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ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

Small caps added to their fourth quarter 2023 gains to begin the year with the Russell 2000 delivering a total return of 5.18%. Resilient economic data helped support investor sentiment during the first quarter. The U.S. economy was confirmed to have grown by more than expected during Q4 2023, while survey data from the composite Manufacturing Purchasing Managers’ Index (PMI) reentered expansionary territory. Stickier inflation prints and healthy labor data, however, are among the factors that have altered expectations about the timing and magnitude of interest rate cuts over the past few months. Earlier this year, the federal funds futures market had priced in as many as six 25-basis-point cuts to the federal funds target rate for this calendar year. Now that number is down to three, with some market prognosticators suggesting that the Fed won’t lower interest rates this year at all, due to the strength of the economy and the risk that inflation will remain too high.

Stylistically, growth stocks outperformed their value counterparts during the quarter as evidenced by the Russell 2000 Growth Index returning 7.58% compared to 2.90% for the Russell 2000 Value Index. Growth’s outperformance was buoyed by outsized gains from two information technology sector companies – Super Micro and MicroStrategy. Within the Russell 2000 Index, Super Micro Computer represented the largest single-stock weight ever at quarter end. Together, Super Micro and MicroStrategy accounted for over 37% of the Russell 2000’s quarterly gain on a contribution to return basis. The concentration conundrum has been well documented within the U.S. large cap indices but rarely influences the more diversified Russell 2000 Index to this degree. These issues should abate following the June reconstitution of the Russell indices, however, small cap active managers will miss out on any immediate benefit from a retracement of these gains as these two companies are poised to graduate into the larger cap Russell 1000 index.

At the sector level, seven of the eleven sectors in the Russell 2000 Index recorded positive returns during the first quarter, led by strong returns in the Information Technology (+12.82%), Energy (+11.86%) and Industrials (+8.80%) sectors. Conversely, Communication Services (-4.94%), Utilities (-3.59%), and Real Estate (-1.52%) all underperformed and posted negative returns. Looking at market factors, Momentum, Growth, and High Short Interest outperformed while Value, Low Beta, and Negative Earners underperformed.

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 first quarter of 2024, the Aristotle Small Cap Equity Composite posted a total return of 3.96% net of fees (4.11% gross of fees), trailing the 5.18% total return of the Russell 2000 Index. Underperformance was driven by security selection while allocation effects positively contributed. Overall, security selection was weakest within the Information Technology, Health Care, and Consumer Staples sectors and strongest in Consumer Discretionary, Materials, and Energy. From an allocation perspective, the portfolio benefitted from overweight in Industrials and an underweight in Financials, however, this was partially offset by underweights in Energy and Consumer Discretionary.

Relative Contributors	Relative Detractors
The AZEK Company	ModivCare
Itron	QuidelOrtho
Dycom Industries	Huron Consulting Group
AerCap	Mercury Systems
Ardmore Shipping	Matthews International

CONTRIBUTORS

The AZEK Company (AZEK), a leading manufacturer of residential building products, primarily focused on wood-alternative decking, railing and trim, benefited from strong fundamental performance revealed in the company’s latest earnings release after the company reported favorable broader business trends, expanding margins, and strong sales. We maintain our position, as we believe the strong secular demand backdrop for alternative, sustainably sourced building products along with company-specific margin improvements should benefit shareholders in periods to come.

Itron (ITRI), a global manufacturer and distributor of electric, water and gas meters and advanced meter systems, benefitted from continued momentum in the operational outlook for its business, a growing backlog of higher margin business, and an easing of supply chain conditions. We maintain a position, as we believe the company remains well-positioned to benefit from power grid modernization efforts, which should continue to drive demand for the company’s smart metering and grid monitoring solutions. Additionally, we believe an acceleration in the company’s services and SaaS-based revenue will improve the earnings and margin profile of the business moving forward.

DETRACTORS

ModivCare (MODV), a Colorado-based healthcare services company that provides non-emergency medical transportation (NEMT), homecare services, and remote monitoring to Medicaid and Medicare populations declined during the period amid working capital challenges and a slower than expected start to the year. We continue to maintain a position despite near-term challenges as we believe the longer-term fundamental outlook for the business remains attractive and that an upcoming monetization event should alleviate investor concerns regarding the company’s credit profile.

QuidelOrtho (QDEL), a developer and manufacturer of point-of-care and near-patient diagnostic solutions declined during the period after delivering results that were below investor expectations. We maintain our position, as we believe the company’s recent efforts to broaden its product portfolio and diversify the business away from respiratory illness should result in less volatile operating results and create additional value for shareholders.

Recent Portfolio Activity

Buys/Acquisitions	Sells/Liquidations
PowerSchool	ATN International
	Capital Product Partners
	SP Plus

BUYS/ACQUISITIONS

PowerSchool (PWSC), a leading provider of cloud-based software for K-12 education in North America, was added to the portfolio. Overall, we believe the company stands to benefit from the growing demand for digital education solutions, an increased need for efficiency in school operations, and a favorable funding environment. Moreover, we believe the company’s ability to innovate and adapt to the evolving needs of the education sector while expanding its capabilities and solutions should result in up-sell opportunities that can further create value for their customers and shareholders.

SELLS/LIQUIDATIONS

ATN International (ATNI), a provider of telecommunications services to rural, niche, and other under-served markets, was removed from the portfolio. Despite the company’s efforts to expand its broadband network in recent years, a variety of factors contributed to our decision to step away from our investment including competitive pressures and our general concerns regarding the company’s capital allocation strategy moving forward.

Capital Product Partners (CPLP), a marine shipping company that operates LNG carriers and containerships, was removed from the portfolio during the quarter after a period of strong share price performance given our view that the future risk/reward potential of the company had narrowed.

SP Plus (SP), a provider of parking management, payment services, facility maintenance and event logistics solutions, was removed from the portfolio after being acquired by Metropolis Technologies.

Outlook

We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market, although we readily admit that making short-term calls about the future direction of the market following a strong run (+30% since the Russell 2000 October 2023 low) is a challenging and dubious task. As we look out to the remainder of 2024, while we are encouraged by the continuing signs of economic stability, we recognize that calls for a soft landing are now consensus, sentiment may be overly optimistic, and markets seem priced for very little risk. So, despite greater clarity over the Fed’s path from here, there still remains a long list of items creating uncertainty that could lead to greater volatility in 2024 including, but not limited to, signs that inflationary pressures have not yet dissipated, geopolitical tensions, U.S. equity index concentration issues, ongoing commercial real estate concerns, and the looming presidential election. We are well aware that most of these issues are well known, but the timing and magnitude of the impact of any and all of these issues remains unpredictable. Therefore, as we always have, we will continue to avoid the temptation to forecast their outcome in favor of assessing the potential impact from a range of potential outcomes within our company‐specific, bottom-up analysis, and quality focus.

From an asset class perspective, valuations of small versus large continue to remain near multi-decade lows, which we believe suggests a more favorable setup for small caps relative to large caps in the periods to come (16.0x P/E for the Russell 2000 Index vs. 21.8x P/E for the Russell 1000 Index). Additionally, earnings growth is expected to improve for small caps in 2024 and outpace that of large caps, which we believe provides further fundamental support and potential upside for the asset class. Against a backdrop of moderating inflation, normalized interest rates, and a still growing U.S. economy, it looks to us that small-cap’s lengthy stretch of relative underperformance may be long in the tooth. If the economy continues to stabilize, our view is that valuations are likely to rise for those businesses that have largely sat out the mega-cap performance regime. It also helps that the well-noted concentration in large caps is reaching 50-year highs and small cap valuation relative to large cap is at multi-decade lows, therefore any fundamentally driven repositioning is likely to benefit small caps more than larger companies, in our view. Lastly, we believe smaller caps remain better positioned to benefit from the reshoring of U.S. manufacturing, the CHIPS Act, and several infrastructure projects on the horizon.

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 Industrials and Information Technology 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. While the portfolio’s allocation to Health Care is modestly below that of the benchmark, we continue to remain underweight the Biotechnology industry as many companies within that group do not fit our discipline due to their elevated levels of binary risk. Given our focus on long-term business fundamentals, 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.

Disclosures

The opinions expressed herein are those of Aristotle Capital Boston, LLC (Aristotle Boston) and are subject to change without notice.

Past performance is not indicative of future results. The information provided in this report should not be considered financial advice or a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Boston’s Small Cap Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions Aristotle Boston makes in the future will be profitable or equal the performance of the securities discussed herein. Aristotle Boston reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Recommendations made in the last 12 months are available upon request.

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.

Effective January 1, 2022, the Aristotle Small Cap Equity Composite has been redefined to exclude accounts with meaningful industry-specific restrictions or substantial values-based screens hampering implementation of the small cap strategy.

Effective January 1, 2022, the Russell 2000 Value Index was removed as the secondary benchmark for the Aristotle Capital Boston Small Cap Equity strategy.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs.

These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks. The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments.

The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass.

The firm’s coverage of Signature Bank includes time at a predecessor firm.

Aristotle Capital Boston, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Boston, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACB-2404-26

Performance Disclosures

Sources: CAPS Composite Hub, Russell Investments

Composite returns for periods ended March 31, 2024, are preliminary pending final account reconciliation.

^*The Aristotle Small Cap Equity Composite has an inception date of November 1, 2006 at a predecessor firm. During this time, Jack McPherson and Dave Adams had primary responsibility for managing the strategy. Performance starting January 1, 2015 was achieved at Aristotle Boston.

^**For the period November 2006 through December 2006.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized.

Effective January 1, 2022, the Aristotle Small Cap Equity Composite has been redefined to exclude accounts with meaningful industry-specific restrictions or substantial values-based screens hampering implementation of the small cap strategy.

Effective January 1, 2022, the Russell 2000 Value was removed as the secondary benchmark for the Aristotle Capital Boston Small Cap Equity strategy.

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. Please see important disclosures enclosed within this document.

Index Disclosures

The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 Growth® Index measures the performance of the small cap companies located in the United States that also exhibit a growth probability. The Russell 2000 Value® Index measures the performance of the small cap companies located in the United States that also exhibit a value probability. The Russell 1000® Index measures the performance of the large cap segment of the U.S. equity universe. The Russell 1000 Index is a subset of the Russell 3000® Index, representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership. The volatility (beta) of the composite may be greater or less than the benchmarks. It is not possible to invest directly in these indices.

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(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 presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets continued to climb during the first quarter. Overall, the MSCI ACWI Index rose 8.20% during the period. Concurrently, the Bloomberg Global Aggregate Bond Index fell 2.08%. In terms of style, value stocks underperformed their growth counterparts during the quarter, with the MSCI ACWI Value Index trailing the MSCI ACWI Growth Index by 2.65%.

Japan and North America were the strongest regions, while Latin America and Asia/Pacific ex-Japan posted negative returns. On a sector basis, ten out of the eleven sectors within the MSCI ACWI Index finished in the green, with Information Technology, Communication Services and Energy increasing the most. Meanwhile, Real Estate was the only sector to decline, while Utilities and Materials gained the least.

Economic conditions varied by region, though most developed countries reported slowing inflation. For the month of February, both the U.K. and U.S. reported annual inflation descending toward the 3% mark, while the eurozone recorded an annual rate of 2.6%. As such, the respective central banks held monetary policy steady while signaling the possibility of rate cuts starting in June as the countries make progress toward the 2% target.

However, in Asia, Japan raised interest rates for the first time since 2007 to a range of 0.0% to 0.1%, as both inflation and wage growth have recently accelerated. This marked a historic shift and ended Japan’s period of negative rates, finally removing the world’s last remaining negative rates regime. Conversely, China lowered its five-year loan prime rate to bolster its faltering economy that is battling deflation and a troubled real estate sector.

In geopolitics, the conflict in the Middle East continued, with increased fighting in Lebanon and direct conflict in the Red Sea between the U.S. and Yemen’s Houthis, which have targeted more than two dozen ships traveling to and from the Suez Canal. The heightened activity in surrounding countries has sparked concerns of further regional escalation and the possibilty of a wider conflict. In Europe, Russia made small advances in Ukraine, including the capture of the city of Avdiivka, as Ukrainian troops struggle with supply shortages. The U.S. has recently partnered with countries such as South Korea and Turkey to provide additional ammunition and supplies to Ukraine.

Performance and Attribution Summary

For the first quarter of 2024, Aristotle Capital’s Global Equity Composite posted a total return of 6.16% gross of fees (6.09% net of fees), underperforming the MSCI World Index, which returned 8.88%, and the MSCI ACWI Index, which returned 8.20%. Please refer to the table below for detailed performance.

Performance (%)	1Q24	1 Year	3 Years	5 Years	10 Years	Since Inception*
Global Equity Composite (gross)	6.16	20.19	5.75	11.74	9.84	10.31
Global Equity Composite (net)	6.09	19.84	5.42	11.38	9.45	9.88
MSCI World Index (net)	8.88	25.11	8.60	12.06	9.39	10.05
MSCI ACWI Index (net)	8.20	23.22	6.95	10.90	8.65	9.09

*The inception date for the Global Equity Composite is November 1, 2010. 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 actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Source: FactSet
Past performance is not indicative of future results. Attribution results are based on sector returns which are gross of investment advisory fees. Attribution is based on performance that is gross of investment advisory fees and includes the reinvestment of income.

From a sector perspective, the portfolio’s underperformance relative to the MSCI World Index can be primarily attributed to security selection, while allocation effects also had a negative impact. Security selection in Information Technology, Industrials and Energy detracted the most from the portfolio’s relative performance. Conversely, security selection in Materials and a lack of exposure to Real Estate and Utilities contributed to relative return.

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

Contributors and Detractors for 1Q 2024

Relative Contributors	Relative Detractors
Martin Marietta Materials	Adobe
Lennar	AIA Group
Munich Reinsurance	Sony
FirstCash	Cameco
Qualcomm	Microchip Technology

Adobe, the content creation and publishing software provider, was the leading detractor for the quarter.The company continues to benefit from its shift to a subscription model, with almost 95% of its record $19.4 billion in fiscal year 2023 revenue coming from subscriptions, while continuing to invest in innovation that expands its addressable market. Nevertheless, investors seem concerned with some of the lower-cost alternatives entering the market, including Sora, an OpenAI platform that produces videos from text. While much attention has also been placed on Adobe’s Firefly, a generative AI service that has already produced more than 6.5 billion images since launch in March 2023, we will take our time to understand Adobe’s AI monetization strategy. In the meantime, we continue to believe that the combination of Express, Firefly, Creative Cloud, Acrobat and Experience Cloud provides a unique solution to address all the content and data needs of clients and their management of the customer experience. In addition to innovation, Adobe continues to generate and return cash to shareholders, exemplified most recently by its new $25 billion stock repurchase program.

Sony, the global provider of videogames and consoles, image sensors, music and movies, was one of the largest detractors for the period. Sony cut its guidance from 25 million PlayStation 5 (PS5) units sold to 21 million units for the fiscal year. Despite the underwhelming hardware results, management has emphasized the importance of balancing profitability and sales in the latter stage of the PS5’s life cycle which it expects to achieve through engagement, with monthly active users reaching a record high of 123 million accounts. Furthermore, we will continue to monitor management’s ability to improve game development, streamline project management and control costs, as Sony has already begun to implement structural reforms in its Game & Network Services segment. In its Pictures segment, Sony terminated its merger with Zee Entertainment, as closing conditions were not met within the set two-year window. Nevertheless, management believes India remains a promising market and will proactively explore opportunities to bolster its position in the country. We remain confident in Sony’s ability to build on its industry leadership, and we feel the company’s continued optimization of business operations, including its plan for a partial spinoff of its Financial Services business, positions the company to enhance long-term value.

Aggregates producer Martin Marietta Materials was a top contributor for the period. As a result of the company’s successful execution of its value-over-volume commercial strategy, including 15% price increases in its aggregates business, Martin Marietta reported full-year records for revenues and profitability. Furthermore, the company continues to bolster its leadership position through the acquisitions of Albert Frei & Sons, a leading aggregates producer in Colorado, and the southeast aggregates operations of Blue Water Industries. These transactions are expected to add one billion tons of reserves, improve product mix and profitability, and allow for the expansion into new target markets such as Nashville and Miami. We believe Martin Marietta is well positioned to continue executing on its catalysts, including optimizing its product portfolio and further enhancing profitability from both pricing and operations initiatives, all while benefiting from continued increases in both non-residential construction and government spending.

Munich Re, the world’s largest reinsurance company, was a leading contributor for the quarter. The company reported strong results as it continues to win market share, leverage its global scale and demonstrate underwriting discipline. Perhaps counterintuitively, recent global crises, such as war in both the Middle East and Ukraine and natural disaster losses that topped $100 billion, as well as the impact of inflation, showcase Munich Re’s strengths. Through these crises, the company has, we believe, displayed its prudent risk-taking and global diversification. Moreover, Munich Re (and its peers) have benefited from industry-wide price increases, which have contributed to increased return of capital to shareholders. The company raised its dividend by nearly 30% in 2023 and announced a new €1.5 billion share buyback program. We continue to believe Munich Re is attractively positioned to gain market share in a variety of areas, including cybersecurity, specialty insurance and in the fast-growing economies in Asia where the market is large, but insurance penetration remains relatively low.

Recent Portfolio Activity

Buys	Sells
None	None

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

Conclusion

Despite the U.S. economy’s continued expansion, economic data points remain mixed. Additionally, investors face uncertainty the rest of the year, whether it be the path of central bank policy, the outcome of the 2024 U.S. presidential election, or the potential for new and/or escalating geopolitical conflicts.

However, while our analysis considers long-term developments in the macroeconomy, we focus most of our time and attention on individual companies that, in our opinion, possess a combination of qualities that are sustainable and difficult to reproduce. It is our belief that a diversified portfolio of investments in these companies will thrive over full market cycles.

Disclosures

The opinions expressed herein are those of Aristotle Capital Management, LLC (Aristotle Capital) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Capital makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Global Equity strategy. Not every client’s account will have these characteristics. Aristotle Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Capital’s Global Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request.

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.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Capital does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Capital Management, LLC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Capital, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACM-2404-75

Performance Disclosures

Sources: CAPS CompositeHub^TM, MSCI

Composite returns for all periods ended March 31, 2024 are preliminary pending final account reconciliation.

The Aristotle Global Equity Composite has an inception date of November 1, 2010; however, the strategy initially began at Howard Gleicher’s predecessor firm in July 2007. A supplemental performance track record from January 1, 2008 through October 31, 2010 is provided on this page and complements the Global Equity Composite presentation that is located at the end of this presentation. The performance results were achieved while Mr. Gleicher managed the strategy at a prior firm. The returns are those of a publicly available mutual fund from the fund’s inception through Mr. Gleicher’s departure from the firm. During that time, Mr. Gleicher had primary responsibility for managing the fund.

Past performance is not indicative of future results. The information provided should not be considered financial advice or a recommendation to purchase or sell any particular security or product. Performance results for periods greater than one year have been annualized.

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.

Index Disclosures

The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI ACWI captures large and mid-cap representation across 23 developed markets and 24 emerging markets countries. With approximately 3,000 constituents, the Index covers approximately 85% of the global investable equity opportunity set. The MSCI ACWI Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI Europe Index captures large and mid-cap representation across 15 developed markets countries in Europe. With more than 400 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With approximately 250 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in Japan. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Bloomberg Global Aggregate Bond Index is a flagship measure of global investment grade debt from 28 local currency markets. This multi-currency benchmark includes Treasury, government-related, corporate and securitized fixed rate bonds from both developed and emerging markets issuers. The Brent Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. The volatility (beta) of the Composite may be greater or less than the benchmarks. It is not possible to invest directly in these indexes.

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Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Value 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 Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

The U.S. equity market continued to rally, as the S&P 500 Index rose 10.56% during the period. Concurrently, the Bloomberg U.S. Aggregate Bond Index fell, returning -0.78% for the quarter. In terms of style, the Russell 1000 Value Index underperformed its growth counterpart by 2.42%.

Gains were broad-based, as ten out of the eleven sectors within the Russell 1000 Value Index finished higher. Energy, Financials and Industrials were the best-performing sectors. Meanwhile, Real Estate was the only sector to post a negative return, and Utilities and Health Care gained the least.

U.S. economic growth remained positive, as real GDP increased at an annual rate of 3.4% in the fourth quarter, though less than the third quarter’s 4.9% reading. The composition of growth was broad-based, having been driven by consumer spending, state and local government investment, and exports. In more recent data, consumer spending increased 0.8% month-over-month in February—the largest gain since January 2023—while housing starts surged 11.6%, touching the highest level in nearly two years. Furthermore, the labor market remained resilient, with unemployment at 3.9% and real average hourly earnings increasing 1.1% year-over-year in February. Meanwhile, inflation, though lower than its level at the end of last year, slightly increased during the quarter, as annual CPI rose from 3.1% in January to 3.2% in February.

Due to continued steady economic growth, the strength of the labor market and higher-than-expected inflation data, the Federal Reserve (Fed) maintained the benchmark federal funds rate’s targeted range of 5.25% to 5.50% for the fifth consecutive meeting. Chair Powell reaffirmed that the policy rate is likely at its peak for this tightening cycle, but also emphasized that reducing policy restraint too soon or too much could reverse the progress already made by the central bank. However, most recent committee projections indicate that the federal funds rate will be at 4.60% at the end of this year and it will soon be appropriate to slow the pace of the Fed’s balance-sheet runoff.

On the corporate earnings front, results were mixed, as S&P 500 companies reported earnings growth of 4.0%, the second straight quarter of year-over-year growth, but fewer companies exceeded EPS estimates compared to the previous period. Inflation continued to be a major talking point, but companies reported resilient consumer spending, leading to fewer mentions of a potential recession on earnings calls.

Lastly, in U.S. politics, Congress passed, and President Biden signed the $1.2 trillion spending package that will fund the government for the rest of the fiscal year. In election news, both President Biden and former President Trump secured enough delegates to clinch their parties’ respective nominations, setting up the first presidential rematch in nearly 70 years.

Performance and Attribution Summary

For the first quarter of 2024, Aristotle Capital’s Value Equity Composite posted a total return of 7.63% gross of fees (7.56% net of fees), underperforming the 8.99% return of the Russell 1000 Value Index and the 10.56% return of the S&P 500 Index. Please refer to the table for detailed performance.

Performance (%)	1Q24	1 Year	3 Years	5 Years	10 Years
Value Equity Composite (gross)	7.63	24.93	8.24	13.85	12.18
Value Equity Composite (net)	7.56	24.62	7.97	13.55	11.84
Russell 1000 Value Index	8.99	20.27	8.10	10.30	9.00
S&P 500 Index	10.56	29.88	11.48	15.03	12.95

Past performance is not indicative of future results. Aristotle Value 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 Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Source: FactSet
Past performance is not indicative of future results. Attribution results are based on sector returns which are gross of investment advisory fees. Attribution is based on performance that is gross of investment advisory fees and includes the reinvestment of income.

The portfolio’s underperformance relative to the Russell 1000 Value Index in the first quarter can be attributed to both security selection and allocation effects. Security selection in Information Technology, Financials and Utilities detracted the most from relative performance. Conversely, security selection in Materials, Consumer Staples and Health Care contributed. (Relative weights are the result of bottom-up security selection.)

Contributors and Detractors for 1Q 2024

Relative Contributors	Relative Detractors
Parker Hannifin	Adobe
Martin Marietta Materials	Sony
Corteva	ANSYS
Lennar	Xcel Energy
Ameriprise Financial	Equity Lifestyle Properties

Adobe, the content creation and publishing software provider, was the leading detractor for the quarter.The company continues to benefit from its shift to a subscription model, with almost 95% of its record $19.4 billion in fiscal year 2023 revenue coming from subscriptions, while continuing to invest in innovation that expands its addressable market. Nevertheless, investors seem concerned with some of the lower-cost alternatives entering the market, including Sora, an OpenAI platform that produces videos from text. While much attention has also been placed on Adobe’s Firefly, a generative AI service that has already produced more than 6.5 billion images since launch in March 2023, we will take our time to understand Adobe’s AI monetization strategy. In the meantime, we continue to believe that the combination of Express, Firefly, Creative Cloud, Acrobat and Experience Cloud provides a unique solution to address all the content and data needs of clients and their management of the customer experience. In addition to innovation, Adobe continues to generate and return cash to shareholders, exemplified most recently by its new $25 billion stock repurchase program.

Xcel Energy, one of the largest renewable energy owners among regulated utilities, was a primary detractor during the period. Shares fell as the company’s facilities appear to have been involved in an ignition of the largest wildfire in Texas state history. As a result, insurance companies have begun filing lawsuits claiming Xcel should be held liable for damages related to the more than one million acres burned. Though the magnitude and likelihood of settlements are difficult to quantify, we believe potential payouts would be meaningfully less than the over $5 billion in market value the company lost in the days following the news. We will continue to closely monitor the situation and its impact on the company, as a full investigation is still underway. Over the long term, our conviction remains that Xcel is well positioned to benefit from increased demand for clean energy, as its service territories have what we believe to be some of the best wind and solar resources in the country.

Aggregates producer Martin Marietta Materials was a top contributor for the period.As a result of the company’s successful execution of its value-over-volume commercial strategy, including 15% price increases in its aggregates business, Martin Marietta reported full-year records for revenues and profitability. Furthermore, the company continues to bolster its leadership position through the acquisitions of Albert Frei & Sons, a leading aggregates producer in Colorado, and the southeast aggregates operations of Blue Water Industries. These transactions are expected to add one billion tons of reserves, improve product mix and profitability, and allow for the expansion into new target markets such as Nashville and Miami. We believe Martin Marietta is well positioned to continue executing on its catalysts, including optimizing its product portfolio and further enhancing profitability from both pricing and operations initiatives, all while benefiting from continued increases in both non-residential construction and government spending.

Corteva, the seed and crop protection company, was one of the largest contributors. As discussed in last quarter’s commentary, we believed the crop protection business was at or near a cyclical bottom in 2023, as customer destocking followed a 2020-2022 period of robust orders. Share prices have subsequently risen with Corteva’s crop protection sales falling just 5% in the previous quarter, an improved result compared to the 9% full-year decline, accompanied by guidance calling for a return to growth in the second half of 2024. However, as long-term investors, we look past cyclical fluctuations and are encouraged as Corteva further executes on many of the catalysts we identified. These include continued innovation (with over 400 new product launches in 2023) and share gains for the company’s Enlist E3 soybeans, which achieved 58% market penetration in 2023 and became the top-selling soybean technology in the U.S.

Recent Portfolio Activity

Buys	Sells
Lowe’s Companies	Phillips 66
TotalEnergies	Sysco

During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies and TotalEnergies.

We first purchased Phillips 66, the energy manufacturing and logistics company, in the third quarter of 2012. During our over decade-long ownership period, the company transformed itself from a predominately refining operation to a significantly more diversified energy business. In 2012, refining represented nearly 75% of earnings, and today it is less than half. With the expansion of other businesses, including midstream which is underpinned by long-term fee-based contracts, as well as chemicals and marketing, we believe Phillips 66 has reduced its cyclicality while enhancing FREE cash flow generation, supporting increased returns to shareholders. In addition, the company has started to position itself for the energy transition and remains on track to convert its San Francisco refinery into one of the world’s largest renewable fuels facilities. While we continue to believe Phillips 66 is a high-quality company on the path to further improvement, we decided to sell our shares to fund the purchase of what we consider a more suitable and attractive investment in TotalEnergies (discussed below).

We have owned Sysco, one of the largest food distribution companies in the world, since the fourth quarter of 2022. During our holding period, Sysco’s CEO Kevin Hourican has made progress transforming various aspects of the business, including implementing new technologies able to assist customers with their own changing menus and needs. Through leveraging its scale and purchasing power, we continue to view Sysco as well positioned to gain further share of the highly fragmented U.S. food distribution market, all while sustaining its more than 50-year streak of increasing dividends. Though the company meets each of our criteria for investment, we decided it was the best candidate for sale to fund the purchase of Lowe’s Companies, which we believe is a more optimal investment.

Lowe’s Companies, Inc.

Based in North Carolina, and with a history dating back to 1921, Lowe’s Companies is the world’s second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe’s stores primarily serve retail “do-it-yourself” customers (~75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers.

We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe’s—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe’s hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe’s has started the process of closing the gap to better compete with its nearest rival.

High-Quality Business

Some of the quality characteristics we have identified for Lowe’s include:

Economies of scale and Lowe’s extensive store network allow for cost and procurement advantages—i.e., significant bargaining power with vendors and suppliers;
Difficult-to-replicate knowledge and expertise of Lowe’s associates create a differentiated experience for customers, contributing to the company’s ~10% share of the highly fragmented home improvement market;
Home improvement is one of the few retailing businesses that hasn’t been disrupted in a large way by online competition (namely Amazon), which should continue given products are either costly to ship or needed immediately (i.e., replacing a broken tool or buying more material necessary to complete a project); and
Strong brand awareness and the ability to serve as a one-stop shop for any home improvement need creates a positive flywheel effect, promoting customer loyalty and in turn driving further scale benefits.

Attractive Valutaion

We believe shares of Lowe’s are attractively valued given our estimates of normalized earnings. More specifically, our analysis indicates that Lowe’s opportunity to gain market share and enhance profitability is underappreciated by the market.

Compelling Catalysts

Catalysts we have identified for Lowe’s, which we believe will propel the business forward over our three- to five-year investment horizon include:

Market share gains through improvements to Lowe’s supply chains, upgraded IT systems and enhanced omnichannel sales, which include “buy online, pick up in store” purchases;
Increased share gains with professionals due to the company’s renewed focus on offering products and services for this larger-scale customer base (Lowe’s estimates a professional make ~70 store visits per year versus just ~4 per year for a “do-it-yourself” customer); and
Increased profitability and sales per square foot of retail space, as the company has shifted its focus from geographical expansion toward improving store efficiency.

TotalEnergies S.E.

Headquartered in Paris, France, TotalEnergies was founded in 1924 and is one of the world’s largest energy companies. The company operates in more than 130 countries and spans the entire energy value chain, producing and marketing oil and biofuels, liquid natural gas (LNG), renewables and electricity.

To meet the challenge of the energy transition and still ensure reliable energy in the short term, TotalEnergies has implemented a two-pillar strategy: on one end, the company continues to develop low-cost exploration and production projects, with LNG playing a vital role in the transition; on the other, it has been building its Integrated Power segment through investments in renewable power. As such, management plans to invest over 30% of total spending in low-carbon businesses and rank among the world’s top five providers of solar and wind energy by 2030. To emphasize this ambition, the company changed its name from Total to TotalEnergies in 2021.

High-Quality Business

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

Low-cost and geographically diversified portfolio of upstream assets;
Commitment to research and development focused on clean energy sources (e.g., LNG, solar, wind);
Well-diversified business mix provides balance during periods of hydrocarbon price volatility; and
Experienced management team focused on cost discipline and FREE cash flow generation.

Attractive Valutaion

Using our estimates of normalized earnings, we believe TotalEnergies’ current stock price is offered at a discount to the company’s intrinsic value.

Compelling Catalysts

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

Uniquely positioned to benefit from increased global demand for clean energy;
Increased FREE cash flow and ROIC, as traditional exploration and production assets are used to fund short-cycle projects and as profitability in Integrated Power increases over the coming years;
Further ability of TotalEnergies’ LNG trading business to capture volatility in markets given the company’s global footprint and vast portfolio; and
Continued divestment of non-core assets as the company focuses on advantaged, low-cost and low-emission projects.

Conclusion

Despite the U.S. economy’s continued expansion, economic data points remain mixed. Additionally, investors face uncertainty the rest of the year, whether it be the path of central bank policy, the outcome of the 2024 U.S. presidential election, or the potential for new and/or escalating geopolitical conflicts.

However, while our analysis considers long-term developments in the macroeconomy, we focus most of our time and attention on individual companies that, in our opinion, possess a combination of qualities that are sustainable and difficult to reproduce. It is our belief that a diversified portfolio of investments in these companies will thrive over full market cycles.

Disclosures

The opinions expressed herein are those of Aristotle Capital Management, LLC (Aristotle Capital) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to purchase or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Capital makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Value Equity strategy. Not every client’s account will have these characteristics. Aristotle Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Capital’s Value Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request.

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.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Capital does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Capital Management, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Capital, including our investment strategies, fees and objectives, can be found in our ADV Part 2, which is available upon request. ACM-2404-14

Performance Disclosures

Sources: CAPS CompositeHub^TM, Russell Investments, Standard & Poor’s

Composite returns for all periods ended March 31, 2024 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. The information provided should not be considered financial advice or a recommendation to purchase or sell any particular security or product. Performance results for periods greater than one year have been annualized. The Aristotle Value Equity strategy has an inception date of November 1, 2010; however, the strategy initially began at Mr. Gleicher’s predecessor firm in October 1997. A supplemental performance track record from January 1, 2001 through October 31, 2010 is provided above. The returns are based on two separate accounts and performance results are based on custodian data. During this time, Mr. Gleicher had primary responsibility for managing the two accounts, one account starting in November 2000 and the other December 2000.

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.

Index Disclosures

The Russell 1000 Value® Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Russell 1000® Growth Index measures the performance of the large cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Dow Jones Industrial Average® is a price-weighted measure of 30 U.S. blue-chip companies. The Index covers all industries except transportation and utilities. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite includes over 3,000 companies, more than most other stock market indexes. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index of domestic investment grade bonds, including corporate, government and mortgage-backed securities. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States.. The 3-Month U.S. Treasury Bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of three months. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The volatility (beta) of the Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indexes.

Related Resources

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(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 presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets continued to climb during the first quarter. Overall, the MSCI ACWI Index rose 8.20% during the period. Concurrently, the Bloomberg Global Aggregate Bond Index fell 2.08%. In terms of style, value stocks underperformed their growth counterparts during the quarter, with the MSCI ACWI Value Index trailing the MSCI ACWI Growth Index by 2.65%.

The MSCI EAFE Index climbed 5.78% during the first quarter, while the MSCI ACWI ex USA Index increased 4.69%. Within the MSCI EAFE Index, Asia and Europe & Middle East were the strongest performers, while the U.K. gained the least. On a sector basis, eight of the eleven sectors within the MSCI EAFE Index posted positive returns, with Information Technology, Consumer Discretionary and Financials generating the largest gains. Conversely, Utilities, Consumer Staples and Materials declined.

Economic conditions varied by region, though most developed countries reported slowing inflation. For the month of February, both the U.K. and U.S. reported annual inflation descending toward the 3% mark, while the eurozone recorded an annual rate of 2.6%. As such, the respective central banks held monetary policy steady while signaling the possibility of rate cuts starting in June as the countries make progress toward the 2% target.

However, in Asia, Japan raised interest rates for the first time since 2007 to a range of 0.0% to 0.1%, as both inflation and wage growth have recently accelerated. This marked a historic shift and ended Japan’s period of negative rates, finally removing the world’s last remaining negative rates regime. Conversely, China lowered its five-year loan prime rate to bolster its faltering economy that is battling deflation and a troubled real estate sector.

In geopolitics, the conflict in the Middle East continued, with increased fighting in Lebanon and direct conflict in the Red Sea between the U.S. and Yemen’s Houthis, which have targeted more than two dozen ships traveling to and from the Suez Canal. The heightened activity in surrounding countries has sparked concerns of further regional escalation and the possibilty of a wider conflict. In Europe, Russia made small advances in Ukraine, including the capture of the city of Avdiivka, as Ukrainian troops struggle with supply shortages. The U.S. has recently partnered with countries such as South Korea and Turkey to provide additional ammunition and supplies to Ukraine.

Performance and Attribution Summary

For the first quarter of 2024, Aristotle Capital’s International Equity Composite posted a total return of 3.77% gross of fees (3.66% net of fees), underperforming the MSCI EAFE Index, which returned 5.78%, and the MSCI ACWI ex USA Index, which returned 4.69%. Please refer to the table below for detailed performance.

Performance (%)	1Q24	1 Year	3 Years	5 Years	10 Years	Since Inception*
International Equity Composite (gross)	3.77	14.85	3.46	7.46	5.48	5.78
International Equity Composite (net)	3.66	14.33	2.97	6.95	4.98	5.28
MSCI EAFE Index (net)	5.78	15.32	4.78	7.32	4.79	3.07
MSCI ACWI ex USA Index (net)	4.69	13.26	1.93	5.96	4.25	2.60

*The inception date for the International Equity Composite is January 1, 2008. 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 presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Source: FactSet
Past performance is not indicative of future results. Attribution results are based on sector returns which are gross of investment advisory fees. Attribution is based on performance that is gross of investment advisory fees and includes the reinvestment of income.

From a sector perspective, the portfolio’s underperformance relative to the MSCI EAFE Index can be attributed to security selection, while allocation effects had a positive impact. Security selection in Consumer Discretionary, Information Technology and Industrials detracted the most from the portfolio’s relative performance. Conversely, security selection in Consumer Staples and Health Care and a lack of exposure to Utilities contributed to relative return.

Regionally, both security selection and allocation effects were responsible for the portfolio’s underperformance. Security selection in Asia and exposure to Canada detracted the most from relative performance, while security selection in the U.K. and Europe & Middle East contributed.

Contributors and Detractors for 1Q 2024

Relative Contributors	Relative Detractors
Safran	Daikin Industries
Munich Reinsurance	Sony
Nemetschek	AIA Group
Pan Pacific International	Accenture
GlaxoSmithKline	Magna International

Sony, the global provider of videogames and consoles, image sensors, music and movies, was one of the largest detractors for the period. Sony cut its guidance from 25 million PlayStation 5 (PS5) units sold to 21 million units for the fiscal year. Despite the underwhelming hardware results, management has emphasized the importance of balancing profitability and sales in the latter stage of the PS5’s life cycle which it expects to achieve through engagement, with monthly active users reaching a record high of 123 million accounts. Furthermore, we will continue to monitor management’s ability to improve game development, streamline project management and control costs, as Sony has already begun to implement structural reforms in its Game & Network Services segment. In its Pictures segment, Sony terminated its merger with Zee Entertainment, as closing conditions were not met within the set two-year window. Nevertheless, management believes India remains a promising market and will proactively explore opportunities to bolster its position in the country. We remain confident in Sony’s ability to build on its industry leadership, and we feel the company’s continued optimization of business operations, including its plan for a partial spinoff of its Financial Services business, positions the company to enhance long-term value.

AIA Group, a pan-Asian life insurance company headquartered in Hong Kong, was one of the largest detractors for the quarter.While macro concerns over the state of the Chinese economy may have placed pressure on AIA’s share price during the quarter, business fundamentals continue to improve. As evidence, the company’s VONB* increased 33% in 2023. This, in our opinion, reflects AIA’s resiliency and the progress it has made across Asia, with mainland China, Hong Kong and the ASEAN countries (excluding Vietnam) all reporting double-digit percentage increases. The company has also completed a multi-year digital transformation that has not only reduced costs per transaction by over 30% but has also improved customer experience. (85% of customer transactions are now completed in a day or less.) With these technological investments in place, the support of its highly productive agency sales force, and further partnerships with major banks, we remain confident in AIA’s ability to continue increasing its market share in mainland China and expanding across Asia.

_{*Value of New Business (VONB) is an insurance term for the present value of new business written during a period.}

Safran, the French aerospace propulsion and equipment manufacturer, was the top contributor. As the leading supplier of narrow-body aircraft engines, Safran has benefited from the increase in narrow-body air traffic (above 2019 levels) and an aging fleet of aircraft that has spurred demand for required service. Part of our attraction to Safran is the nature of its product categories, which tend to exhibit pricing power, and the benefits of higher-margin aftermarket businesses, which we expect to expand in the years ahead. As an example, the company recently signed several multi-year equipment contracts with international airline customers. In addition, deliveries of Safran’s new-generation LEAP engines (which reduce fuel consumption and CO2 emissions) increased 38% in 2023, supporting the company’s proposed 63% year-over-year dividend increase. Longer term, we believe Safran will benefit from the continued transition to LEAP engines as airlines upgrade their fleets to be more efficient and environmentally friendly.

Munich Re, the world’s largest reinsurance company, was a leading contributor for the quarter. The company reported strong results as it continues to win market share, leverage its global scale and demonstrate underwriting discipline. Perhaps counterintuitively, recent global crises, such as war in both the Middle East and Ukraine and natural disaster losses that topped $100 billion, as well as the impact of inflation, showcase Munich Re’s strengths. Through these crises, the company has, we believe, displayed its prudent risk-taking and global diversification. Moreover, Munich Re (and its peers) have benefited from industry-wide price increases, which have contributed to increased return of capital to shareholders. The company raised its dividend by nearly 30% in 2023 and announced a new €1.5 billion share buyback program. We continue to believe Munich Re is attractively positioned to gain market share in a variety of areas, including cybersecurity, specialty insurance and in the fast-growing economies in Asia where the market is large, but insurance penetration remains relatively low.

Recent Portfolio Activity

Buys	Sells
None	None

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

Conclusion

Despite the U.S. economy’s continued expansion, economic data points remain mixed. Additionally, investors face uncertainty the rest of the year, whether it be the path of central bank policy, the outcome of the 2024 U.S. presidential election, or the potential for new and/or escalating geopolitical conflicts.

However, while our analysis considers long-term developments in the macroeconomy, we focus most of our time and attention on individual companies that, in our opinion, possess a combination of qualities that are sustainable and difficult to reproduce. It is our belief that a diversified portfolio of investments in these companies will thrive over full market cycles.

Disclosures

The opinions expressed herein are those of Aristotle Capital Management, LLC (Aristotle Capital) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Capital makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle International Equity strategy. Not every client’s account will have these characteristics. Aristotle Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Capital’s International Equity Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request.

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.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Capital does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Capital Management, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Capital, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACM-2404-37

Performance Disclosures

Sources: CAPS CompositeHub^TM, MSCI

Composite returns for all periods ended March 31, 2024 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. The information provided should not be considered financial advice or a recommendation to purchase or sell any particular security or product. Performance results for periods greater than one year have been annualized.

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.

Index Disclosures

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI ACWI captures large and mid-cap representation across 23 developed market countries and 24 emerging markets countries. With approximately 3,000 constituents, the Index covers approximately 85% of the global investable equity opportunity set. The MSCI ACWI Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the United States) and 24 emerging markets countries. With approximately 2,300 constituents, the Index covers approximately 85% of the global equity opportunity set outside the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Brent Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With approximately 250 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Global Aggregate Bond Index is a flagship measure of global investment grade debt from 28 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the U.K. market. With nearly 100 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in the United Kingdom. The MSCI Europe Index captures large and mid-cap representation across 15 developed markets countries in Europe. With approximately 430 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. These indexes have been selected as the benchmarks and are used for comparison purposes only. The volatility (beta) of the Composite may be greater or less than the respective benchmarks. It is not possible to invest directly in these indexes.

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In its simplest definition, diversity is the presence of differences.¹ Diversity is essential to bringing together new perspectives to accomplish incredible things. We also recognize on a global scale how differences in beliefs, cultures and unique traits we hold closely to our identity can drive deep division. This paradox points to the delicate balance that must be maintained in understanding and connecting to others.

At Aristotle², in alignment with our core values, we seek to listen to, understand and embrace the differences within our diverse teams and communities. We value the unique perspectives of our employees that inherently contribute to the firm’s growth and ensure we consistently deliver for our clients.

This past year has been significant for Aristotle in terms of advancing our commitment to diversity, equity and inclusion (DEI). While we acknowledge that our journey will always be met with challenges, the lessons we have learned this past year have positively influenced our approach and strategy moving forward. We remain open-minded and confident in our approach toward consistently fostering a diverse, equitable and inclusive culture at Aristotle.

¹Sources: Oxford University Press, Merriam-Webster.

²The term “Aristotle” is used to represent the family of affiliates which is comprised of Aristotle Capital Management, LLC (Aristotle Capital), Aristotle Capital Boston, LLC (Aristotle Boston), Aristotle Credit Partners, LLC (Aristotle Credit) Aristotle Atlantic Partners, LLC (Aristotle Atlantic), Aristotle Pacific Capital, LLC (Aristotle Pacific), and Aristotle Investment Services, LLC (Aristotle Investment Services); which collectively operate under a unified platform known as Aristotle. Each firm is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended.

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Summary

U.S. corporate credit markets ended the year on a strong note, as U.S. yields fell sharply and credit spreads narrowed to near the tightest levels of the year. The Bloomberg U.S. Aggregate Bond Index posted its first positive annual return since 2020, gaining 6.82% in the fourth quarter and 5.53% for the year. After underperforming for much of the year, investment grade corporate bonds outperformed both high yield bonds and bank loans during the fourth quarter. The Bloomberg U.S. Corporate Bond Index returned 8.50% during the quarter, bringing its year-to-date return to 8.52%. High yield bonds also rallied into the end of the year, gaining 7.16% for the quarter and 13.44% for the year, as measured by the Bloomberg U.S. Corporate High Yield Bond Index. After leading the way earlier in the year, bank loans lagged in the fourth quarter as the Credit Suisse Leveraged Loan Index returned 2.85% during the quarter and posted a full-year return of 13.04%.

Equities rebounded into the end of the year, as the S&P 500 notched its strongest quarterly gain since the fourth quarter of 2021, gaining 11.69% for the quarter and 26.29% for the year. Risk assets benefited as financial conditions eased significantly in the U.S. over the final two months of the year, with the macroeconomic narrative shifting to expectations of a “soft landing.” Softer energy prices and a weaker dollar were supportive of risk sentiment, as West Texas Intermediate (WTI) crude oil fell more than 20% and the U.S. Dollar Index declined 3.6%. Data released during the quarter showed U.S. economic growth had accelerated in the third quarter, with real GDP rising at an annual rate of 4.9%—the fastest pace of growth in nearly two years. The labor market also remained tight with the unemployment rate holding at 3.7% in December. Meanwhile, inflation continued its downward trend, as the headline Consumer Price Index (CPI) fell from an annualized pace of 3.7% in September to 3.1% in November.

The Fed held its benchmark rate at a range of 5.25% to 5.50% for the third consecutive meeting in December, as expected. However, the updated Summary of Economic Projections (SEP) signaled the committee expects 75 basis points of rate cuts in 2024 and a median year-end 2024 Fed funds rate projection of 4.6%, down from 5.1% in September. As such, Chair Jerome Powell stated the central bank’s policy rate is likely at or near its peak for the tightening cycle, as recent indicators have suggested inflation is falling amidst slower economic growth, moderating job gains and low unemployment.

Market Environment

U.S. Treasuries rallied across the curve in the fourth quarter, with the bulk of the move happening in the final two months of the year. The yield on the U.S. 10-year note ground more than 30 basis points higher in October, then fell more than 100 basis points over the next two months, ending the quarter roughly 69 basis points lower. The yield on the U.S. 2-year note also ended the quarter much lower, falling nearly 79 basis points, as the yield spread between the 2-year and 10-year notes narrowed roughly 10 basis points during the quarter.

Credit spreads fell sharply during the quarter, as both high yield and investment grade corporate spreads ended the year at the tights. Mirroring the pattern in U.S. yields, high yield bond spreads widened roughly 40 basis points in October, only to fall more than 100 basis points between November and December, ending the quarter roughly 71 basis points lower, as measured by the Bloomberg U.S. Corporate High Yield Bond Index. Investment grade corporate bond spreads followed a similar pattern, tightening roughly 22 basis points, as measured by the Bloomberg U.S. Corporate Bond Index.

Following a very slow first half of the year, high yield bond and leveraged loan issuance picked up for the second consecutive quarter. High yield bond supply totaled close to $176 billion in 2023, an increase of roughly 65% compared to the prior year. Nonetheless, the continued flow of rising stars, high yield credits that have been upgraded to investment grade, combined with lower supply, provided technical support as the overall size of the high yield bond secondary markets decreased during the year. Leveraged loan fourth-quarter issuance totaled roughly $112 billion, bringing full-year issuance to roughly $370 billion, a 47% increase compared to 2022. Investment grade corporate bond supply continued apace with year-to-date total volumes topping $1.4 billion, in line with 2022, but still below historical averages.

With strong risk sentiment through the end of the year, inflows into high yield bond and leveraged loan funds partially reversed net outflows from earlier in the year. High yield bond inflows totaled more than $5 billion in the fourth quarter, which helped reduce the total outflow for the year to nearly $7 billion, well below the full-year outflow of nearly $49 billion in 2022. Leveraged loan fund retail demand was less pronounced, with inflows totaling less than $1 billion during the period, as the full-year outflow for 2023 topped $17 billion, which was roughly $5 billion more than last year’s outflow. Additionally, collateralized loan obligation (CLO) demand picked up during the quarter, as CLO volume totaled nearly $139 billion in 2023 compared to just over $152 billion in 2022. Investment grade corporate bond funds saw solid retail demand continue with inflows of more than $16 billion in the fourth quarter and $88 billion for the full year.

Within the high yield bond market in the final quarter of the year, there was little performance dispersion between lower-quality and higher-quality bonds, as ‘BBs (+7.36%) outperformed ‘B’s (+7.01%) and ‘CCC’s (+6.91%). However, ‘CCC’s significantly outperformed for the full year, topping ‘B’s by roughly 6.07% and ‘BB’s by 8.25%. From an industry perspective, within the Bloomberg U.S. High Yield Bond Index, Brokerage & Asset Management (+11.80%) outperformed, while Transportation (+4.12%) underperformed.

Defaults and distressed exchanges rebounded, as high yield bond and leveraged loan default rates approached the highs from earlier in the year. The 12-month trailing, par-weighted U.S. high yield default rate, including distressed exchanges, increased roughly 73 basis points to end the quarter at 2.84% (2.08%, excluding distressed exchanges), below its long-term historical average. Meanwhile, the loan par-weighted default rate, including distressed exchanges, rose roughly 49 basis points to end September at 3.15% (2.10%, excluding distressed exchanges), near its long-term historical average.

Performance and Attribution Summary

High Yield Bond

The Aristotle High Yield Bond Composite returned 6.08% gross of fees (6.01% net of fees) in the fourth quarter, underperforming the 7.12% return of the ICE BofA BB-B U.S. Cash Pay High Yield Constrained Index. Sector rotation was the primary detractor from relative performance. Industry allocation and sector rotation also detracted modestly from relative performance.

Sector rotation detracted from relative performance led by the allocation to cash. The allocations to investment grade corporate bonds and bank loans also detracted from relative performance, with no offsetting contributors. Industry allocation also detracted from relative performance led by overweights in Transportation and Energy. This was partially offset by an underweight in Technology and an overweight in Banking. Additionally, security selection detracted from relative performance led by holdings in Finance Companies and Cable & Satellite. This was partially offset by selection in Diversified Manufacturing & Construction Machinery and Telecommunications.

Top Five Contributors	Top Five Detractors
Level 3 Financing	United Airlines
Outfront Media	Hughes Satellite
Telecom Italia	Air Canada
Spirit Airlines	Global Partners
Lithia Motors	Crestwood Midstream

*Bold securities held in representative account

Investment Grade Corporate

The Aristotle Investment Grade Corporate Bond Composite returned 8.66% gross of fees (8.61% net of fees) in the fourth quarter, outperforming the 8.50% return of the Bloomberg U.S. Corporate Bond Index. Security selection was the primary contributor to relative performance, while sector rotation detracted from relative performance.

Security selection contributed to relative performance led by holdings in Technology and Retailers & Restaurants. This was partially offset by selection in Insurance and Transportation. Industry allocation also contributed modestly to relative performance led by an overweight in Real Estate Investment Trusts (REITs) & Real Estate-Related and an underweight in Pharmaceuticals. This was partially offset by an underweight in Telecommunications and an overweight in Utilities. Sector rotation detracted from relative performance led by the allocation to cash, with no offsetting contributors. A modest duration underweight also detracted from relative performance, with no offsetting contributors.

Top Five Contributors	Top Five Detractors
Western Midstream	United Airlines
Kinross Gold	Wells Fargo
PG&E	Federal Realty Investment Trust
Alexandria Real Estate	Goldman Sachs
JPMorgan	Southern Company

*Bold securities held in representative account

Outlook

In recent months, we witnessed a significant shift in the macroeconomic landscape, characterized by lower inflation, robust growth, sturdy employment and a more dovish Fed. This substantially increased expectations for a potential “soft landing” in 2024. U.S. corporate credit markets experienced a robust rally into year-end, against a backdrop of solid corporate balance sheets, favorable technical factors and a resilient economic environment. Despite less favorable valuations post-rally, we maintain the belief that there is still a compelling case for holding U.S. corporate credit, given relatively appealing income opportunities and solid fundamentals.

Between the third quarter’s close and year-end, notable changes unfolded in interest rate market expectations for 2024. From concerns about increased U.S. Treasury supply in September, the narrative shifted to optimism around future Fed rate cuts by December. The turning point emerged in early November, following the U.S. Treasury’s tamer-than-expected quarterly refunding announcement and Fed Chair Powell’s dovish shift in response to softening inflation data.

As stated at the end of the third quarter, we thought U.S. yields had likely topped out in the near term as we headed into the fourth quarter. However, we did not anticipate the magnitude of the rate reversal in November and December, which we believe was likely exacerbated by positioning and technical factors. However, the same risks we acknowledged at the end of the third quarter remain, including the Fed’s commitment to quantitative tightening (QT), growing U.S. deficits and potentially lower foreign demand for U.S. Treasuries. Consequently, with interest rate futures markets pricing in roughly 150 basis points in Fed cuts for 2024 following the sharp decline in yields in the fourth quarter, we anticipate longer-end U.S. yields to be rangebound with a bias to the topside heading into the new year.

With the improvement in U.S. economic data and the Fed’s dovish rhetoric, previously widespread fears of a looming recession have all but disappeared. In our opinion, the U.S. consumer remains in good shape while fiscal stimulus will continue to trickle into the economy as we enter an election year. Nonetheless, with market expectations pricing in what we see as a “Goldilocks” scenario, we believe it is prudent to monitor the incoming economic data for signs of slowing growth or more persistent inflation.

In light of the impact of the recent rally on valuations, at the moment, we believe there is limited opportunity for credit spreads to compress further from their current tight levels relative to history. Technical factors will remain supportive, as we expect new issue activity to remain subdued, rising stars in the high yield market to increase and demand to remain strong due to elevated all-in yields. Barring a more significant economic slowdown than we are anticipating, fundamentals are expected to remain healthy, maintaining moderate leverage, solid interest coverage and still modest default activity. That being said, the impact of higher rates is expected to be felt more in 2024 as certain issuers, notably in lower-quality segments of the market, confront the need to refinance debt at much higher interest rates. Nonetheless, we believe companies with sound capital structures in the higher-quality segment of the markets should be able to withstand higher rates, presenting an opportunity for income and positive total returns, particularly in the short to intermediate part of the yield curve.

High Yield Bond Positioning

In our high yield bond portfolios, we continue to favor higher-quality credits while focusing more on bottom-up security selection heading into 2024. From an industry perspective, we are continuing to look for more idiosyncratic themes with expectations for more differentiated performance across credits and industries in the new year.

While maintaining a bias toward higher quality, our primary focus will be on bottom-up security selection in 2024. We continue to hold a modest duration underweight relative to the benchmark and see attractive opportunities in the belly of the yield curve, as we see the yield curve steepening over 2024. Additionally, we expect fundamentals to remain resilient and the default rate to remain modest, and we believe riskier issuers are more likely to seek funding in the private markets. This will be a theme we will continue to monitor and explore further in the new year.

Industry-wise, we prefer those with a domestic focus and credits that have been prudent in managing their balance sheets to withstand persistent higher rates. We continue to overweight Energy and idiosyncratic themes in Retailers & Restaurants, while remaining cautious on Cable & Satellite and Telecom, where we believe business models are facing significant risks. At the end of the quarter, we held overweights in Energy, Transportation and Retailers & Restaurants alongside underweights in Technology, Telecommunications and Cable & Satellite.

Investment Grade Corporate Positioning

In our investment grade corporate bond portfolios, we maintain a neutral stance on duration relative to the benchmark, while increasing exposure to higher-quality credits. From an industry perspective, we reduced exposure to more cyclical industries and higher beta credits.

From a duration perspective, we maintained a neutral stance relative to the benchmark during the quarter. We continued to reduce exposure to split-rated/crossover credits (BBB/BB) while making more nuanced changes in higher quality tiers. As we believe quality continues to improve within ‘BBB’-rated credits, we have increased exposure in the shorter end of the curve, while increasing exposure to the longer end within ‘A’-rated credits.

From an industry perspective, we began to reduce higher beta names in industries such as Energy, while increasing exposure to higher-quality, less cyclical segments of the market, including Utilities. At the end of the quarter, we held overweights in Utilities, Insurance and REITs & Real Estate-Related alongside underweights in Banking, Healthcare and Technology.

Disclosures

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. There are risks specifically associated with fixed income investments such as interest rate risk and credit risk. Bond values fluctuate in price in response to market conditions. Typically, when interest rates rise, there is a corresponding decline in bond values. This risk may be more pronounced for bonds with longer-term maturities. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. High yield securities are generally rated lower than investment grade securities and may be subject to greater market fluctuations, increased price volatility, risk of issuer default, less liquidity, or loss of income and principal compared to investment grade securities.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Credit does not guarantee the accuracy, adequacy or completeness of such information.

The opinions expressed herein are those of Aristotle Credit Partners, LLC (Aristotle Credit) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report are or will be profitable, or that recommendations Aristotle Credit makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Credit High Yield Bond strategy and the Aristotle Credit Investment Grade Corporate Bond strategy. Not every client’s account will have these characteristics. Aristotle Credit reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. For a full list of all recommendations made by Aristotle Credit during the last 12 months, please contact us at (949) 681-2100. This is not a recommendation to buy or sell a particular security.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Composite returns are preliminary pending final account reconciliation.

Composite and benchmark returns reflect the reinvestment of income. 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 Credit Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Credit, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACP-2401-4

Performance Disclosures

Sources: SS&C Advent; ICE BofA

*Composite returns are preliminary pending final account reconciliation.

**2014 is a partial-year period of nine months, representing data from April 1, 2014 to December 31, 2014.

***2009 is a partial-year period of ten months, representing data from March 1, 2009 to December 31, 2009.

Past performance is not indicative of future results. 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. The Aristotle High Yield Bond strategy has an inception date of April 1, 2014; however, the strategy initially began at Douglas Lopez’s predecessor firm. A supplemental performance track record from March 1, 2009 to December 31, 2013 (Mr. Lopez’s departure from the firm) is provided. The returns are based on a separate account from the strategy while it was being managed at Doug Lopez’s predecessor firm and performance results are based on custodian data. During this time, Mr. Lopez had primary responsibility for managing the account. Please refer to disclosures at the end of this document.

Sources: SS&C Advent, Bloomberg

*Composite returns are preliminary pending final account reconciliation.

**2014 is a partial-year period of eight months, representing data from May 1, 2014 to December 31, 2014.

***2009 is a partial-year period of four months, representing data from September 1, 2009 to December 31, 2009.

Past performance is not indicative of future results. 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. The primary benchmark was retroactively changed from Bloomberg U.S. Credit Bond Index to Bloomberg U.S. Corporate Bond Index effective March 31, 2017. The Aristotle Investment Grade Corporate Bond strategy has an inception date of May 1, 2014; however, the strategy initially began at Terence Reidt’s predecessor firm. A supplemental performance track record from September 1, 2009 to December 31, 2013 (Mr. Reidt’s departure from the firm) is provided. The returns are based on a separate account from the strategy while it was being managed at Terence Reidt’s predecessor firm and performance results are based on custodian data. During this time, Mr. Reidt had primary responsibility for managing the account. Please refer to disclosures at the end of this document.

Index Disclosures

The Bloomberg U.S. Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. The Index is frequently used as a stand-in for measuring the performance of the U.S. bond market. In addition to investment grade corporate debt, the Index tracks government debt, mortgage-backed securities (MBS) and asset-backed securities (ABS) to simulate the universe of investable bonds that meet certain criteria. In order to be included in the Index, bonds must be of investment grade or higher, have an outstanding par value of at least $100 million and have at least one year until maturity. The Bloomberg U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers that are all U.S. dollar denominated. The Bloomberg U.S. Corporate Bond Index is a component of the Bloomberg U.S. Credit Bond Index. The Bloomberg U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded. The S&P 500 Index is the Standard & Poor’s Composite Index and is a widely recognized, unmanaged index of common stock prices. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization. The ICE Bank of America (ICE BofA) BB-B U.S. Cash Pay High Yield Constrained Index measures the performance of the U.S. dollar-denominated BB-rated and B-rated corporate debt issued in the U.S. domestic market, a ﬁxed coupon schedule and a minimum amount outstanding of $100 million, issued publicly. Allocations to an individual issuer in the Index will not exceed 2%. The Credit Suisse Leveraged Loan Index is a market-weighted index designed to track the performance of the investable universe of the U.S. dollar-denominated leveraged loan market. Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States. The U.S. Dollar Index (DXY) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the United States’ most significant trading partners. The volatility (beta) of the Composites may be greater or less than the indices. It is not possible to invest directly in these indices. Composite and index returns reflect the reinvestment of income.

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