(All MSCI index returns are shown net and in U.S. dollars unless otherwise noted.)

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle International Equity Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are calculated by subtracting a model fee of 0.50% on an annual basis or 0.04167% on a monthly basis, which includes trading costs and the revinvestment of all income. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets rallied, with the MSCI ACWI Index advancing 11.53% in the second quarter. Global fixed income also performed well, as the Bloomberg Global Aggregate Bond Index returned 4.52%. Value stocks significantly lagged growth over the quarter, with the MSCI ACWI Value Index underperforming the MSCI ACWI Growth Index by 11.42%.

The MSCI EAFE Index rose 11.78% during the second quarter, while the MSCI ACWI ex USA Index climbed 12.03%. Within the MSCI EAFE Index, Europe & Middle East and Asia were the strongest performers, while the U.K. increased the least. On a sector basis, ten out of the eleven sectors within the MSCI EAFE Index posted positive returns, with Communication Services, Information Technology and Industrials generating the largest gains. Conversely, Energy was the only sector to finish in the red, and Health Care and Consumer Discretionary increased the least.

Trade policy remained a focal point. In early April, President Trump introduced a universal 10% import tariff, as well as reciprocal tariffs on dozens of countries, as part of “Liberation Day.” Roughly a week later, and to encourage the start of negotiations, a 90-day pause on reciprocal tariffs was enacted for almost all countries. Later in the quarter, the U.S. and U.K. finalized the Economic Prosperity Deal, which included expanding American access to British markets and lowering tariffs on the first 100,000 of U.K. autos entering the U.S. each year. Meanwhile, negotiations continued with the EU, Japan, Canada and India. After escalating, trade tensions with China eased somewhat; however, considerable tariffs and other trade policy disputes remain for both countries as negotiations continue.

While the full impact of trade policy changes is still uncertain, major economies—including the U.S., U.K., eurozone and Japan— experienced downward revisions to 2025 GDP growth projections. Additionally, inflation trends were notably mixed during the quarter. In the U.S., changes in the Consumer Price Index (CPI) remained stable at approximately 2.4% year-over-year, while annual inflation in the eurozone fell below the European Central Bank’s 2% target. In contrast, the U.K. saw its CPI rise 3.4% year-over-year, with policymakers warning that ongoing geopolitical tensions may continue to drive inflation higher by disrupting oil prices and global supply chains. Japan also experienced elevated inflation, with core CPI rising 3.7% year-over-year—its fastest pace since January of 2023.

Amid a backdrop of macroeconomic uncertainty and mixed economic data, central bank policy decisions generally aligned with expectations. Monetary authorities in the U.S. and Japan held their key interest rates steady, while their counterparts in the U.K. and eurozone implemented rate cuts.

In geopolitics, tensions in the Middle East escalated sharply during the quarter, with Israel and Iran engaging in direct missile exchanges—their most overt confrontation in decades. A succession of precision strikes on key Iranian figures and military sites, as well as U.S. airstrikes on nuclear infrastructure, further fueled fears of a broader regional conflict. However, after 12 days of war, a ceasefire was reached late in the quarter, easing immediate tensions but leaving uncertainty over its durability. In Europe, Russian forces entered eastern Ukraine in the Dnipropetrovsk region for the first time in three years. While the two sides engaged in a second round of negotiations and completed prisoner exchanges, prospects of a material advancement toward a ceasefire remain unclear. Despite the heightened geopolitical events, Brent crude oil fell 9.5% during the quarter.

Performance and Attribution Summary

For the second quarter of 2025, Aristotle Capital’s International Equity ADR Composite posted a total return of 10.18% gross of fees (10.05% net of fees), underperforming the MSCI EAFE Index, which returned 11.78%, and the MSCI ACWI ex USA Index, which returned 12.03%. Please refer to the table below for detailed performance.

Source: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees.

From a sector perspective, the portfolio’s underperformance relative to the MSCI EAFE Index can be primarily attributed to allocation effects. While there were both positive and negative contributions from security selection across sectors, these impacts largely offset one another over the period. Security selection in Industrials, Health Care and Information Technology detracted the most from the portfolio’s relative performance. Conversely, security selection in Energy, Financials and Consumer Discretionary contributed to relative returns.

Regionally, security selection was responsible for the portfolio’s underperformance. Security selection in Europe & Middle East and Asia detracted the most from relative performance, while exposure to Canada and Emerging Markets contributed.

Contributors and Detractors for 2Q 2025

Relative Contributors	Relative Detractors
Cameco	Alcon
Safran	Accenture
Pan Pacific International	Otsuka Holdings
Estate Group Bank	Sony
Credicorp	Kubota

Alcon, a global leader in eye care, was the largest detractor during the quarter. Aside from its earnings report, there was little material news, and we did not view anything in the report as affecting the company’s long-term fundamentals. While quarterly updates can influence sentiment, our focus remains on the strength and quality of the business. Alcon operates in a resilient, oligopolistic industry with high barriers to entry and recurring revenue streams tied to its large installed base of cataract surgery systems. It also continues to innovate across product categories, including its premium intraocular lens portfolio (e.g., PanOptix, Vivity), ultra-premium daily contact lenses (e.g., Dailies Total1) and over-the-counter products, such as Systane for dry eyes. Since its spinoff from Novartis in 2019, the company has also demonstrated greater agility in R&D, commercial execution and capital allocation—catalysts we previously identified. More broadly, we believe Alcon’s ability to strengthen its partnerships with eye care professionals and broaden access to underutilized premium technologies makes the company uniquely positioned to benefit from an aging population, increased access to eye care in emerging markets, and rising awareness and diagnosis of chronic dry eye conditions.

Kubota, the Japanese maker of tractors and construction equipment, was a top detractor during the quarter. Despite rising revenue, results were pressured by a stronger yen, elevated fixed costs, and slowing North American tractor demand. Investor concerns were further heightened by the potential for new U.S. tariffs, which could impact profitability. However, despite these near-term headwinds, we believe the fundamentals remain solid. Kubota continues to expand its footprint in Southeast Asia’s “wet field” rice markets as farming becomes increasingly mechanized, while gaining share in “dry field” agriculture globally through new market entry and a broader product lineup. In North America, the company has also reinforced its leadership in compact machinery, building on established strengths in mini-excavators and track loaders. Its long-standing reputation for quality, reliability, ease of use, and distribution support reinforces our view that Kubota remains well-positioned to benefit from long-term global demand for efficient agricultural and construction solutions.  

Cameco, one of the world’s largest uranium producers, was the biggest contributor during the quarter. The company continued to demonstrate the hallmarks of a high-quality business: a long-duration contract portfolio, disciplined capital allocation and resilience in the face of operational disruption. Despite a nearly 30% decline in uranium spot prices year-over-year, Cameco reported higher average realized prices under its contracted sales—underscoring its pricing power and long-term customer relationships. The company maintained stable operations despite a temporary production pause at the Inkai joint venture and wildfires in northern Saskatchewan. Meanwhile, management continued to deepen its exposure to the nuclear fuel cycle through its Westinghouse unit, which expands its reach into reactor services and fuels. With rising global interest in nuclear energy for energy security and decarbonization, Cameco’s strong balance sheet, vertically integrated platform and ability to flex production volume (thereby controlling costs) remain important catalysts in our eyes.

Safran, the French aerospace propulsion and equipment manufacturer, was a top contributor during the quarter. The company continues to demonstrate high-quality characteristics—namely durable aftermarket revenue, strong pricing power and long-standing customer relationships across its propulsion, avionics and interiors franchises. Record 2024 results carried into 2025, supported by strong air traffic recovery, particularly in Asia, and increased aircraft utilization. As the dominant supplier of narrow-body aircraft engines (approximately 70% market share), Safran benefits from rising demand for required maintenance as airlines extend the lives of aging fleets. With roughly one-fifth of its revenues tied to defense, the company also stands to gain from rising European defense budgets, where policymakers are placing increased emphasis on sourcing from regional suppliers. We also continue to view the transition from the legacy CFM56 engine to the more fuel-efficient LEAP platform as a meaningful catalyst—especially given that a large portion of the installed LEAP fleet has yet to reach its first maintenance cycle, providing a long and visible runway (pardon the pun) of profit growth. Looking ahead, we believe Safran remains well-positioned to benefit from global fleet modernization and the industry’s pivot toward more efficient and sustainable aircraft platforms.

Recent Portfolio Activity

Consistent with our long-term horizon and low turnover, there were no new purchases or sales completed during the quarter.

Conclusion

As the world continues to navigate shifting trade dynamics, complex monetary and fiscal policy decisions, and heightened geopolitical uncertainty, the broader implications for the global economy remain unclear. While we are mindful of these macroeconomic forces, we do not attempt to predict their timing or short-term market impact. Instead, we anchor our investment approach in what we believe to be more reliable and enduring: the fundamentals of individual businesses and their long-term potential. By concentrating on high-quality companies with management teams we consider proven, we aim to build portfolios capable of withstanding a wide range of economic environments and delivering attractive returns over full market cycles.

Markets Review

Despite some early volatility in the second quarter, the U.S. equity market rebounded with strength, with the S&P 500 Index rising 10.94% during the period. Bonds also delivered positive returns, as the Bloomberg U.S. Aggregate Bond Index rose 1.21%.

Sources: CAPS CompositeHub^TM, Bloomberg

Past performance is not indicative of future results. Aristotle Atlantic Focus Growth Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document

On a sector basis, positive returns were led by nine of the eleven sectors within the Russell 1000 Growth Index in the second quarter of 2025. The strongest sectors were Utilities and Information Technology. The weakest sectors were Energy and Health Care.

Trade policy remained a focal point. In early April, President Trump introduced a universal 10% import tariff, as well as reciprocal tariffs on dozens of countries, as part of “Liberation Day.”  Roughly a week later, and to encourage the start of negotiations, a 90-day pause on reciprocal tariffs was enacted for almost all countries. Later in the quarter, the U.S. and U.K. finalized the Economic Prosperity Deal, which included expanding American access to British markets and lowering tariffs on the first 100,000 of U.K. autos entering the U.S. each year. Meanwhile, negotiations continued with the EU, Japan, Canada and India. After escalating, trade tensions with China eased somewhat; however, considerable tariffs and other trade policy disputes remain for both countries as negotiations continue. Shortly after quarter end, Congress also passed the Trump administration’s sweeping fiscal legislation, which included major tax incentives, infrastructure funding and manufacturing subsidies. Concurrently, the U.S. Dollar Index (DXY) fell 10.7% in the first six months of the year—the fastest decline since 1973.

Economic data released during the quarter painted a mixed picture. U.S. real GDP for the first quarter contracted at an annual rate of 0.5%, primarily due to reduced government spending and a rise in imports. Meanwhile, the Consumer Price Index (CPI) rose 2.4% year-over-year in May, and the unemployment rate remained close to 4%. Notably, a key gauge of consumer confidence rebounded in June, increasing for the first time in six months. However, given the ongoing uncertainty around the macroeconomic outlook, the Federal Reserve opted to hold its policy rate steady at a range of 4.25% to 4.50%, signaling a cautious, data-dependent stance.

Corporate fundamentals continued to serve as a relative bright spot, as S&P 500 companies reported 12.9% year-over-year earnings growth, with 78% of companies exceeding EPS expectations. Still, concerns around global trade and input costs were evident, with more than 425 companies referencing tariffs in earnings calls and nearly 12% issuing negative EPS guidance for the quarter ahead. Management teams broadly emphasized cost discipline and capital flexibility in the face of persistent macro headwinds.

In geopolitics, tensions in the Middle East escalated sharply during the quarter, with Israel and Iran engaging in direct missile exchanges—their most overt confrontation in decades. A succession of precision strikes on key Iranian figures and military sites, as well as U.S. airstrikes on nuclear infrastructure, further fueled fears of a broader regional conflict. However, after 12 days of war, a ceasefire was reached late in the quarter, easing immediate tensions but leaving uncertainty over its durability. In Europe, Russian forces entered eastern Ukraine in the Dnipropetrovsk region for the first time in three years. While the two sides engaged in a second round of negotiations and completed prisoner exchanges, prospects of a material advancement toward a ceasefire remain unclear. Despite the heightened geopolitical risks, WTI crude oil fell 8.9% during the quarter.

Performance and Attribution Summary

For the second quarter of 2025, Aristotle Atlantic’s Focus Growth Composite posted a total return of 17.70% gross of fees (17.67% net of fees), underperforming the 17.84% total return of the Russell 1000 Growth Index.

Sources: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees. Please see important disclosures at the end of this document.

During the second quarter, the portfolio’s underperformance relative to the Russell 1000 Growth Index was due to allocation effects. Security selection in Consumer Discretionary and Financials detracted the most from relative returns. Conversely, security selection in Information Technology and Industrials contributed the most.

Contributors and Detractors for 2Q 2025

Detractors

UnitedHealth Group

UnitedHealth Group detracted from relative performance in the second quarter following a surprisingly soft first quarter earnings report and a sizable guidance reduction. The issues were two-fold, including higher utilization inside its group Medicare Advantage offering, which drove a higher medical care ratio. The second issue was a negative new member mix, as several competitors exited the market, and many of the patients who switched to UnitedHealth’s offerings had not been actively engaged in their care, resulting in higher acuity levels throughout the quarter. The company believes both issues are fixable in its next rate cycle.

Visa

Visa detracted from relative performance in the second quarter due to growing concerns that stablecoins could pose a long-term threat to the company’s payments business. While consumer adoption of stablecoins remains limited at present, pending U.S. legislation viewed as favorable to the cryptocurrency ecosystem, along with interest from large merchants exploring the issuance of proprietary stablecoins, has highlighted potential disruption risks to parts of Visa’s core network.

Contributors

Adaptive Biotechnologies

Adaptive Biotechnologies contributed to relative performance in the second quarter following a better-than-expected first quarter earnings report, which showed solid across-the-board momentum in both clinical testing and biopharma testing volumes. Adaptive continues to make progress on growing average selling prices (ASPs) and reducing cash burn. Adaptive is also rolling out its test on electronic medical record platforms, which will simplify the workflow and increase test ordering, processing and reporting efficiency.

Netflix

Netflix contributed to relative performance in the second quarter, primarily due to first quarter earnings results that supported investor confidence in continued growth. In particular, additional price increases in select markets, healthy subscriber momentum and progress in the nascent ad-supported subscription tier also helped drive performance. The company reiterated its full-year targets, with no signs of weakness in domestic or international markets.

Recent Portfolio Activity

The table below shows all buys and sells completed during the quarter, followed by a brief rationale.

Buys

HubSpot

HubSpot provides a cloud-based customer relationship management (CRM) platform that integrates marketing, sales, service, content management and operations hubs into a unified system. Its platform features applications and tools for tasks such as website creation, business blogging, search engine optimization, web analytics, lead generation and more, while also offering a native payment solution. Designed to create adaptable and cohesive customer experiences, HubSpot’s Smart CRM and engagement hubs facilitate unified customer profiles and seamless interaction across the customer lifecycle. The hubs, available in free and paid tiers, can function independently, integrate with HubSpot’s Smart platform or third-party CRMs, and scale alongside growing businesses.

We invested in HubSpot for its strategic positioning in a large, underserved SMB market, its effective freemium-to-enterprise conversion funnel and its rapidly growing AI suite “Breeze,” which enhances automation and personalization across customer interactions. With strong adoption across product tiers, momentum in enterprise expansion, and scalable financials driving margin expansion and free cash flow growth, we believe the company is well-positioned to deliver durable, long-term value. We believe the current valuation is fair based on the combination of durable revenue growth, expanding margins and the early signs of traction in AI monetization.

Sells

Expedia Group

We sold Expedia Group due to a higher risk of a recession following the significant increase in global tariffs, which can be expected to reduce overall levels of economic activity. In addition, the negative impact on the wealth effect due to potentially declining equity markets will likely impact demand for retail travel. Travel is among the most discretionary spend categories within the consumer discretionary sector.

Outlook

The equity markets in the second quarter rose sharply on hopes of a reasonable resolution to tariffs and a resilient economy. Interest rates were largely unchanged for the quarter, with the 10-year Treasury yield at 4.2%. With the looming tariff deadline of July 9th, the markets reacted positively to reported progress. The July 4th deadline for Congress to pass the extension to tax cuts also seems to be progressing. The economic data was mostly in line with expectations, with employment steady and inflation data just above the Fed’s 2% target. With the strong rebound in equity markets, valuation levels are once again above historical averages. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles.

Markets Review

Despite some early volatility in the second quarter, the U.S. equity market rebounded with strength, with the S&P 500 Index rising 10.94% during the period. Bonds also delivered positive returns, as the Bloomberg U.S. Aggregate Bond Index rose 1.21%.

On a sector basis, positive performance was led by eight of the eleven sectors within the S&P 500 Index in the second quarter of 2025. The best-performing sectors were Information Technology and Communication Services. The weakest sectors were Energy and Health Care.

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Atlantic Core Equity Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Trade policy remained a focal point. In early April, President Trump introduced a universal 10% import tariff, as well as reciprocal tariffs on dozens of countries, as part of “Liberation Day.”  Roughly a week later, and to encourage the start of negotiations, a 90-day pause on reciprocal tariffs was enacted for almost all countries. Later in the quarter, the U.S. and U.K. finalized the Economic Prosperity Deal, which included expanding American access to British markets and lowering tariffs on the first 100,000 of U.K. autos entering the U.S. each year. Meanwhile, negotiations continued with the EU, Japan, Canada and India. After escalating, trade tensions with China eased somewhat; however, considerable tariffs and other trade policy disputes remain for both countries as negotiations continue. Shortly after quarter end, Congress also passed the Trump administration’s sweeping fiscal legislation, which included major tax incentives, infrastructure funding and manufacturing subsidies. Concurrently, the U.S. Dollar Index (DXY) fell 10.7% in the first six months of the year—the fastest decline since 1973.

Economic data released during the quarter painted a mixed picture. U.S. real GDP for the first quarter contracted at an annual rate of 0.5%, primarily due to reduced government spending and a rise in imports. Meanwhile, the Consumer Price Index (CPI) rose 2.4% year-over-year in May, and the unemployment rate remained close to 4%. Notably, a key gauge of consumer confidence rebounded in June, increasing for the first time in six months. However, given the ongoing uncertainty around the macroeconomic outlook, the Federal Reserve opted to hold its policy rate steady at a range of 4.25% to 4.50%, signaling a cautious, data-dependent stance.

Corporate fundamentals continued to serve as a relative bright spot, as S&P 500 companies reported 12.9% year-over-year earnings growth, with 78% of companies exceeding EPS expectations. Still, concerns around global trade and input costs were evident, with more than 425 companies referencing tariffs in earnings calls and nearly 12% issuing negative EPS guidance for the quarter ahead. Management teams broadly emphasized cost discipline and capital flexibility in the face of persistent macro headwinds.

In geopolitics, tensions in the Middle East escalated sharply during the quarter, with Israel and Iran engaging in direct missile exchanges—their most overt confrontation in decades. A succession of precision strikes on key Iranian figures and military sites, as well as U.S. airstrikes on nuclear infrastructure, further fueled fears of a broader regional conflict. However, after 12 days of war, a ceasefire was reached late in the quarter, easing immediate tensions but leaving uncertainty over its durability. In Europe, Russian forces entered eastern Ukraine in the Dnipropetrovsk region for the first time in three years. While the two sides engaged in a second round of negotiations and completed prisoner exchanges, prospects of a material advancement toward a ceasefire remain unclear. Despite the heightened geopolitical risks, WTI crude oil fell 8.9% during the quarter.

Performance and Attribution Summary

For the second quarter of 2025, Aristotle Atlantic’s Core Equity Composite posted a total return of 14.43% gross of fees (14.30% net of fees), outperforming the S&P 500 Index, which recorded a total return of 10.94%.

Source: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees. Please see important disclosures at the end of this document.

During the second quarter, the portfolio’s outperformance relative to the S&P 500 Index was due to security selection. Security selection in Information Technology and Health Care contributed the most to relative performance; conversely, security selection in Consumer Discretionary and Utilities detracted from relative performance.

Contributors and Detractors for 2Q 2025

Contributors

Oracle

Oracle contributed to performance in the second quarter, as the company reported strong quarterly results that highlighted continued strong demand for the company’s OCI infrastructure, sustained growth in the company’s SaaS apps business, and accelerating growth trends in the cloud database segment. Management highlighted RPO growth of over 100%, which speaks to continuing demand for Oracle’s infrastructure and software products over a multi-year period.

Broadcom

Broadcom contributed to performance in the second quarter, as the company reported strong quarterly results for its AI compute and networking business, as well as its VMware segment. The company also provided positive commentary on the setup for the AI-related silicon business units for the rest of 2025, and also for 2026, as strong customer demand for AI silicon for training and inference continues.

Detractors

Becton, Dickinson and Company

Becton Dickinson detracted from relative performance in the second quarter following a worse-than-expected fiscal quarter earnings report in which the company felt the impact of cuts to the National Institutes of Health (NIH) budget and uncertainty around future cuts. Furthermore, forward earnings and revenue guidance were reduced to reflect the continued weakness in funding for biosciences R&D and the expected impact of tariffs.

Chubb

Chubb detracted from performance in the second quarter, primarily due to a market rotation out of defensive names amid a broader market rally led by technology and other cyclical sectors. The company’s first quarter earnings report showed slowing growth in P&C net written premiums, raising concerns about potentially softening pricing trends in its commercial insurance business following several years of strong performance.

Recent Portfolio Activity

The table below shows all buys and sells completed during the quarter, followed by a brief rationale.

Buys

There were no buys in the second quarter of 2025.

Sells

Expedia Group

We sold Expedia Group due to a higher risk of a recession following the significant increase in global tariffs, which can be expected to reduce overall levels of economic activity. In addition, the negative impact on the wealth effect due to potentially declining equity markets will likely impact demand for retail travel. Travel is among the most discretionary spend categories within the consumer discretionary sector.

Zoetis

We sold Zoetis, as concerns continue to grow about competitive entrants in the dermatology and parasiticides animal health marketplace. While the company has continued to execute well in the face of new entrants, we believe that this will continue to be an overhang on the stock in the near to medium term. Given the premium valuation versus other areas in health care, we believe there is more upside elsewhere and are exiting our position in the stock.

Outlook

The equity markets in the second quarter rose sharply on hopes of a reasonable resolution to tariffs and a resilient economy. Interest rates were largely unchanged for the quarter, with the 10-year Treasury yield at 4.2%. With the looming tariff deadline of July 9th, the markets reacted positively to reported progress. The July 4th deadline for Congress to pass the extension to tax cuts also seems to be progressing. The economic data was mostly in line with expectations, with employment steady and inflation data just above the Fed’s 2% target. With the strong rebound in equity markets, valuation levels are once again above historical averages. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

The second quarter began with a continuation of the risk-off environment from the first quarter. Markets troughed on April 8th (Liberation Day), before staging a high beta, low quality rally for the remainder of the quarter. Elements that sustained the rally were administration delays in the tariff implementation date, hyperscale commitment to outsized AI capex plans among growth-oriented SaaS technology companies, and the resilience of broader consumer spending trends as both individuals and companies front-loaded imports ahead of tariffs. Solid labor market readings and stable-to-lower than expected inflation data kept the Federal Reserve (Fed) on the more hawkish course they took in December. Chairman Powell held rates steady at the June FOMC meeting and is not bowing to political pressure to cut rates sooner than the committee’s analysis indicates. The Fed will continue to maintain a measured approach going forward, updating their economic projections and forecasts to two rate cuts in 2025. Deficit scrutiny increased as the One Big Beautiful Bill Act proceeded through Congress. This was highlighted by Moody’s downgrading the U.S. credit rating from Aaa to Aa1 – the last of the major rating agencies to downgrade the U.S. over the past 14 years.

Stylistically, growth stocks outperformed their value counterparts during the quarter as the Russell 2000 Growth Index returned 11.97% compared to the 4.97% return of the Russell 2000 Value index. This continues the 2024 trend where growth significantly outperformed value.

From a factor perspective, lower quality companies outperformed higher quality companies. Factors that had the highest payoff were high beta, non-earners, high sales growth, momentum and cyclical stocks.

At the sector level, cyclical stocks outperformed defensive stocks. The best performing sectors were Information Technology (+21.32%), Industrials (+15.67%), and Materials (+13.01%) while the worst performing sectors were Real Estate (-1.87%), Utilities (-1.28%), and Consumer Staples (-0.98%).

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Small Cap Equity Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the second quarter of 2025, the Aristotle Small Cap Equity Composite posted a total return of 3.25% net of fees (3.41% gross of fees), underperforming the 8.50% total return of the Russell 2000 Index. The largest detractor from relative performance was security selection in Consumer Discretionary, Health Care and Information Technology. This was partially offset by strong security selection in Communication Services coupled with an overweight allocation to Information Technology and Industrials.

CONTRIBUTORS

Dycom Industries (DY), a provider of engineering and construction services to the telecommunications and cable television industries, benefitted from continued growth in its core business, funding tailwinds, and expanding margins as demand for wireline services continues to grow. We maintain our position as we believe the company remains well positioned for longer-term growth alongside secular trends for expanding fiber deployments to support faster broadband connectivity speeds and opportunities to deploy fiber to rural or underserved areas across the country.

MACOM Technology Solutions (MTSI), a designer and manufacturer of high-performance semiconductor products, surpassed analyst expectations and raised forward guidance bolstering the stock. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

DETRACTORS

Chemed (CHE), engages in the provision of healthcare and maintenance services operating through two segments: VITAS and Roto-Rooter. The VITAS segment offers hospice and palliative care services to patients through a network of health care providers, social workers, clergy, and volunteers. The Roto-Rooter segment includes plumbing, drain cleaning, water restoration, and other related services to residential and commercial customers. The stock declined due to concerns surrounding the potential Medicare cap limits proposed in current legislation for its VITAS segment alongside weaker residential demand for its plumbing services segment. We continue to maintain our position, as we believe the slowing demand in the Roto-Rooter segment is transitory and the secular demand for hospice care remains strong.

ACI Worldwide (ACIW), is a provider of software solutions to facilitate payment transactions for financial institutions, retailers, and payment processors around the world. The company reported strong Q1 earnings and reaffirmed FY 2025 guidance, yet the stock price declined due to investor sentiment around macroeconomic concerns. We maintain our investment as we believe the company has a strong market position in the payments software niche segment. New revenues with higher incremental margins and effective cost controls should allow management to delever the balance sheet while continuing to deliver value to shareholders.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Alight (ALIT), operates a cloud-based platform that provides human capital management and benefits administration solutions to mostly Fortune 500 companies. We believe the company has the opportunity to grow its business through the expansion of existing client relationships along with attracting new clients to their platform. Self-help initiatives implemented by the new CEO coupled with technological enhancements to the platform are expected to streamline operational costs and improve margins on a go-forward basis.

Flowserve (FLS), manufactures and provides aftermarket services for comprehensive flow control systems critical to a diverse range of end markets. We view the company as having an established track record of strong operating and financial fundamentals and the stock was trading at an attractive valuation. Subsequent to initiating the position, the company announced a merger with Chart Industries (GTLS) that is expected to enhance the combined companies’ ability to provide more products and services to their global customers’ projects.

Guardian Pharmacy Services (GRDN), is a leading provider of pharmacy services to long-term care assisted living and behavioral health facilities in the U.S. The company has built a market leading position as a result of a differentiated technology-driven service offering that benefits patients, facility operators and payors. We believe the company is well positioned to continue to capitalize on the secular trend of the aging U.S. population and grow faster than the overall market because of their specific service offering.

Interparfums (IPAR), is a global manufacturer, marketer and distributor of fragrance products in the United States and Europe. The company focuses on the prestige fragrance market and has licensing deals with brands such as Jimmy Choo, Coach, Lacoste, Guess and DKNY, to name a few. We believe the company is well positioned to capitalize on the increased demand for fragrances in the US, China and amongst younger consumers. This secular trend coupled with continued new product innovation and the potential for additional licensing partnerships are expected to enhance shareholder value over the next several years.

ScottsMiracle-Gro (SMG), is a leading manufacturer of branded consumer lawn and garden products in North America. After benefitting from increased demand during the COVID lockdown years, the company experienced several years of below normal growth. As demand has begun to normalize to pre-COVID levels and the company unwinds a poorly executed diversification strategy, shareholder value is expected to be enhanced through margin expansion, balance sheet deleveraging.

Verra Mobility (VRRM), is a provider of automated enforcement, tolling, and parking technologies and solutions. We believe the company is well positioned to benefit from accelerating automated enforcement tailwinds as legislative support and expanding use cases drive adoption by municipalities seeking safer more efficient roadways. We also view the combination of highly recurring long-term contracted revenues, high margins, and high renewal rates as attractive qualities of the company’s business model.

SELLS/LIQUIDATIONS

Berkshire Hills Bancorp (BHLB), is a regional bank primarily serving the NY and New England area. The company announced a merger of equals with Brookline Bancorp. After re-underwriting the combined organization, we chose to exit our position as we were not comfortable with the new management team, nor with the significantly increased loan to deposit ratio.

Columbus McKinnon (CMCO), engages in the design, manufacture, and marketing of material handling products and systems. After carefully assessing the company’s announced acquisition of Kito-Crosby, and choice of convertible preferred equity to finance the deal, we felt the dramatic shift away from a long-standing strategy of smaller, technology forward acquisitions combined in a meaningfully increased financial leverage profile justified selling the position.

JBG SMITH Properties (JBGS), a Washington, DC-focused real estate investment trust that develops, owns and operates a portfolio of mixed-use properties (multifamily, commercial, development and land assets). Concerns related to the company’s capital allocation plans along with deteriorating fundamentals in their core operating market prompted our decision to exit the position.

Monro (MNRO), operates a chain of approximately 1,200 automotive repair and tire retail stores. Ongoing weak demand had weighed on the company’s profitability for longer than anticipated and with expectations for continued economic pressures for their core low-income customers, we decided to exit the position.

Tronox (TROX), a leading global manufacturer of titanium dioxide (TiO2) pigment, a key ingredient in paint, plastics and a variety of other industrial applications. We believe the company is well positioned to benefit from increased production volumes and product pricing driven by improving global economic conditions. However, an increasingly uncertain economic outlook as a result of the threat of increased global tariffs pushed out the expected demand recovery combined with a cyclically driven stressed balance sheet caused us to exit the position.

Outlook

We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2000 Index trading near multi-decade lows on a relative basis. Potential tailwinds, including deregulation, lower corporate tax rate, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for small-cap stocks. We have experienced some short-term volatility related to the current administration’s policies and legislation. We also remain mindful of risks such as inflation reaccelerating, increased geopolitical tensions, and potential U.S. economic weakness.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweight allocations in Information Technology and Industrials are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. We are also underweight in Financials as the sector has experienced strong returns, leading us to harvest gains and redeploy the proceeds to what we consider to be more attractive reward to risk opportunities. Given our focus on long-term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

Markets Review

Despite some early volatility in the second quarter, the U.S. equity market rebounded with strength, with the S&P 500 Index rising 10.94% during the period. Bonds also delivered positive returns, as the Bloomberg U.S. Aggregate Bond Index rose 1.21%.

On a sector basis, positive returns were led by nine of the eleven sectors within the Russell 1000 Growth Index in the second quarter of 2025. The strongest sectors were Utilities and Information Technology. The weakest sectors were Energy and Health Care.

Trade policy remained a focal point. In early April, President Trump introduced a universal 10% import tariff, as well as reciprocal tariffs on dozens of countries, as part of “Liberation Day.”  Roughly a week later, and to encourage the start of negotiations, a 90-day pause on reciprocal tariffs was enacted for almost all countries. Later in the quarter, the U.S. and U.K. finalized the Economic Prosperity Deal, which included expanding American access to British markets and lowering tariffs on the first 100,000 of U.K. autos entering the U.S. each year. Meanwhile, negotiations continued with the EU, Japan, Canada and India. After escalating, trade tensions with China eased somewhat; however, considerable tariffs and other trade policy disputes remain for both countries as negotiations continue. Shortly after quarter end, Congress also passed the Trump administration’s sweeping fiscal legislation, which included major tax incentives, infrastructure funding and manufacturing subsidies. Concurrently, the U.S. Dollar Index (DXY) fell 10.7% in the first six months of the year—the fastest decline since 1973.

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Atlantic Large Cap Growth Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Economic data released during the quarter painted a mixed picture. U.S. real GDP for the first quarter contracted at an annual rate of 0.5%, primarily due to reduced government spending and a rise in imports. Meanwhile, the Consumer Price Index (CPI) rose 2.4% year-over-year in May, and the unemployment rate remained close to 4%. Notably, a key gauge of consumer confidence rebounded in June, increasing for the first time in six months. However, given the ongoing uncertainty around the macroeconomic outlook, the Federal Reserve opted to hold its policy rate steady at a range of 4.25% to 4.50%, signaling a cautious, data-dependent stance.

Corporate fundamentals continued to serve as a relative bright spot, as S&P 500 companies reported 12.9% year-over-year earnings growth, with 78% of companies exceeding EPS expectations. Still, concerns around global trade and input costs were evident, with more than 425 companies referencing tariffs in earnings calls and nearly 12% issuing negative EPS guidance for the quarter ahead. Management teams broadly emphasized cost discipline and capital flexibility in the face of persistent macro headwinds.

In geopolitics, tensions in the Middle East escalated sharply during the quarter, with Israel and Iran engaging in direct missile exchanges—their most overt confrontation in decades. A succession of precision strikes on key Iranian figures and military sites, as well as U.S. airstrikes on nuclear infrastructure, further fueled fears of a broader regional conflict. However, after 12 days of war, a ceasefire was reached late in the quarter, easing immediate tensions but leaving uncertainty over its durability. In Europe, Russian forces entered eastern Ukraine in the Dnipropetrovsk region for the first time in three years. While the two sides engaged in a second round of negotiations and completed prisoner exchanges, prospects of a material advancement toward a ceasefire remain unclear. Despite the heightened geopolitical risks, WTI crude oil fell 8.9% during the quarter.

Performance and Attribution Summary

For the second quarter of 2025, Aristotle Atlantic’s Large Cap Growth Composite posted a total return of 18.63% gross of fees (18.45% net of fees), outperforming the 17.84% return of the Russell 1000 Growth Index.

Sources: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Please see important disclosures at the end of this document.

During the second quarter, the portfolio’s outperformance relative to the Russell 1000 Growth Index was led by security selection. Security selection in Information Technology and Industrials contributed the most to relative performance. Conversely, security selection in Consumer Discretionary and Financials detracted.

Contributors and Detractors for 2Q 2025

Contributors

Apple

Apple contributed to performance in the second quarter due to the underweight in the portfolio. Investors remain concerned by the delayed rollout of the company’s AI software and hardware strategy, which could see a lengthening of the handset upgrade cycle. Apple also faces headwinds to both sales and margins from China-related tariffs. Furthermore, continued uncertainty on the resolution of the U.S. trade strategy with China may keep investors on the sidelines.

Adaptive Biotechnologies

Adaptive Biotechnologies contributed to relative performance in the second quarter following a better-than-expected first quarter earnings report, which showed solid across-the-board momentum in both clinical testing and biopharma testing volumes. Adaptive continues to make progress on growing average selling prices (ASPs) and reducing cash burn. Adaptive is also rolling out its test on electronic medical record platforms, which will simplify the workflow and increase test ordering, processing and reporting efficiency.

Detractors

Bio-Techne

Bio-Techne detracted from relative performance in the second quarter, as investor concerns rose for companies in the life sciences and tools industry with outsized exposure to the academic and government sectors. These concerns stemmed from changes and limitations placed on the use of National Institutes of Health (NIH) funding grants and the potential for additional budget cuts in the president’s proposed budget. In spite of the weakness, Bio-Techne issued a solid quarterly earnings report, with momentum across several product areas. We believe that Bio-Techne is well-positioned to recover once the funding concerns are addressed.

UnitedHealth Group

UnitedHealth Group detracted from relative performance in the second quarter following a surprisingly soft first quarter earnings report and a sizable guidance reduction. The issues were two-fold, including higher utilization inside its group Medicare Advantage offering, which drove a higher medical care ratio. The second issue was a negative new member mix, as several competitors exited the market, and many of the patients who switched to UnitedHealth’s offerings had not been actively engaged in their care, resulting in higher acuity levels throughout the quarter. The company believes both issues are fixable in its next rate cycle.

Recent Portfolio Activity

The table below shows all buys and sells completed during the quarter, followed by a brief rationale.

Buys

HubSpot

HubSpot provides a cloud-based customer relationship management (CRM) platform that integrates marketing, sales, service, content management and operations hubs into a unified system. Its platform features applications and tools for tasks such as website creation, business blogging, search engine optimization, web analytics, lead generation and more, while also offering a native payment solution. Designed to create adaptable and cohesive customer experiences, HubSpot’s Smart CRM and engagement hubs facilitate unified customer profiles and seamless interaction across the customer lifecycle. The hubs, available in free and paid tiers, can function independently, integrate with HubSpot’s Smart platform or third-party CRMs, and scale alongside growing businesses.

We invested in HubSpot for its strategic positioning in a large, underserved SMB market, its effective freemium-to-enterprise conversion funnel and its rapidly growing AI suite “Breeze,” which enhances automation and personalization across customer interactions. With strong adoption across product tiers, momentum in enterprise expansion, and scalable financials driving margin expansion and free cash flow growth, we believe the company is well-positioned to deliver durable, long-term value. We believe the current valuation is fair based on the combination of durable revenue growth, expanding margins and the early signs of traction in AI monetization.

Antero Resources

Antero Resources is engaged in the development, production, exploration and acquisition of natural gas, natural gas liquids (NGLs) and oil properties located in the Appalachian Basin. Operating entirely within the U.S., Colorado-based Antero Resources holds approximately 502,000 net acres of oil and gas properties in Ohio and West Virginia. Antero Resources intends to leverage its team’s experience delineating and developing natural gas resource plays to continue developing its reserves and production, primarily on the company’s existing multi-year project inventory.

Antero Resources is among the largest U.S. natural gas producers, benefiting from constrained supply growth and increasing long-term demand driven by coal-to-gas switching, power generation for AI datacenters, and liquefied natural gas (LNG) imports to Europe and Asia. It is also one of the largest producers of NGLs in the U.S., which are experiencing heightened global demand due to petrochemical uses and energy security needs. The company’s strong transportation portfolio ensures price stability, premium pricing and reliable production flow. With over 20 years of premium drilling inventory in the Marcellus and Utica shales, the company is poised for attractive free cash flow (FCF) generation, 50% of which is planned to be returned to shareholders through buybacks. Since 2019, it has reduced debt by $2.3 billion, achieved an investment-grade credit rating with a 1.5x leverage ratio and now possesses a robust financial position, providing a defensive edge amid global economic risks. We continue to see a structural shift in demand for natural gas and NGLs supporting prices at these levels or higher, leading to attractive FCF growth for Antero Resources.

Sells

Expedia Group

We sold Expedia Group due to a higher risk of a recession following the significant increase in global tariffs, which can be expected to reduce overall levels of economic activity. In addition, the negative impact on the wealth effect due to potentially declining equity markets will likely impact demand for retail travel. Travel is among the most discretionary spend categories within the consumer discretionary sector.

Outlook

The equity markets in the second quarter rose sharply on hopes of a reasonable resolution to tariffs and a resilient economy. Interest rates were largely unchanged for the quarter, with the 10-year Treasury yield at 4.2%. With the looming tariff deadline of July 9th, the markets reacted positively to reported progress. The July 4th deadline for Congress to pass the extension to tax cuts also seems to be progressing. The economic data was mostly in line with expectations, with employment steady and inflation data just above the Fed’s 2% target. With the strong rebound in equity markets, valuation levels are once again above historical averages. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

The second quarter began with a continuation of the risk-off environment from the first quarter. Markets troughed on April 8th (Liberation Day), before staging a high beta, low quality rally for the remainder of the quarter. Elements that sustained the rally were administration delays in the tariff implementation date, hyperscale commitment to outsized AI capex plans among growth-oriented SaaS technology companies, and the resilience of broader consumer spending trends as both individuals and companies front-loaded imports ahead of tariffs. Solid labor market readings and stable-to-lower than expected inflation data kept the Federal Reserve (Fed) on the more hawkish course they took in December. Chairman Powell held rates steady at the June FOMC meeting and is not bowing to political pressure to cut rates sooner than the committee’s analysis indicates. The Fed will continue to maintain a measured approach going forward, updating their economic projections and forecasts to two rate cuts in 2025. Deficit scrutiny increased as the One Big Beautiful Bill Act proceeded through Congress. This was highlighted by Moody’s downgrading the U.S. credit rating from Aaa to Aa1 – the last of the major rating agencies to downgrade the U.S. over the past 14 years.

Stylistically, growth stocks outperformed their value counterparts during the quarter as the Russell 2500 Growth Index returned 11.31% compared to the 7.29% return of the Russell 2500 Value index. This continues the 2024 trend where growth significantly outperformed value.

From a factor perspective, lower quality companies outperformed higher quality companies. Factors that had the highest payoff were high beta, non-earners, high sales growth, momentum and cyclical stocks.

At the sector level, cyclical sectors outperformed defensive sectors. The best performing sectors were Information Technology (+18.82%), Industrials (+13.76%), and Consumer Discretionary (+10.39%) while the worst performing sectors were Real Estate (-2.06%), Energy (-1.18%), and Health Care (+2.36%).

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. Composite returns are presented pure gross and net of the maximum wrap fee and include the reinvestment of all income. Pure gross returns do not reflect the deduction of any trading costs or other fees and are supplemental to the net returns. Net returns are calculated by subtracting the highest applicable wrap/SMA fee, which includes trading costs and custodial fees, from the pure gross monthly composite return (2.00% on an annual basis, or 0.17% monthly). Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the second quarter of 2025, the Aristotle Small/Mid Cap Equity Composite generated a total return of 4.27% net of fees (4.78% pure gross of fees), underperforming the 8.59% total return of the Russell 2500 Index. The largest detractor from relative performance was security selection in Financials, Consumer Discretionary and Information Technology. This was partially offset by strong security selection in Communication Services coupled with overweight allocations to Information Technology and Industrials and an underweight allocation to Real Estate.

CONTRIBUTORS

Dycom Industries (DY), a provider of engineering and construction services to the telecommunications and cable television industries, benefitted from continued growth in its core business, funding tailwinds, and expanding margins as demand for wireline services continues to grow. We maintain our position as we believe the company remains well positioned for longer-term growth alongside secular trends for expanding fiber deployments to support faster broadband connectivity speeds and opportunities to deploy fiber to rural or underserved areas across the country.

MACOM Technology Solutions (MTSI), a designer and manufacturer of high-performance semiconductor products, surpassed analyst expectations and raised forward guidance bolstering the stock. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

DETRACTORS

ACI Worldwide (ACIW), is a provider of software solutions to facilitate payment transactions for financial institutions, retailers, and payment processors around the world. The company reported strong Q1 earnings and reaffirmed FY 2025 guidance, yet the stock price declined due to investor sentiment around macroeconomic concerns. We maintain our investment as we believe the company has a strong market position in the payments software niche segment. New revenues with higher incremental margins and effective cost controls should allow management to delever the balance sheet while continuing to deliver value to shareholders.

Chemed (CHE), engages in the provision of healthcare and maintenance services operating through two segments: VITAS and Roto-Rooter. The VITAS segment offers hospice and palliative care services to patients through a network of health care providers, social workers, clergy, and volunteers. The Roto-Rooter segment includes plumbing, drain cleaning, water restoration, and other related services to residential and commercial customers. The stock declined due to concerns surrounding the potential Medicare cap limits proposed in current legislation for its VITAS segment alongside weaker residential demand for its plumbing services segment. We continue to maintain our position, as we believe the slowing demand in the Roto-Rooter segment is transitory and the secular demand for hospice care remains strong.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Alight (ALIT), operates a cloud-based platform that provides human capital management and benefits administration solutions to mostly Fortune 500 companies. We believe the company has the opportunity to grow its business through the expansion of existing client relationships along with attracting new clients to their platform. Self-help initiatives implemented by the new CEO coupled with technological enhancements to the platform are expected to streamline operational costs and improve margins on a go-forward basis.

Dolby Laboratories (DLB), designs and manufactures audio and imaging technologies for the cinema, television, automotive, broadcast, and entertainment industries. We believe the company is in the beginning stages of harvesting investments in their Atmos (spatial audio) and Vision (High Dynamic Range video) technologies in their traditional markets. They are also experiencing adoption of these technologies by automotive manufactures, providing enhanced margin potential.

FTAI Aviation (FTAI), owns and leases aircraft engines, and operates a maintenance, repair and exchange (MRE) business that provides parts and services for older jet engines. Growing global demand for air travel combined with an aging fleet of aircraft and engines are driving demand for replacement engines and third-party maintenance and repair services. The company recently embarked on a strategy of partnering with private equity firms to provide capital to grow the leasing business. The business model evolution should result in a less capital-intensive leasing business for FTAI and may provide a captive source of demand for the MRE business, enhancing margins and shareholder value.

Interparfums (IPAR), is a global manufacturer, marketer and distributor of fragrance products in the United States and Europe. The company focuses on the prestige fragrance market and has licensing deals with brands such as Jimmy Choo, Coach, Lacoste, Guess and DKNY, to name a few. We believe the company is well positioned to capitalize on the increased demand for fragrances in the US, China and amongst younger consumers. This secular trend coupled with continued new product innovation and the potential for additional licensing partnerships are expected to enhance shareholder value over the next several years.

Perrigo (PRGO), is a consumer health company focused on self-care products and over-the-counter health and wellness solutions for the prevention or treatment of self-managed conditions. Following a multi-year period of poor fundamental performance, we believe the company is in the early stages of improved performance driven by self-help initiatives implemented by a new management team. These initiatives include rationalizing the product portfolio, enhanced operational execution, supply chain efficiency initiatives and an enhanced focus on new product development. A successful execution of the strategy is expected to drive enhanced profitability and above average earnings growth.

ScottsMiracle-Gro (SMG), is a leading manufacturer of branded consumer lawn and garden products in North America. After benefitting from increased demand during the COVID lockdown years, the company experienced several years of below normal growth. As demand has begun to normalize to pre-COVID levels and the company unwinds a poorly executed diversification strategy, shareholder value is expected to be enhanced through margin expansion, balance sheet deleveraging.

Verra Mobility (VRRM), is a provider of automated enforcement, tolling, and parking technologies and solutions. We believe the company is well positioned to benefit from accelerating automated enforcement tailwinds as legislative support and expanding use cases drive adoption by municipalities seeking safer more efficient roadways. We also view the combination of highly recurring long-term contracted revenues, high margins, and high renewal rates as attractive qualities of the company’s business model.

SELLS/LIQUIDATIONS

Berkshire Hills Bancorp (BHLB), is a regional bank primarily serving the NY and New England area. The company announced a merger of equals with Brookline Bancorp. After re-underwriting the combined organization, we chose to exit our position as we were not comfortable with the new management team, nor with the significantly increased loan to deposit ratio.

Columbus McKinnon (CMCO), engages in the design, manufacture, and marketing of material handling products and systems. After carefully assessing the company’s announced acquisition of Kito-Crosby, and choice of convertible preferred equity to finance the deal, we felt the dramatic shift away from a long-standing strategy of smaller, technology forward acquisitions combined in a meaningfully increased financial leverage profile justified selling the position.

JBG SMITH Properties (JBGS), a Washington, DC-focused real estate investment trust that develops, owns and operates a portfolio of mixed-use properties (multifamily, commercial, development and land assets). Concerns related to the company’s capital allocation plans along with deteriorating fundamentals in their core operating market prompted our decision to exit the position.

Monro (MNRO), operates a chain of approximately 1,200 automotive repair and tire retail stores. Ongoing weak demand had weighed on the company’s profitability for longer than anticipated and with expectations for continued economic pressures for their core low-income customers, we decided to exit the position.

Tronox (TROX), a leading global manufacturer of titanium dioxide (TiO2) pigment, a key ingredient in paint, plastics and a variety of other industrial applications. We believe the company is well positioned to benefit from increased production volumes and product pricing driven by improving global economic conditions. However, an increasingly uncertain economic outlook as a result of the threat of increased global tariffs pushed out the expected demand recovery combined with a cyclically driven stressed balance sheet caused us to exit the position.

Outlook

We remain optimistic about the long-term potential for the SMID-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range. Potential tailwinds, including deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for SMID-cap stocks. We have experienced some short-term volatility related to the current administration’s policies and legislation. We also remain mindful of risks such as inflation reaccelerating, increased geopolitical tensions, and potential U.S. economic weakness.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweights in Information Technology and Industrials are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. We are also underweight in Financials as the sector has experienced strong returns, leading us to harvest gains and redeploy the proceeds to what we consider to be more attractive reward to risk opportunities. Given our focus on long-term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

The second quarter began with a continuation of the risk-off environment from the first quarter. Markets troughed on April 8th (Liberation Day), before staging a high beta, low quality rally for the remainder of the quarter. Elements that sustained the rally were administration delays in the tariff implementation date, hyperscale commitment to outsized AI capex plans among growth-oriented SaaS technology companies, and the resilience of broader consumer spending trends as both individuals and companies front-loaded imports ahead of tariffs. Solid labor market readings and stable-to-lower than expected inflation data kept the Federal Reserve (Fed) on the more hawkish course they took in December. Chairman Powell held rates steady at the June FOMC meeting and is not bowing to political pressure to cut rates sooner than the committee’s analysis indicates. The Fed will continue to maintain a measured approach going forward, updating their economic projections and forecasts to two rate cuts in 2025. Deficit scrutiny increased as the One Big Beautiful Bill Act proceeded through Congress. This was highlighted by Moody’s downgrading the U.S. credit rating from Aaa to Aa1 – the last of the major rating agencies to downgrade the U.S. over the past 14 years.

Stylistically, growth stocks outperformed their value counterparts during the quarter as the Russell 2500 Growth Index returned 11.31% compared to the 7.29% return of the Russell 2500 Value index. This continues the 2024 trend where growth significantly outperformed value.

From a factor perspective, lower quality companies outperformed higher quality companies. Factors that had the highest payoff were high beta, non-earners, high sales growth, momentum and cyclical stocks.

At the sector level, cyclical sectors outperformed defensive sectors. The best performing sectors were Information Technology (+18.82%), Industrials (+13.76%), and Consumer Discretionary (+10.39%) while the worst performing sectors were Real Estate (-2.06%), Energy (-1.18%), and Health Care (+2.36%).

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Small/Mid Cap Equity Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the second quarter of 2025, the Aristotle Small/Mid Cap Equity Composite generated a total return of 4.64% net of fees (4.78% gross of fees), underperforming the 8.59% total return of the Russell 2500 Index. The largest detractor from relative performance was security selection in Financials, Consumer Discretionary and Information Technology. This was partially offset by strong security selection in Communication Services coupled with overweight allocations to Information Technology and Industrials and an underweight allocation to Real Estate.

CONTRIBUTORS

Dycom Industries (DY), a provider of engineering and construction services to the telecommunications and cable television industries, benefitted from continued growth in its core business, funding tailwinds, and expanding margins as demand for wireline services continues to grow. We maintain our position as we believe the company remains well positioned for longer-term growth alongside secular trends for expanding fiber deployments to support faster broadband connectivity speeds and opportunities to deploy fiber to rural or underserved areas across the country.

MACOM Technology Solutions (MTSI), a designer and manufacturer of high-performance semiconductor products, surpassed analyst expectations and raised forward guidance bolstering the stock. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

DETRACTORS

ACI Worldwide (ACIW), is a provider of software solutions to facilitate payment transactions for financial institutions, retailers, and payment processors around the world. The company reported strong Q1 earnings and reaffirmed FY 2025 guidance, yet the stock price declined due to investor sentiment around macroeconomic concerns. We maintain our investment as we believe the company has a strong market position in the payments software niche segment. New revenues with higher incremental margins and effective cost controls should allow management to deliver the balance sheet while continuing to deliver value to shareholders.

Chemed (CHE), engages in the provision of healthcare and maintenance services operating through two segments: VITAS and Roto-Rooter. The VITAS segment offers hospice and palliative care services to patients through a network of health care providers, social workers, clergy, and volunteers. The Roto-Rooter segment includes plumbing, drain cleaning, water restoration, and other related services to residential and commercial customers. The stock declined due to concerns surrounding the potential Medicare cap limits proposed in current legislation for its VITAS segment alongside weaker residential demand for its plumbing services segment. We continue to maintain our position, as we believe the slowing demand in the Roto-Rooter segment is transitory and the secular demand for hospice care remains strong.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Alight (ALIT), operates a cloud-based platform that provides human capital management and benefits administration solutions to mostly Fortune 500 companies. We believe the company has the opportunity to grow its business through the expansion of existing client relationships along with attracting new clients to their platform. Self-help initiatives implemented by the new CEO coupled with technological enhancements to the platform are expected to streamline operational costs and improve margins on a go-forward basis.

Dolby Laboratories (DLB), designs and manufactures audio and imaging technologies for the cinema, television, automotive, broadcast, and entertainment industries. We believe the company is in the beginning stages of harvesting investments in their Atmos (spatial audio) and Vision (High Dynamic Range video) technologies in their traditional markets. They are also experiencing adoption of these technologies by automotive manufactures, providing enhanced margin potential.

FTAI Aviation (FTAI), owns and leases aircraft engines, and operates a maintenance, repair and exchange (MRE) business that provides parts and services for older jet engines. Growing global demand for air travel combined with an aging fleet of aircraft and engines are driving demand for replacement engines and third-party maintenance and repair services. The company recently embarked on a strategy of partnering with private equity firms to provide capital to grow the leasing business. The business model evolution should result in a less capital-intensive leasing business for FTAI and may provide a captive source of demand for the MRE business, enhancing margins and shareholder value.

Interparfums (IPAR), is a global manufacturer, marketer and distributor of fragrance products in the United States and Europe. The company focuses on the prestige fragrance market and has licensing deals with brands such as Jimmy Choo, Coach, Lacoste, Guess and DKNY, to name a few. We believe the company is well positioned to capitalize on the increased demand for fragrances in the US, China and amongst younger consumers. This secular trend coupled with continued new product innovation and the potential for additional licensing partnerships are expected to enhance shareholder value over the next several years.

Perrigo (PRGO), is a consumer health company focused on self-care products and over-the-counter health and wellness solutions for the prevention or treatment of self-managed conditions. Following a multi-year period of poor fundamental performance, we believe the company is in the early stages of improved performance driven by self-help initiatives implemented by a new management team. These initiatives include rationalizing the product portfolio, enhanced operational execution, supply chain efficiency initiatives and an enhanced focus on new product development. A successful execution of the strategy is expected to drive enhanced profitability and above average earnings growth.

ScottsMiracle-Gro (SMG), is a leading manufacturer of branded consumer lawn and garden products in North America. After benefitting from increased demand during the COVID lockdown years, the company experienced several years of below normal growth. As demand has begun to normalize to pre-COVID levels and the company unwinds a poorly executed diversification strategy, shareholder value is expected to be enhanced through margin expansion, balance sheet deleveraging.

Verra Mobility (VRRM), is a provider of automated enforcement, tolling, and parking technologies and solutions. We believe the company is well positioned to benefit from accelerating automated enforcement tailwinds as legislative support and expanding use cases drive adoption by municipalities seeking safer more efficient roadways. We also view the combination of highly recurring long-term contracted revenues, high margins, and high renewal rates as attractive qualities of the company’s business model.

SELLS/LIQUIDATIONS

Berkshire Hills Bancorp (BHLB), is a regional bank primarily serving the NY and New England area. The company announced a merger of equals with Brookline Bancorp. After re-underwriting the combined organization, we chose to exit our position as we were not comfortable with the new management team, nor with the significantly increased loan to deposit ratio.

Columbus McKinnon (CMCO), engages in the design, manufacture, and marketing of material handling products and systems. After carefully assessing the company’s announced acquisition of Kito-Crosby, and choice of convertible preferred equity to finance the deal, we felt the dramatic shift away from a long-standing strategy of smaller, technology forward acquisitions combined in a meaningfully increased financial leverage profile justified selling the position.

JBG SMITH Properties (JBGS), a Washington, DC-focused real estate investment trust that develops, owns and operates a portfolio of mixed-use properties (multifamily, commercial, development and land assets). Concerns related to the company’s capital allocation plans along with deteriorating fundamentals in their core operating market prompted our decision to exit the position.

Monro (MNRO), operates a chain of approximately 1,200 automotive repair and tire retail stores. Ongoing weak demand had weighed on the company’s profitability for longer than anticipated and with expectations for continued economic pressures for their core low-income customers, we decided to exit the position.

Tronox (TROX), a leading global manufacturer of titanium dioxide (TiO2) pigment, a key ingredient in paint, plastics and a variety of other industrial applications. We believe the company is well positioned to benefit from increased production volumes and product pricing driven by improving global economic conditions. However, an increasingly uncertain economic outlook as a result of the threat of increased global tariffs pushed out the expected demand recovery combined with a cyclically driven stressed balance sheet caused us to exit the position.

Outlook

We remain optimistic about the long-term potential for the SMID-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range. Potential tailwinds, including deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for SMID-cap stocks. We have experienced some short-term volatility related to the current administration’s policies and legislation. We also remain mindful of risks such as inflation reaccelerating, increased geopolitical tensions, and potential U.S. economic weakness.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweights in Information Technology and Industrials are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. We are also underweight in Financials as the sector has experienced strong returns, leading us to harvest gains and redeploy the proceeds to what we consider to be more attractive reward to risk opportunities. Given our focus on long-term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

(All MSCI index returns are shown net and in U.S. dollars unless otherwise noted.)

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Global Equity Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of model fees. Net returns are calculated by subtracting a model fee of 0.50% on an annual basis or 0.04167% on a monthly basis. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets rallied, with the MSCI ACWI Index advancing 11.53% in the second quarter. Concurrently, global fixed income gained ground, as the Bloomberg Global Aggregate Bond Index rose 4.52%. Value stocks significantly lagged growth stocks over the quarter, with the MSCI ACWI Value Index underperfoming the MSCI ACWI Growth Index by 11.42%.

Asia/Pacific ex-Japan and Emerging Markets were the strongest regions, while Europe and Japan, though posting double-digit returns, increased the least. On a sector basis, nine out of the eleven sectors within the MSCI ACWI Index finished higher, with Information Technology, Communication Services and Industrials rising the most. Meanwhile, Energy and Health Care finished with negative returns.

Trade policy remained a focal point. In early April, President Trump introduced a universal 10% import tariff, as well as reciprocal tariffs on dozens of countries, as part of “Liberation Day.”  Roughly a week later, and to encourage the start of negotiations, a 90-day pause on reciprocal tariffs was enacted for almost all countries. Later in the quarter, the U.S. and U.K. finalized the Economic Prosperity Deal, which included expanding American access to British markets and lowering tariffs on the first 100,000 of U.K. autos entering the U.S. each year. Meanwhile, negotiations continued with the EU, Japan, Canada and India. After escalating, trade tensions with China eased somewhat; however, considerable tariffs and other trade policy disputes remain for both countries as negotiations continue.

While the full impact of trade policy changes is still uncertain, major economies—including the U.S., U.K., eurozone and Japan—experienced downward revisions to 2025 GDP growth projections. Additionally, inflation trends were notably mixed during the quarter. In the U.S., changes in the Consumer Price Index (CPI) remained stable at approximately 2.4% year-over-year, while annual inflation in the eurozone fell below the European Central Bank’s 2% target. In contrast, the U.K. saw its CPI rise 3.4% year-over-year, with policymakers warning that ongoing geopolitical tensions may continue to drive inflation higher by disrupting oil prices and global supply chains. Japan also experienced elevated inflation, with core CPI rising 3.7% year-over-year—its fastest pace since January of 2023.

Amid a backdrop of macroeconomic uncertainty and mixed economic data, central bank policy decisions generally aligned with expectations. Monetary authorities in the U.S. and Japan held their key interest rates steady, while their counterparts in the U.K. and eurozone implemented rate cuts.

In geopolitics, tensions in the Middle East escalated sharply during the quarter, with Israel and Iran engaging in direct missile exchanges—their most overt confrontation in decades. A succession of precision strikes on key Iranian figures and military sites, as well as U.S. airstrikes on nuclear infrastructure, further fueled fears of a broader regional conflict. However, after 12 days of war, a ceasefire was reached late in the quarter, easing immediate tensions but leaving uncertainty over its durability. In Europe, Russian forces entered eastern Ukraine in the Dnipropetrovsk region for the first time in three years. While the two sides engaged in a second round of negotiations and completed prisoner exchanges, prospects of a material advancement toward a ceasefire remain unclear. Despite the heightened geopolitical events, Brent crude oil fell 9.5% during the quarter.

Performance and Attribution Summary

For the second quarter of 2025, Aristotle Capital’s Global Equity Composite posted a total return of 9.58% gross of fees (9.45% net of fees), underperforming the MSCI ACWI Index, which returned 11.53%, and the MSCI World Index, which returned 11.47%. Please refer to the table below for detailed performance.

Source: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attirbution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees.

From a sector perspective, the portfolio’s underperformance relative to the MSCI ACWI Index can be attributed to allocation effects, while security selection had a slightly positive overall impact. An underweight in Information Technology and security selection in Consumer Discretionary and Information Technology detracted the most from the portfolio’s relative performance. Conversely, security selection in Energy and Financials and an overweight in Industrials contributed to relative return.

Regionally, both security selection and allocation effects were responsible for the portfolio’s underperformance relative to the MSCI ACWI Index. Security selection in Europe and Japan detracted the most from relative performance, while security selection in North America and an overweight in Japan contributed.

Contributors and Detractors for 2Q 2025

Relative Contributors	Relative Detractors
Cameco	Amgen
Microchip Technology	Lennar
Nemetschek	Jazz Pharmaceuticals
Erste Group Bank	Alcon
Pan Pacific International	TotalEnergies

Amgen, the biopharmaceutical company, was the largest detractor for the quarter. While the company’s branded drugs continued to advance (a previously identified catalyst), with cholesterol medicine Repatha, osteoporosis treatment Evenity and bone-strengthening drug Prolia all growing sales in the double digits, concerns surrounding potential tariff impacts, tax reform and pressure on drug prices weighed on shares. We believe it is too early to assess the full impact of these macro uncertainties and are confident in Amgen’s demonstrated ability to adapt through evolving policy and pricing dynamics. The company reaffirmed its long-term commitment to domestic manufacturing and innovation through its upcoming $2 billion expansions in Ohio and North Carolina, building on more than $5 billion in U.S. operational investments since 2017. Furthermore, Amgen continued to advance its robust pipeline, as its 1L bemarituzumab (bema) phase 3 trial for gastric cancer met its primary endpoint, and MariTide, the company’s weight-loss drug, demonstrated strong efficacy in phase 1 and 2 trials. MariTide, which could offer more convenient monthly dosing compared to daily or weekly regimens, showed promising early results, though tolerability will be an important focus heading into phase 3. Management noted that modified dose ramp-up strategies may help mitigate these effects. Despite near-term pressures, we remain encouraged by Amgen’s continued market share gains across key therapies and the potential to enhance the company’s competitiveness and resilience in a dynamic healthcare landscape.

Alcon, a global leader in eye care, was one of the largest detractors during the quarter. Aside from its earnings report, there was little material news, and we did not view anything in the report as affecting the company’s long-term fundamentals. While quarterly updates can influence sentiment, our focus remains on the strength and quality of the business. Alcon operates in a resilient, oligopolistic industry with high barriers to entry and recurring revenue streams tied to its large installed base of cataract surgery systems. It also continues to innovate across product categories, including its premium intraocular lens portfolio (e.g., PanOptix, Vivity), ultra-premium daily contact lenses (e.g., Dailies Total1) and over-the-counter products, such as Systane for dry eyes. Since its spinoff from Novartis in 2019, the company has also demonstrated greater agility in R&D, commercial execution and capital allocation—catalysts we previously identified. More broadly, we believe Alcon’s ability to strengthen its partnerships with eye care professionals and broaden access to underutilized premium technologies makes the company uniquely positioned to benefit from an aging population, increased access to eye care in emerging markets, and rising awareness and diagnosis of chronic dry eye conditions.

Cameco, one of the world’s largest uranium producers, was the biggest contributor during the quarter. The company continued to demonstrate the hallmarks of a high-quality business: a long-duration contract portfolio, disciplined capital allocation and resilience in the face of operational disruption. Despite a nearly 30% decline in uranium spot prices year-over-year, Cameco reported higher average realized prices under its contracted sales—underscoring its pricing power and long-term customer relationships. The company maintained stable operations despite a temporary production pause at the Inkai joint venture and wildfires in northern Saskatchewan. Meanwhile, management continued to deepen its exposure to the nuclear fuel cycle through its Westinghouse unit, which expands its reach into reactor services and fuels. With rising global interest in nuclear energy for energy security and decarbonization, Cameco’s strong balance sheet, vertically integrated platform and ability to flex production volume (thereby controlling costs) remain important catalysts in our eyes.

Microchip Technology, the microcontroller (MCU) and analog semiconductor producer, was a top contributor for the quarter. After several quarters of underperformance driven by prolonged customer destocking, the company’s fundamentals began to improve meaningfully, as returning CEO Steve Sanghi’s turnaround plan is underway. Bookings showed signs of stabilization, supported by more balanced inventories across customers and distribution channels, as well as indications of recovering end-market demand. Operational execution also improved under the renewed leadership, with early benefits emerging from cost-saving initiatives—such as the closure of its Arizona wafer fabrication facility—and tighter inventory management. Microchip’s long-standing customer relationships and commitment to extended product lifecycles continue to support recurring revenue and reduce design-in risk. Combined with its consistent record of strong FREE cash flow generation and shareholder returns, this disciplined approach reinforces our conviction in the company’s ability to manage through industry cycles. Longer term, we believe Microchip remains well-positioned to gain share in 16- and 32-bit MCUs and areas including IoT, 5G infrastructure, autonomous vehicles and data centers.

Recent Portfolio Activity

During the quarter, we sold our positions in PayPal Holdings and Rational and invested in Capital One and Uber.

We first invested in PayPal, the online and mobile e-commerce payments company, in the third quarter of 2015. Over the past decade, we have admired PayPal’s ability to expand its unique and hard-to-replicate dual-sided network, even amid intensifying competition. In 2023, Alex Chriss succeeded Dan Schulman as CEO and refocused the company on profitable growth by enhancing the checkout experience and deepening user engagement, rather than emphasizing top-line expansion. Partnerships with Apple, J.P. Morgan, Amazon and Shopify support this shift, embedding PayPal more deeply across digital commerce ecosystems. Mr. Chriss has also prioritized higher-margin branded checkout while phasing out select Braintree deals that were unprofitable or contributed little to earnings. Braintree primarily serves large enterprise clients—such as Uber, Airbnb and Live Nation—through unbranded, custom-priced processing agreements. While these actions have moderated near-term revenue growth, we view them as a more disciplined and sustainable approach to long-term value creation. That said, we remain concerned about PayPal’s continued investment in its “One Platform” strategy, which includes expanding into offline and omnichannel payments—a direction that has shown limited success to date. While we will continue monitoring Mr. Chriss’s progress and the broader payments landscape, we ultimately determined PayPal was the most suitable candidate for sale in order to fund what we believe is a more compelling investment opportunity.

We first invested in Rational, the German-based global leader in commercial kitchen equipment, in May 2021. The company holds a dominant position in combi-steamers—advanced appliances that integrate steam and convection cooking, allowing professional kitchens to improve consistency, expand menu flexibility, reduce energy use and optimize cooking time in a single unit. During our holding period, Rational made meaningful progress across several catalysts, including deeper penetration of combi-steamers and cooking centers into kitchens still reliant on traditional appliances. The company also expanded its geographic footprint, especially in North America and Asia, where demand for automated and energy-efficient cooking solutions continues to rise. While we continue to view Rational as a high-quality business with attractive long-term prospects, we grew incrementally more cautious about its evolving competitive position. Additionally, Rational’s expansion into adjacent product categories, while strategically logical, introduced added complexity and some potential for product overlap. Given these considerations, we decided Rational was the optimal candidate for sale to fund what we believe is a more compelling investment in Uber.

Capital One Financial Corporation

Founded in 1988 and headquartered in McLean, Virginia, Capital One is one of the largest credit card issuers in the U.S. The company was spun out of Signet Financial in 1995 under the leadership of founder and current Chairman and CEO Richard Fairbank. Over the past three decades, Capital One has evolved from a monoline credit card lender into a diversified financial services firm offering a broad range of consumer and commercial banking products.

In 2025, Capital One completed its acquisition of Discover, becoming one of the only major U.S. banks to own and operate a credit card network. This should position the company to enhance its profitability by reducing its reliance on third-party networks (i.e., Visa and Mastercard) and reduce earnings volatility as fee-based revenue increases. The deal also advances Capital One’s efforts to attract high-spend, premium-tier customers. Products like Venture X—the firm’s premium travel rewards card—stand to benefit from the integration of Discover’s transaction data with Capital One’s advanced analytics capabilities. This combination enables more personalized offers, deeper customer engagement and targeted cross-selling across lending and deposit products, reinforcing a cycle of data-driven growth.

High-Quality Business

Some of the quality characteristics we have identified for Capital One include:

• A leading card platform with national brand recognition and a diversified customer base across geographies and credit tiers;
• Differentiated technology infrastructure: the only major U.S. bank operating fully in the public cloud, enabling real-time data processing, faster product iteration and cost efficiencies that are difficult for peers to replicate;
• A history of prudent underwriting and a disciplined credit culture developed through multiple economic and credit cycles; and
• Proven, long-tenured management team led by Richard Fairbank has demonstrated a long-term orientation and disciplined capital deployment across cycles.

Attractive Valuation

We believe shares of Capital One are attractively valued relative to our estimates of normalized earnings power. In our view, the market underappreciates the long-term value creation potential of the Discover integration, including enhanced payment economics and greater strategic control. In addition, Capital One’s ongoing shift toward higher-credit-tier customers and fee-based revenue—combined with its technology-enabled cost advantages—supports margin expansion and more durable earnings. Strong FREE cash flow generation provides ample flexibility to reinvest in growth while continuing to return capital to shareholders through buybacks and dividends.

Compelling Catalysts

Catalysts we have identified for Capital One, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include:

• Successful integration of Discover’s network, enabling vertical payment processing and greater fee capture;
• Continued shift in customer mix toward higher credit tiers, driving more stable earnings and increased fee-based revenue;
• Utilization of cloud-based infrastructure and proprietary data to enhance underwriting, deliver personalized product offers and strengthen cross-sell opportunities across lending and deposits; and
• Increased market share in cards, driven by brand strength, customer loyalty and expanded co-brand partnerships with leading merchants that enhance customer engagement and distribution.

Uber Technologies, Inc.

Founded in 2009 and headquartered in San Francisco, California, Uber is a global technology platform that facilitates the movement of people, goods and services across a wide range of markets. What began as a simple ride-hailing app has evolved into a multi-segment leader operating in more than 70 countries, connecting millions of consumers, drivers, couriers and merchants worldwide.

Uber’s operations are organized into three primary business segments: Mobility, which includes ridesharing, car rentals and other personal transportation services (~45% of revenue); Delivery, which spans food, grocery, convenience and retail delivery through the Uber Eats platform (~50%); and Freight, its digital brokerage and logistics arm (~5%). These segments are built on a shared platform supported by real-time matching technology, global app penetration, strong network effects and one of the most recognized consumer brands globally—reflected in the familiar phrase, “I’ll call an Uber.”

High-Quality Business

Some of the quality characteristics we have identified for Uber include:

• Global scale and platform efficiency, underpinned by strong brand recognition and an asset-light, supply-led model that enables rapid expansion, high operating leverage and efficient capital deployment;
• Integrated, cross-segment ecosystem, where offerings like Uber One memberships drive customer activity and loyalty (i.e., the majority of gross delivery bookings come from members); and
• Market leadership across core categories, including approximately 70% market share in U.S. ridesharing, a strong #2 position in U.S. delivery, and leading positions in key international delivery markets, such as the U.K., France and Australia.

Attractive Valuation

Uber has scaled to sustainably FREE cash flow with continued progress on margin expansion driven by scale and disciplined cost control. Based on our analysis, shares of the company currently trade at a greater than 10% normalized Cash Flow Return on Economic Value, reflecting what we believe is meaningful upside potential. Uber’s strong balance sheet—with approximately $7 billion in cash—also provides flexibility to reinvest in growth, pursue strategic initiatives or return capital to shareholders.

Compelling Catalysts

Catalysts we have identified for Uber, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include:

• Increased profitability and stronger FREE cash flow generation as enhanced cross-promotion between Mobility and Delivery deepens user engagement and significantly lowers customer acquisition costs;
• Further partnerships—such as with taxi fleets, travel platforms and autonomous vehicle companies—should continue to expand Uber’s reach and reduce supply costs; and
• Continued expansion in non-urban markets, with new features like Uber Reserve broadening addressable demand and improving service in suburban areas.

Conclusion

As the world continues to navigate shifting trade dynamics, complex monetary and fiscal policy decisions, and heightened geopolitical uncertainty, the broader implications for the global economy remain unclear. While we are mindful of these macroeconomic forces, we do not attempt to predict their timing or short-term market impact. Instead, we anchor our investment approach in what we believe to be more reliable and enduring: the fundamentals of individual businesses and their long-term potential. By concentrating on high-quality companies with management teams we consider proven, we aim to build portfolios capable of withstanding a wide range of economic environments and delivering attractive returns over full market cycles.