* Index returns are total returns, including dividends.
THE COFFIN CORNER
Above 50,000 feet is one of the most dangerous places to be in aviation. Engineers call it the “coffin corner”. As an aircraft climbs, the air grows thinner, and the plane must fly faster simply to stay aloft. Yet the faster it flies, the closer it gets to the speed at which the airflow over its wings turns violent. Climb high enough and these two limits converge: fly any slower and the aircraft stalls and drops from the sky; fly any faster and it risks tearing itself apart. In other words, the higher one climbs, the smaller the margin for error, until at last no such margin remains.
We have found ourselves thinking about the coffin corner a lot as we consider today’s markets.
Enthusiasm for artificial intelligence has carried global equities to remarkable heights over the past year, and nowhere was the air thinner than in the wave of blockbuster public offerings that defined the second quarter of 2026. In June, in the largest initial public offering in financial history, SpaceX went public on the Nasdaq at US$135 per share and a valuation of US$1.77 trillion, nearly 100 times its 2025 revenue of $18 billion. The average company in the S&P 500 trades at roughly 3.7 times revenue. Days earlier, Anthropic, the company behind Claude artificial intelligence, filed confidentially for its own listing at a valuation of US$965 billion, roughly 50 times annualized revenue. Its rival OpenAI is reported to be close behind.
All the exuberance surrounding these newest and highest-climbing names has left many established giants cruising at a far more sensible altitude. Several members of the “Magnificent Seven” trade around or below 20 times forward earnings. Meta, for example, has drifted down towards 15 times forward earnings, much cheaper than the S&P 500 index itself at 20 times. This is partly because these incumbents are pouring extraordinary sums of money into AI infrastructure: the four largest have together committed over US$600 billion in capital spending this year alone, a sum that has cooled some investors’ enthusiasm. Compared to the broader market, many of these dominant, cash-generative businesses look highly attractive at current levels.
We have no desire to fly in the coffin corner. The moonshot valuations now being minted are priced for a scenario in which nothing goes wrong. Like an aircraft in that narrow aerodynamic band, they leave almost no margin of safety: a modest disappointment in growth and they stall; an unexpected jolt in sentiment and the airframe strains. As we have noted in past letters, reversion to the mean is a powerful force, and those who forget it at high altitude tend to relearn the lesson abruptly.
Discipline, however, does not mean staying on the ground. If a genuinely dominant, cash-generative business can be owned at a reasonable multiple, with real earnings supporting it and daylight between its price and its worth, that is an aircraft we are happy to fly. We continue to favour overlooked, sensibly valued companies over the vertigo-inducing names in the stratosphere. Our goal is not to chase the highest flyers, but to keep our clients’ capital aloft with a margin of safety to spare.
A STORM IN A BARREL
Few commodities swing between fear and calm as violently as oil. A single headline can move the price of a barrel far more than any change in its structural worth. The second quarter offered a vivid case in point. For several months, the terrifying narrative on the surface and the underlying arithmetic of supply and demand pulled sharply apart. In the end, as so often happens, arithmetic won.
The geopolitical story began in late February, when the United States and Israel launched an air war against Iran. In the fighting that followed, Iran closed the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil travels. The effect was immediate. Brent crude, which had been trading near $72 a barrel the day before the conflict, climbed to nearly $120 at its peak, in what the International Energy Agency called the largest disruption of supply in the history of the oil market. The anxiety was serious and widely felt. Sustained triple-digit oil prices threatened to reignite inflation just as it had begun to settle, squeezing households and businesses alike and pushing the global economy toward stagflation if not outright recession.
However, the panic did not last long. A ceasefire framework reached in mid-June meant that shipping through the strait could begin again, and OPEC+ kept unwinding its production cuts. As the waterway reopened, tanker traffic through it returned to pre-war levels, and Iranian crude that had been bottled up started moving again under a temporary waiver to American sanctions. With global flows restored, the market surplus before the war was quickly restored. By early July, Brent had fallen back below $71, almost exactly where it was before the first shot was fired.
This reversal has serious implications for the months ahead. The price of oil finds its way into nearly everything, from the fuel in a delivery truck to the fertilizer on a farm. When its price falls, the relief spreads through the economy in the form of lower inflation, giving central banks room to cut interest rates and leaving more money in people’s pockets. A force that recently looked like a fierce headwind may well become the opposite in the second half of 2026. The U.S. Energy Information Administration and several major banks now expect Brent to spend the rest of the year well below its wartime peak, in the $70s.
Our view on the matter is that the truce is fragile. Fresh strikes flared again at the end of June, and the Strait could close again tomorrow. We do not try to guess what the next headline will be. We simply stay disciplined on the price we pay, and act when the market mistakes a passing shock for a permanent change.
As it happened, the short-term fear over oil handed us such an opportunity.
A ROUND TRIP TO PANAMA
The oil scare created a genuine bargain in a corner of the market most investors had been avoiding for the wrong reason: Copa Holdings¹ (NYSE: CPA).
This Panama-based carrier has quietly become one of the most profitable airlines in the world. Rather than competing head-to-head on domestic routes or long-haul international flying, the company has built an extraordinarily efficient connecting network centered on Panama City’s Tocumen International Airport—the “Hub of the Americas.” Its unique geographic position allows passengers from dozens of secondary cities across North, Central and South America to connect with a single stop, creating a network that would be uneconomic to replicate with point-to-point service.
Geography is only part of the advantage. Copa has spent decades designing its operation around that hub. The airline flies an almost entirely Boeing 737 fleet, allowing a single pilot pool, simplified maintenance, common spare parts and exceptionally efficient scheduling. Six daily connection banks maximize aircraft utilization while Panama’s sea-level airport, reliable weather and modern dual-terminal infrastructure allow consistently fast aircraft turns. The result is one of the lowest non-fuel unit cost structures of any full-service airline while maintaining industry-leading operational reliability.
Under Pedro Heilbron, who has led the company since 1988, Copa has built a culture centered on operational discipline rather than growth for growth’s sake. The airline has repeatedly ranked among the most punctual carriers in Latin America, routinely completing nearly every scheduled flight while generating operating margins in excess of 20% levels that most airlines only achieve briefly during peak industry conditions. Even more impressive, these economics are supported by one of the strongest balance sheets in global aviation, with modest leverage, substantial liquidity and a shareholder-friendly capital allocation policy that combines a 40% payout ratio with opportunistic share repurchases.
Just as importantly, management still sees a long runway for profitable growth. Tocumen’s recently expanded Terminal 2 and Copa’s existing aircraft order book allow the company to continue increasing frequencies, adding destinations and expanding capacity without changing the economics of the network. Rather than pursuing market share, management continues to emphasize maintaining low unit costs, disciplined capacity growth and attractive returns on capital.
So why was such a wonderful company on sale? Oil. Fuel is one of the largest and most volatile costs an airline has. When the war in the Middle East sent crude and by extension jet fuel soaring, airline shares quickly dropped as investors feared a hit to profitability. The challenge was real, but it was inherently short term and unrelated to Copa’s structural competitive advantages.
A dominant, well-run business temporarily rendered cheap by a passing storm is precisely the kind of opportunity we look for. So we did something that went against the grain, trimming our holdings in the oil producers rising on the increasing price of crude, such as Suncor, Shell, and Whitecap, and redirecting that capital into the very airline the high oil price had punished. At the prices on offer at the time, Copa was trading at roughly 6 times earnings despite 20%+ operating margins, mid-20% return on equity, a fortress balance sheet and multi-year growth runway. Those characteristics are exceptional in any industry.
Then, as we outlined earlier, the storm passed. The price of oil fell back to Earth, Copa’s headwind became a tailwind, and its shares rallied. With the discount largely closed, we executed the mirror image of our earlier move and started selling our Copa shares. We sold the beneficiaries of expensive oil to buy its victim; when oil reversed, we begin selling the new beneficiary in turn.
This round trip sums up our opportunistic approach. We do not try to predict the price of oil, the outcome of a war, or the short-term mood of the market. We simply buy a solid business when a well-understood, temporary problem makes it cheap, and sell it once that problem is resolved. As always, our aim is to act when others are governed by fear or greed, and to keep a margin of safety on our side with every investment.
We continue to spend our time finding opportunities that we believe the market has misunderstood. Our goal remains, as always, to understand deeply where we allocate our clients’ capital, so that we may preserve it and grow it for the future.
Thank you for your continued confidence and support.
The Evans Team
¹ Some clients may not have held Copa Holdings due to asset mix or timing.