, we think it’s fair to say the recent strength of Canada’s stock market comes down primarily to the banks.

The ‘Big 6’ banks make up about 25% of Canada’s stock market. They’ve had an incredible run so far this year, having returned about 35% on average as of the time of writing. While earnings have certainly been strong, the majority (about 2/3^rds) of their performance year-to-date can be attributed to multiple expansion. Achieving returns by these means always makes us wary.

Below is a chart of the forward twelve-month P/E ratio for the Royal Bank of Canada (TSX: RY), the largest of the Big 6, over the past ten years.

Source: Bloomberg LP

As you can see, RY’s multiple has broken out well above its long-term range. This can happen for a host of reasons, which we will not adjudicate here. For context, JP Morgan trades at 14x forward earnings. I would welcome any argument as to why RBC is worth 20% more. In summary, we would advise clients who have material exposure to the Canadian banks to consider taking some chips off the table at this time. 

As far as our book goes, let’s talk about something no manager ever likes doing – losers.

In investing, the difference between a ‘winner’ and a ‘loser’ can sometimes be the arbitrary definition of your time horizon. If you bought Amazon (NASDAQ: AMZN) stock in March 1999, sold it in September 2001, and never thought about it again, you might recall it as a loser. If you had held it instead, you’d be sitting on a gain of 65x your investment. So, in order not to get bogged down in semantics, I will clarify that I mean ‘losers’ only in the context of recent drawdowns in the shares of the three companies we will discuss. 

1. Know when to hold ‘em - MDA Space Ltd (TSX: MDA)

If you’re a regular reader of this letter, you know we own shares of MDA. Quick refresh: MDA provides products and services for the space economy, including satellites, robotic systems, and earth observation capabilities. We believe this is a $100 stock currently on sale for about $42.

MDA shares have displayed some serious volatility lately. The stock was trading at $33 on the market lows of late March, rocketed (excuse the pun) to $67 by the end of May, and finished July around $40. That kind of volatility is rare for an established company with a roughly $7B market cap. What happened? In a word: Elon.

Though 2026 has been a roller-coaster year for the stock market in general, price gyrations have been particularly extreme in the space industry, thanks in no small part to the IPO of SpaceX (NASDAQ: SPCX) in June. The company raised a record USD $75 Billion at $135 per share in what was possibly the most hotly anticipated public offering ever. Leading up to the listing, we noticed MDA shares appreciating incredibly quickly, for reasons we didn’t believe had anything to do with the company and everything to do with a relatively new security – the Tema Space Innovators ETF (NYSE: NASA).

NASA launched in March 2026 with USD $1 million of assets. By April, it was $300 million. By May, it was $1 billion. By June, it was $2.5 billion. This is certainly one of the most successful ETF launches we can remember. Why? Well, in part, we believe the success the issuer had in attracting fund flows over this period can be attributed to a rather clever move on the part of its managers. Through an investment in a Special Purpose Vehicle (SPV), NASA was able to invest about 10% of its assets into SpaceX shares before SpaceX had IPO’d. In doing so, NASA became the go-to public vehicle for investors who wanted to gain exposure to SPCX before it was public. Queue the stampede – the assets of the fund ballooned. But what about the other 90% of its holdings? Well, those included other public space companies, including MDA. As investors piled cash into the ETF, NASA became an indiscriminate buyer of MDA and its peers. Having identified this dynamic, we cut our MDA position roughly in half between mid-May and mid-June, anticipating that the investors who rushed in to get exposure to SPCX through NASA would leave just as quickly once they could buy SPCX shares directly on the open market. This thesis proved out. NASA’s share count peaked on June 15^th, two trading days after SPCX debuted as a public company. The ETF’s assets are down ~60% from its peak through a combination of outflows and share price declines in its holdings. 

Why didn’t we sell our entire MDA position in the $60’s? Though we were skeptical of the velocity and root cause of its recent ascent, as we said, we think the stock is going to $100. We wanted to maintain long-term exposure while protecting our short-term gains. This approach helped the fund in April and May, but cost us in June and July. In July, MDA contributed about a -0.75% loss for the fund as the shares declined by over 25%. Just as the run-up was driven by exogenous factors, we believe so was the decline. We used the pullback to repurchase shares we had sold in the mid $60’s in the low $40’s. Know when to hold ‘em - we are doubling down here on one of our highest conviction opportunities over the long term.

2. Know when to walk away – Allied Gold Corp (TSX: AAUC)

Ok, so I skipped know when to fold ‘em, which could also have been quoted to make this point. Allied Gold was the target in a definitive deal to be acquired by Zijin, a Chinese mining company owned by the state, for $44 per share. Allied operates assets in multiple countries in Africa, including Mali. After the deal was announced in January, two major developments unfolded that caused AAUC shares to fall dramatically.

First, the gold price declined 30% from its peak in January (reached within days of the AAUC deal announcement) through the lows of early July. Given that Zijin had offered $44 per share in cash, a lower gold price directly reduced the attractiveness of the asset they had just agreed to buy for a fixed value of CAD $5.5 billion. Never a good feeling as a buyer.

Secondly, in April, the security situation in Mali deteriorated as al-Qaeda backed militants attacked multiple regions controlled by the incumbent government, creating increased perceived operating risk for assets in this already challenging region. This is an example of why we rarely invest in resource companies operating in troubled jurisdictions, even when the assets are ‘world class.’

The net effect of these developments was that AAUC shares traded from a high of $43.77, or 0.5% below deal price, in April, to as low as $28.25 in July. At 99.5% of the promised value in April, we were not interested in AAUC stock (in hindsight we should have shorted it). However, with shares around $29.50 in July, buyers of AAUC shares stood to make a +50% return if the deal with Zijin closed on terms. This got us interested. After extensive due diligence, we decided AAUC was worth a small allocation in our merger arbitrage portfolio. We estimated the ‘break price’ was about $25. If we were correct, it meant the market was ascribing approximately a 25% chance of the deal going through. We felt the odds were closer to 50%. In the end, the deal did not go through, and the buyer walked away. I will spare you a boring post-mortem analysis here, but the key point is this: once the deal was dead, we sold the stock at $26 per share. We thought there was a good chance the shares would appreciate once the arbitrageurs had exited their positions, but we were not interested in speculating on the future share price of a gold company whose assets were in a challenging jurisdiction, especially after a sophisticated buyer had just tossed back the keys. Know when to walk away – the portfolio took a loss of -0.50% on the position and lived to fight another day.

3. Know when to run – Canalaska Uranium Ltd (TSXV: CVV)

We wrote in our October 2025 Letter about selling our position in Canalaska Uranium, which had been a top pick of ours coming into 2025 and had performed strongly, up 40% for the year through October. But, in November, we felt we were misled by the company. The market felt the same way. Glen and I looked at each other and said the same thing, which I will abbreviate to be polite - ‘GMTFO’. As much as investing is about numbers, forecasts, dollars and cents, it is also about relationships, narratives, and trust. This is especially true of small cap stocks and extra especially true in the world of small cap mining stocks. We sensed a material change (a betrayal, frankly), trusted our instincts, cut bait, and ran. I mention this company, long gone from our portfolio, to convey a lesson we continue to learn – trust your instincts and don’t fall in love with any position. CVV is down an additional -40% since we wrote our October 2025 letter while the most representative ETF of its peers is +9%.

Well, I guess I lied about the shortness and sweetness of this month’s letter. Looking forward to hopefully reporting back with better news and more cheerful thoughts next month. We hope everyone is having a great summer. Please feel free to reach out to us at any time.

We thank you for your continued support,

Jack and Glen