Markets Review

The U.S. equity market rebounded during the second quarter and reached new all-time highs, with the S&P 500 Index rising 15.20% during the period. Surging demand for artificial intelligence (AI) processing power and expansive capital expenditure plans continued to support AI-related businesses, which drove a substantial portion of benchmark returns and contributed meaningfully to earnings growth. Fixed income markets also advanced, as the Bloomberg U.S. Aggregate Bond Index increased 0.67%.

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

On a sector basis, ten of the eleven sectors within the Russell 1000 Growth Index posted gains in the second quarter of 2026. The strongest-performing sectors were Information Technology and Industrials. The weakest sectors were Energy and Consumer Staples.

Market leadership remained narrow and increasingly tied to the AI infrastructure buildout. Significant investment in semiconductors, memory and data center infrastructure continued to benefit a concentrated group of companies. While these themes supported benchmark returns, they also contributed to significant dispersion beneath the surface, as many resilient, cash-generative businesses outside the AI infrastructure ecosystem did not participate to the same degree.

Geopolitics remained a key source of market uncertainty during the quarter. Peace negotiations between the U.S. and Iran proved volatile, with the reopening of the Strait of Hormuz, nuclear commitments, asset sanctions and regional economic development as primary points of discussion. An interim understanding between the two countries helped establish a ceasefire framework and restore maritime shipping in the region. However, tensions remained elevated, as both sides accused the other of violations, contributing to renewed U.S. strikes on Iran.

Against this backdrop, oil prices were volatile and continued to put upward pressure on inflation. The Consumer Price Index rose 4.2% for the 12 months ended May, compared with 3.8% for the 12 months ended April. Despite elevated inflation, real GDP growth accelerated, the unemployment rate remained stable at 4.3%, and consumer confidence improved in June from May’s record low. Given these conditions, the Federal Reserve maintained the target range for the federal funds rate as the Committee continued to balance its dual mandate of maximum employment and price stability.

Performance and Attribution Summary

For the second quarter of 2026, Aristotle Atlantic’s Focus Growth Composite posted a total return of 19.01% gross of fees (18.88% net of fees), outperforming the 16.74% total return of the Russell 1000 Growth Index.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	Since Inception*
Focus Growth Composite (gross)	19.01	9.05	20.47	22.30	10.78	15.61
Focus Growth Composite (net)	18.88	8.79	20.13	22.11	10.63	15.38
Russell 1000 Growth Index	16.74	5.33	17.71	22.58	13.71	17.50

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

During the second quarter, the portfolio’s outperformance relative to the Russell 1000 Growth Index was due to security selection, while allocation effects detracted. Security selection in Health Care and Information Technology contributed the most to relative returns. Conversely, security selection in Communication Services and Consumer Staples detracted the most.

Contributors and Detractors for 2Q 2026

Relative Contributors	Relative Detractors
KLA Corporation	Netflix
Guardant Health	Darling Ingredients
CrowdStrike Holdings	S&P Global
Adaptive Biotechnologies	Oracle
Snowflake	Prologis

Relative contributors and detractors are based on attribution total effect and exclude benchmark securities not held in the portfolio.

Contributors

KLA Corporation

KLA Corporation contributed to performance in the second quarter, benefiting from the AI-driven WFE upcycle and reinforcing its position as the leading process control beneficiary of rising semiconductor manufacturing complexity. The company’s quarterly results highlighted the broad-based strength across process control, specialty process tools and advanced packaging tied to AI logic and high-bandwidth memory (HBM). Management raised its long-term outlook, underpinned by process control market share that has expanded to approximately 58%, over 4x its nearest competitor, as rising chip complexity (GAA, advanced nodes, HBM stacking) continues to lift process control intensity as a share of fab spend. This positioning was further validated in June, as Samsung and SK Hynix’s $515-$518 billion capacity expansion plan to double South Korean DRAM output drove strength in KLA’s shares, reinforcing the read-through from accelerating WFE spend (~$145B in 2026 toward ~$250B by 2028) directly into the company’s process control business.

Guardant Health

Guardant Health contributed to performance in the second quarter following a string of positive developments, as several catalysts played out during the quarter. These developments include FDA approval of an updated version of the Guardant360 liquid biopsy test, American Cancer Society inclusion of the company’s Shield test for colorectal cancer screening, and a report of stronger-than-expected first quarter earnings driven by volume growth and coverage expansion.

Detractors

Netflix

Netflix shares detracted from performance in the second quarter following a series of failed large-scale M&A bids that raised concerns about the company’s organic growth trajectory. The pursuit of both Warner Bros. Discovery and Roku signaled that management may be increasingly reliant on inorganic levers to sustain engagement and revenue growth, weighing on the P/E multiple. Headwinds were compounded by lower subscriber engagement due to a weaker content slate and disappointment that management did not raise full-year 2026 guidance during its first quarter 2026 earnings call in April.

Darling Ingredients

Darling Ingredients detracted from performance in the second quarter as the market digested outsized gains in Darling’s stock during the first quarter of 2026. In the second quarter, Darling announced better-than-expected earnings and raised full-year guidance. Several commodity-based indicators tied to Darling’s earnings drivers, including fat prices, renewable diesel margins and renewable identification numbers (RINs), remained supportive of the company’s earnings outlook for the remainder of 2026 and into 2027.

Recent Portfolio Activity

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

Buys	Sells
Amphenol	HubSpot
Coherent
Sandisk
Western Digital

Buys

Amphenol

Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems; antennas; sensors and sensor-based products; and coaxial, high-speed and specialty cable. Based on recent reports of industry analysts, the company estimates that worldwide sales of interconnect and sensor-related products were approximately $250 billion in 2024, reflecting continued growth driven by data communications, electrification, and aerospace and defense demand. The company aligns its businesses into three reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. The company sells products to customers in a diversified set of end markets.

Our view on Amphenol centers on its diversified exposure across automotive, aerospace, defense, information technology datacom, mobile networks, industrial and other end markets, which provides resilience while positioning the company to benefit from multiple long-term growth themes. The company is a consolidator in a fragmented interconnect market, supported by a global manufacturing footprint, disciplined acquisition strategy and a track record of integrating deals that expand capabilities in fiber optics, defense interconnects, cable solutions, active optics and building connectivity. Its decentralized operating model, cost discipline, strong incremental margins, high returns on invested capital and equity, and robust free cash flow can support profitability and earnings growth. We believe demand from AI data centers and cloud infrastructure is a major growth driver, with Amphenol now spanning the full data center signal path across copper, power, fiber and optics, while broader electrification, factory automation, Industrial Internet of Things adoption, defense modernization and aerospace electronics provide additional multi-year demand tailwinds. Together, these factors can create a resilient, high-quality growth profile supported by disciplined capital allocation and continued opportunities for organic and acquisition-driven expansion. Amphenol trades above its recent historical valuation range after re-rating on the strength of its AI and data center business, as well as strong execution. We view the premium as justified given the company’s long record of trading at a meaningfully higher earnings multiple than the broader market. The main drivers of future valuation will likely be the durability of AI and data center growth, the pace of recovery in industrial demand, and continued value creation from acquisitions.

Coherent

Coherent is a vertically integrated manufacturing company that develops, manufactures and markets lasers, transceivers, and other optical and optoelectronic devices, modules, and systems, as well as engineered materials, for use in the communications, industrial, instrumentation and electronics markets. The company has broad technical expertise and a deep technology stack in areas of importance to its products. This includes materials growth and fabrication of specialty materials, semiconductor lasers and passive optics, including isolators, transceivers, transport equipment, higher-powered lasers for semiconductor capital equipment, display manufacturing, precision manufacturing and scientific research. Many of Coherent’s products include custom integrated software that it develops internally, leveraging the company’s deep domain expertise.

We believe Coherent offers a compelling long-term investment thesis as AI data centers shift from electrical copper connections to optical networking, creating a structural multi-year growth opportunity across scale-out, scale-up and data center interconnect applications. The company benefits from vertical integration across key photonic components, expanding indium phosphide manufacturing capacity, a geographically diversified and U.S.-centered supply chain, and a strategic partnership with NVIDIA that validates its position in co-packaged optics for next-generation data center architectures. In addition, Coherent has a large and expanding addressable market, a high-margin industrial business with recurring service and replacement revenue, and a portfolio streamlining program that reallocates investment toward higher-growth opportunities while using divestiture proceeds to reduce debt and support earnings growth.

Sandisk

We initiated Sandisk as a complementary picks-and-shovels investment opportunity tied to the AI memory bottleneck, with hard disk drives and flash memory now capacity-constrained inputs for AI data center expansion. These components are shifting away from commoditized consumer technology inputs, and we believe Sandisk can benefit from stronger pricing power, multi-year customer agreements, higher earnings and potential valuation multiple expansion.

Sandisk is a global developer and manufacturer of flash memory storage solutions headquartered in Milpitas, California, following its spinoff from Western Digital in February 2025. The company serves enterprise data centers, personal computers, smartphones and consumer devices through products including enterprise solid-state drives, client solid-state drives, embedded mobile storage, and branded removable and retail storage. Sandisk manufactures through its Flash Ventures joint venture with Kioxia, giving it access to advanced three-dimensional flash memory production at low-cost, capital-efficient economics, while retaining vertical integration in controller and firmware intellectual property, supported by a large patent portfolio. The company is increasingly focused on higher-value storage demand tied to AI data center growth.

We see Sandisk offering leveraged exposure to the AI-driven memory bottleneck, as flash memory and enterprise solid-state drives shift from commoditized components to strategically constrained inputs for data center growth. The investment case rests on stronger and more visible demand from hyperscale customers, improved industry supply discipline, multi-year customer agreements that provide floor-protected revenue, and a cleaner standalone structure following the separation from Western Digital. The company also benefits from its long-standing Flash Ventures partnership with Kioxia, which provides a cost and capital advantage, while new data center platform qualifications, high-bandwidth flash optionality and geopolitical support for trusted supply chains can create additional paths for earnings growth and valuation multiple expansion.

We believe Sandisk trades at a valuation that appears reasonable given improving earnings expectations, stronger AI memory demand and rising pricing power. We believe disciplined supply, contracted demand and a debt-free, cash-returning balance sheet should reduce earnings volatility and support a higher valuation over time.

Western Digital

We initiated Western Digital because we view the company as providing picks-and-shovels exposure to the AI memory bottleneck, with hard disk drives and NAND flash memory now serving as capacity-constrained inputs to AI data center buildout. These components are no longer commoditized inputs in consumer technology goods, and we see both Western Digital and Sandisk benefiting from stronger pricing power and multi-year customer agreements, resulting in upward earnings inflection and multiple expansion.

Western Digital is a pure-play developer and manufacturer of hard disk drives and data storage solutions focused on high-capacity storage for cloud and AI infrastructure. Following the February 2025 separation of its flash memory business into the independent company Sandisk, Western Digital has become one of the leading suppliers of nearline hard disk drives used by hyperscale cloud service providers to store large volumes of data economically. The company is vertically integrated across key components such as recording heads and magnetic media, operates a global manufacturing and testing footprint, and supports its product roadmap with advanced recording technologies and a large patent portfolio. With only three remaining global hard disk drive manufacturers and two scaled industry participants, Western Digital operates in a consolidated and supply-disciplined market that benefits from growing demand for AI data storage.

We believe Western Digital represents a compelling investment opportunity as hard disk drive demand shifts from a personal computer-driven cycle to a durable AI and cloud infrastructure growth story. The company benefits from a structurally improved industry with limited competition, disciplined capacity, multi-year customer agreements and rising pricing power as hyperscale customers prioritize secure storage supply for rapidly expanding data needs. This stronger market backdrop can translate into higher margins, improved earnings visibility, significant free cash flow generation and increased shareholder returns through dividends and share repurchases. With limited capital investment requirements, a cleaner balance sheet and sustained demand for economical mass storage, we believe Western Digital is positioned to compound earnings and cash flow over multiple years.

Western Digital Corporation has earned a higher valuation because its business profile has shifted from a cyclical hardware supplier to a more disciplined, cash-generative infrastructure company with stronger demand visibility. Continued growth in data storage needs, improved pricing power, durable margins, modest reinvestment requirements and meaningful shareholder returns support further earnings and cash flow compounding over time.

Sells

HubSpot

We sold HubSpot because its core value proposition—an easy-to-use, all-in-one go-to-market platform—is becoming increasingly replicable by AI-native agents that can autonomously manage prospecting, lead nurturing and pipeline workflows without the need for a dedicated SaaS layer. HubSpot’s SMB-heavy customer base is especially price-sensitive and more exposed to churn as lower-cost AI-native alternatives emerge, creating risk to both net revenue retention and new logo growth. With the stock still valued for durable double-digit growth, we view the risk/reward as skewed to the downside.

Outlook

The equity markets in the second quarter increased mid-teens on the strength in technology and related companies tied into the AI infrastructure spend. Interest rates rose slightly for the quarter, as inflation continues to run above the Federal Reserve’s target level. There was a sizable decline in energy-related equities on the pullback in energy commodity prices. We view equity valuations on forward earnings expectations as reasonable, as the growth in earnings has continued to surprise to the upside. The economic data points to a moderately growing economy with lingering inflation, putting the Federal Reserve on hold with a bias toward a rate increase in the latter half of the year. The conflicts in Iran and Ukraine will continue to drive uncertainty, especially in the energy commodity space. Our focus will likely continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles. 

Five years ago, one of our portfolio managers (PMs) made an inaugural trip to Iceland. The PM was fascinated by the lundi, Icelandic meaning a puffin species of bird. We wrote about these tough (yet quite cute!) flying creatures in our January 2022 edition of The Essence. Their heartiness and extraordinary lives, mostly out at sea, exemplified a part of Aristotle Capital’s process of studying how businesses “weather” tough conditions. COVID was still impacting most countries – yet Iceland was largely spared – while its duration and consequences were not fully known.

Fast forward to 2026 and this same PM set out to replicate what was a unique journey. This time, however, a more circuitous route was taken. First through London to meet with some portfolio companies, then north to Ireland and Scotland. Then on to the Scottish Highlands and through the Faroe Islands as a last stop before Iceland. These 18 islands (population no more than 54,000 on a crowded day) are a self-governing part of Denmark, sitting between Iceland and Norway in the North Atlantic Ocean. This is where our PM met Dánial Hoydal, Founder and CEO of Faer Isles Distillery.

To read the full article, please use the link below.

Markets Review

The U.S. equity market rebounded during the second quarter and reached new all-time highs, with the S&P 500 Index rising 15.20% during the period. Surging demand for artificial intelligence (AI) processing power and expansive capital expenditure plans continued to support AI-related businesses, which drove a substantial portion of benchmark returns and contributed meaningfully to earnings growth. Fixed income markets also advanced, as the Bloomberg U.S. Aggregate Bond Index increased 0.67%.

On a sector basis, ten of the eleven sectors within the Russell 1000 Growth Index posted gains in the second quarter of 2026. The strongest-performing sectors were Information Technology and Industrials. The weakest sectors were Energy and Consumer Staples.

Market leadership remained narrow and increasingly tied to the AI infrastructure buildout. Significant investment in semiconductors, memory and data center infrastructure continued to benefit a concentrated group of companies. While these themes supported benchmark returns, they also contributed to significant dispersion beneath the surface, as many resilient, cash-generative businesses outside the AI infrastructure ecosystem did not participate to the same degree.

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

Geopolitics remained a key source of market uncertainty during the quarter. Peace negotiations between the U.S. and Iran proved volatile, with the reopening of the Strait of Hormuz, nuclear commitments, asset sanctions and regional economic development as primary points of discussion. An interim understanding between the two countries helped establish a ceasefire framework and restore maritime shipping in the region. However, tensions remained elevated, as both sides accused the other of violations, contributing to renewed U.S. strikes on Iran.

Against this backdrop, oil prices were volatile and continued to put upward pressure on inflation. The Consumer Price Index rose 4.2% for the 12 months ended May, compared with 3.8% for the 12 months ended April. Despite elevated inflation, real GDP growth accelerated, the unemployment rate remained stable at 4.3%, and consumer confidence improved in June from May’s record low. Given these conditions, the Federal Reserve maintained the target range for the federal funds rate as the Committee continued to balance its dual mandate of maximum employment and price stability.

Performance and Attribution Summary

For the second quarter of 2026, Aristotle Atlantic’s Large Cap Growth Composite posted a total return of 19.28% gross of fees (19.12% net of fees), outperforming the 16.74% return of the Russell 1000 Growth Index.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	Since Inception*
Large Cap Growth Composite (gross)	19.28	9.69	21.71	21.74	11.37	18.16
Large Cap Growth Composite (net)	19.12	9.40	21.06	21.09	10.85	17.65
Russell 1000 Growth Index	16.74	5.33	17.71	22.58	13.71	19.02

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

During the second quarter, the portfolio’s outperformance relative to the Russell 1000 Growth Index was due to security selection, while allocation effects detracted. Security selection in Health Care and Information Technology contributed the most to relative performance. Conversely, security selection and an overweight in Consumer Staples detracted from relative performance.

Contributors and Detractors for 2Q 2026

Relative Contributors	Relative Detractors
KLA Corporation	Darling Ingredients
Guardant Health	Oracle
CrowdStrike Holdings	Amphenol
Adaptive Biotechnologies	O’Reilly Automotive
Snowflake	S&P Global

Relative contributors and detractors are based on attribution total effect and exclude benchmark securities not held in the portfolio.

Contributors

KLA Corporation

KLA Corporation contributed to performance in the second quarter, benefiting from the AI-driven WFE upcycle and reinforcing its position as the leading process control beneficiary of rising semiconductor manufacturing complexity. The company’s quarterly results highlighted the broad-based strength across process control, specialty process tools and advanced packaging tied to AI logic and high-bandwidth memory (HBM). Management raised its long-term outlook, underpinned by process control market share that has expanded to approximately 58%, over 4x its nearest competitor, as rising chip complexity (GAA, advanced nodes, HBM stacking) continues to lift process control intensity as a share of fab spend. This positioning was further validated in June, as Samsung and SK Hynix’s $515-$518 billion capacity expansion plan to double South Korean DRAM output drove strength in KLA’s shares, reinforcing the read-through from accelerating WFE spend (~$145B in 2026 toward ~$250B by 2028) directly into the company’s process control business.

Guardant Health

Guardant Health contributed to performance in the second quarter following a string of positive developments, as several catalysts played out during the quarter. These developments include FDA approval of an updated version of the Guardant360 liquid biopsy test, American Cancer Society inclusion of the company’s Shield test for colorectal cancer screening, and a report of stronger-than-expected first quarter earnings driven by volume growth and coverage expansion.

Detractors

Darling Ingredients

Darling Ingredients detracted from performance in the second quarter as the market digested outsized gains in Darling’s stock during the first quarter of 2026. In the second quarter, Darling announced better-than-expected earnings and raised full-year guidance. Several commodity-based indicators tied to Darling’s earnings drivers, including fat prices, renewable diesel margins and renewable identification numbers (RINs), remained supportive of the company’s earnings outlook for the remainder of 2026 and into 2027.

Oracle

Oracle detracted from performance in the second quarter amid a broader reversal in software sentiment, as investors continued to question SaaS durability and pricing power in an AI-native world following the “SaaSpocalypse” scare earlier in the year. Investors also remain cautious about the company’s AI spending plans and negative FCF, with fourth quarter 2025 results highlighting a surge in capex to nearly $56 billion and negative FCF of $24 billion. We continue to maintain a positive view on the name due to the large AI contracted RPO, attractive growth of its multi-cloud database business, and the view that fiscal year 2027 will mark the peak in capex intensity and a trough in negative FCF.

Recent Portfolio Activity

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

Buys	Sells
Amphenol	Amphenol
Coherent	Antero Resources
ServiceNow	HubSpot
Sandisk
Western Digital

Buys

Amphenol

Amphenol is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems; antennas; sensors and sensor-based products; and coaxial, high-speed and specialty cable. Based on recent reports of industry analysts, the company estimates that worldwide sales of interconnect and sensor-related products were approximately $250 billion in 2024, reflecting continued growth driven by data communications, electrification, and aerospace and defense demand. The company aligns its businesses into three reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. The company sells products to customers in a diversified set of end markets.

Our view on Amphenol centers on its diversified exposure across automotive, aerospace, defense, information technology datacom, mobile networks, industrial and other end markets, which provides resilience while positioning the company to benefit from multiple long-term growth themes. The company is a consolidator in a fragmented interconnect market, supported by a global manufacturing footprint, disciplined acquisition strategy and a track record of integrating deals that expand capabilities in fiber optics, defense interconnects, cable solutions, active optics and building connectivity. Its decentralized operating model, cost discipline, strong incremental margins, high returns on invested capital and equity, and robust free cash flow can support profitability and earnings growth. We believe demand from AI data centers and cloud infrastructure is a major growth driver, with Amphenol now spanning the full data center signal path across copper, power, fiber and optics, while broader electrification, factory automation, Industrial Internet of Things adoption, defense modernization and aerospace electronics provide additional multi-year demand tailwinds. Together, these factors can create a resilient, high-quality growth profile supported by disciplined capital allocation and continued opportunities for organic and acquisition-driven expansion. Amphenol trades above its recent historical valuation range after re-rating on the strength of its AI and data center business, as well as strong execution. We view the premium as justified given the company’s long record of trading at a meaningfully higher earnings multiple than the broader market. The main drivers of future valuation will likely be the durability of AI and data center growth, the pace of recovery in industrial demand, and continued value creation from acquisitions.

Coherent

Coherent is a vertically integrated manufacturing company that develops, manufactures and markets lasers, transceivers, and other optical and optoelectronic devices, modules, and systems, as well as engineered materials, for use in the communications, industrial, instrumentation and electronics markets. The company has broad technical expertise and a deep technology stack in areas of importance to its products. This includes materials growth and fabrication of specialty materials, semiconductor lasers and passive optics, including isolators, transceivers, transport equipment, higher-powered lasers for semiconductor capital equipment, display manufacturing, precision manufacturing and scientific research. Many of Coherent’s products include custom integrated software that it develops internally, leveraging the company’s deep domain expertise.

We believe Coherent offers a compelling long-term investment thesis as AI data centers shift from electrical copper connections to optical networking, creating a structural multi-year growth opportunity across scale-out, scale-up and data center interconnect applications. The company benefits from vertical integration across key photonic components, expanding indium phosphide manufacturing capacity, a geographically diversified and U.S.-centered supply chain, and a strategic partnership with NVIDIA that validates its position in co-packaged optics for next-generation data center architectures. In addition, Coherent has a large and expanding addressable market, a high-margin industrial business with recurring service and replacement revenue, and a portfolio streamlining program that reallocates investment toward higher-growth opportunities while using divestiture proceeds to reduce debt and support earnings growth.

Sandisk

We initiated Sandisk as a complementary picks-and-shovels investment opportunity tied to the AI memory bottleneck, with hard disk drives and flash memory now capacity-constrained inputs for AI data center expansion. These components are shifting away from commoditized consumer technology inputs, and we believe Sandisk can benefit from stronger pricing power, multi-year customer agreements, higher earnings and potential valuation multiple expansion.

Sandisk is a global developer and manufacturer of flash memory storage solutions headquartered in Milpitas, California, following its spinoff from Western Digital in February 2025. The company serves enterprise data centers, personal computers, smartphones and consumer devices through products including enterprise solid-state drives, client solid-state drives, embedded mobile storage, and branded removable and retail storage. Sandisk manufactures through its Flash Ventures joint venture with Kioxia, giving it access to advanced three-dimensional flash memory production at low-cost, capital-efficient economics, while retaining vertical integration in controller and firmware intellectual property, supported by a large patent portfolio. The company is increasingly focused on higher-value storage demand tied to AI data center growth.

We see Sandisk offering leveraged exposure to the AI-driven memory bottleneck, as flash memory and enterprise solid-state drives shift from commoditized components to strategically constrained inputs for data center growth. The investment case rests on stronger and more visible demand from hyperscale customers, improved industry supply discipline, multi-year customer agreements that provide floor-protected revenue, and a cleaner standalone structure following the separation from Western Digital. The company also benefits from its long-standing Flash Ventures partnership with Kioxia, which provides a cost and capital advantage, while new data center platform qualifications, high-bandwidth flash optionality and geopolitical support for trusted supply chains can create additional paths for earnings growth and valuation multiple expansion.

We believe Sandisk trades at a valuation that appears reasonable given improving earnings expectations, stronger AI memory demand and rising pricing power. We believe disciplined supply, contracted demand and a debt-free, cash-returning balance sheet should reduce earnings volatility and support a higher valuation over time.

ServiceNow

ServiceNow provides cloud-based software solutions that help enterprises worldwide define, structure, manage and automate services through its unified Now Platform, which serves as both the system of record and system of action for enterprise workflows across information technology operations, employee experience, customer operations and low-code development. The company’s revenue model is predominantly subscription-based, representing approximately 97% of total revenue, with subscriptions typically sold under multi-year contracts priced according to users, devices or capacity-based metrics. In fiscal year 2025, ServiceNow generated $13.3 billion in total revenue and $12.8 billion in subscription revenue, reflecting approximately 21% year-over-year growth. The platform supports approximately 100 billion workflows and trillions of transactions annually and serves many of the world’s largest enterprises across virtually every industry.

We think ServiceNow offers a compelling investment opportunity as the leading enterprise workflow automation platform, with deeply embedded, mission-critical software that creates high switching costs across information technology, human resources, customer service, security, risk, data analytics and AI orchestration. The company is positioned to benefit from AI rather than be disrupted by it, as its platform can serve as the governance and execution layer for enterprise agents, while products such as Now Assist, Artificial Intelligence Control Tower and Action Fabric expand usage-based monetization and cross-sell opportunities. Management is targeting more than $30 billion in subscription revenue by fiscal year 2030, supported by a large and expanding total addressable market, multiple growth vectors compounding at more than 25% annually, strong free cash flow generation, margin expansion, and a net cash balance sheet, potentially making ServiceNow one of the most durable and efficient large-scale software growth companies. The current valuation appears to overstate AI disruption risk and understate the durability of the company’s growth and cash generation.

Western Digital

We initiated Western Digital because we view the company as providing picks-and-shovels exposure to the AI memory bottleneck, with hard disk drives and NAND flash memory now serving as capacity-constrained inputs to AI data center buildout. These components are no longer commoditized inputs in consumer technology goods, and we see both Western Digital and Sandisk benefiting from stronger pricing power and multi-year customer agreements, resulting in upward earnings inflection and multiple expansion.

Western Digital is a pure-play developer and manufacturer of hard disk drives and data storage solutions focused on high-capacity storage for cloud and AI infrastructure. Following the February 2025 separation of its flash memory business into the independent company Sandisk, Western Digital has become one of the leading suppliers of nearline hard disk drives used by hyperscale cloud service providers to store large volumes of data economically. The company is vertically integrated across key components such as recording heads and magnetic media, operates a global manufacturing and testing footprint, and supports its product roadmap with advanced recording technologies and a large patent portfolio. With only three remaining global hard disk drive manufacturers and two scaled industry participants, Western Digital operates in a consolidated and supply-disciplined market that benefits from growing demand for AI data storage.

We believe Western Digital represents a compelling investment opportunity as hard disk drive demand shifts from a personal computer-driven cycle to a durable AI and cloud infrastructure growth story. The company benefits from a structurally improved industry with limited competition, disciplined capacity, multi-year customer agreements and rising pricing power as hyperscale customers prioritize secure storage supply for rapidly expanding data needs. This stronger market backdrop can translate into higher margins, improved earnings visibility, significant free cash flow generation and increased shareholder returns through dividends and share repurchases. With limited capital investment requirements, a cleaner balance sheet and sustained demand for economical mass storage, we believe Western Digital is positioned to compound earnings and cash flow over multiple years.

Western Digital Corporation has earned a higher valuation because its business profile has shifted from a cyclical hardware supplier to a more disciplined, cash-generative infrastructure company with stronger demand visibility. Continued growth in data storage needs, improved pricing power, durable margins, modest reinvestment requirements and meaningful shareholder returns support further earnings and cash flow compounding over time.

Sells

Amphenol

During the quarter, we sold Amphenol to reposition the portfolio toward more direct exposure to the optical interconnect transition. The sale reflected an evolving view of AI data center architecture rather than a negative view of Amphenol’s overall business quality. As rack-level power and bandwidth density requirements increase, we believed data center architectures could shift increasingly toward optics, creating uncertainty around the durability and valuation of Amphenol’s copper-related data center growth. After reassessing the company’s optical positioning and concluding that it is not simply at risk of being displaced by optics, but is increasingly positioned to participate directly in that transition, we subsequently repurchased the company. The CommScope Connectivity and Cable Solutions acquisition, together with Amphenol’s active-optics capabilities through XGiga and Halo, broadened its offering across high-speed copper, power, passive fiber and active optics. That reassessment was particularly relevant within the Large Cap Growth portfolio, where the emphasis is on durable, high-quality compounders with multiple growth drivers. Re-establishing the position allowed us to maintain exposure to the optical transition while restoring ownership of a company with diversified end markets, attractive margins, accretive M&A optionality and robust free cash flow generation.

Antero Resources

We sold Antero Resources, using the proceeds to increase our sector weighting in Information Technology.

HubSpot

We sold HubSpot because its core value proposition—an easy-to-use, all-in-one go-to-market platform—is becoming increasingly replicable by AI-native agents that can autonomously manage prospecting, lead nurturing and pipeline workflows without the need for a dedicated SaaS layer. HubSpot’s SMB-heavy customer base is especially price-sensitive and more exposed to churn as lower-cost AI-native alternatives emerge, creating risk to both net revenue retention and new logo growth. With the stock still valued for durable double-digit growth, we view the risk/reward as skewed to the downside.

Outlook

The equity markets in the second quarter increased mid-teens on the strength in technology and related companies tied into the AI infrastructure spend. Interest rates rose slightly for the quarter, as inflation continues to run above the Federal Reserve’s target level. There was a sizable decline in energy-related equities on the pullback in energy commodity prices. We view equity valuations on forward earnings expectations as reasonable, as the growth in earnings has continued to surprise to the upside. The economic data points to a moderately growing economy with lingering inflation, putting the Federal Reserve on hold with a bias toward a rate increase in the latter half of the year. The conflicts in Iran and Ukraine will likely continue to drive uncertainty, especially in the energy commodity space. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles.

Markets Review

The U.S. equity market rebounded during the second quarter and reached new all-time highs, with the S&P 500 Index rising 15.20% during the period. Surging demand for artificial intelligence (AI) processing power and expansive capital expenditure plans continued to support AI-related businesses, which drove a substantial portion of benchmark returns and contributed meaningfully to earnings growth. Fixed income markets also advanced, as the Bloomberg U.S. Aggregate Bond Index increased 0.67%.

On a sector basis, nine of the eleven sectors within the S&P 500 Index posted gains in the second quarter of 2026. The strongest-performing sectors were Information Technology and Industrials. The weakest sectors were Energy and Utilities.

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

Market leadership remained narrow and increasingly tied to the AI infrastructure buildout. Significant investment in semiconductors, memory and data center infrastructure continued to benefit a concentrated group of companies. While these themes supported benchmark returns, they also contributed to significant dispersion beneath the surface, as many resilient, cash-generative businesses outside the AI infrastructure ecosystem did not participate to the same degree.

Geopolitics remained a key source of market uncertainty during the quarter. Peace negotiations between the U.S. and Iran proved volatile, with the reopening of the Strait of Hormuz, nuclear commitments, asset sanctions and regional economic development as primary points of discussion. An interim understanding between the two countries helped establish a ceasefire framework and restore maritime shipping in the region. However, tensions remained elevated, as both sides accused the other of violations, contributing to renewed U.S. strikes on Iran.

Against this backdrop, oil prices were volatile and continued to put upward pressure on inflation. The Consumer Price Index rose 4.2% for the 12 months ended May, compared with 3.8% for the 12 months ended April. Despite elevated inflation, real GDP growth accelerated, the unemployment rate remained stable at 4.3%, and consumer confidence improved in June from May’s record low. Given these conditions, the Federal Reserve maintained the target range for the federal funds rate as the Committee continued to balance its dual mandate of maximum employment and price stability.

Performance and Attribution Summary

For the second quarter of 2026, Aristotle Atlantic’s Core Equity Composite posted a total return of 14.80% gross of fees (14.68% net of fees), underperforming the S&P 500 Index, which recorded a total return of 15.20%.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
Core Equity Composite (gross)	14.80	9.85	21.70	21.40	12.43	16.06	14.95
Core Equity Composite (net)	14.68	9.62	21.18	20.90	11.96	15.59	14.43
S&P 500 Index	15.20	10.21	22.33	20.61	13.41	15.51	14.27

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

During the second quarter, the portfolio’s slight underperformance compared to the S&P 500 Index was due to allocation effects. Security selection in Information Technology and Financials detracted the most from relative performance. Conversely, security selection in Health Care and Communication Services contributed the most to relative performance.

Contributors and Detractors for 2Q 2026

Relative Contributors	Relative Detractors
Applied Materials	Micron Technology
Guardant Health	Intercontinental Exchange
CrowdStrike Holdings	Darling Ingredients
Adaptive Biotechnologies	Antero Resources
Bio-Techne	Baker Hughes

Relative contributors and detractors are based on attribution total effect and exclude benchmark securities not held in the portfolio.

Detractors

Micron Technology

Micron detracted from performance in the quarter due to the underweight position in the portfolio, as shares surged to record highs following the fiscal third quarter print on June 24, with results and guidance well above consensus on the back of the tightest DRAM shortage in roughly 15 years. The severe memory bottleneck, driven by HBM capacity being prioritized for AI accelerators at the expense of conventional DRAM and NAND supply, has pushed pricing sharply higher, with DRAM contract prices up an estimated 30%-40% sequentially and management signaling that tightness across HBM, DRAM and NAND should persist well beyond calendar 2026. Micron’s shift toward multi-year, pre-negotiated HBM supply agreements has also structurally lifted margins and reduced cyclicality, reinforcing the view among investors that memory has become a scarce, mission-critical AI infrastructure input rather than a traditional commodity business.

Intercontinental Exchange

Intercontinental Exchange detracted from performance in the second quarter following the CFTC’s approval of Bitcoin perpetual futures, which posed a competitive threat to traditional exchange operators and prompted a broad selloff across the group. Mixed segment trends added pressure, with energy, financials and cash equities volume below expectations alongside mortgage technology headwinds. Sentiment was further dampened by the perceived risk that gen AI could lower barriers to entry for competitors in fixed income data and mortgage technology, threatening the company’s proprietary data moats.

Contributors

Applied Materials

Applied Materials contributed to performance in the second quarter following strong quarterly results and significant customer announcements that reinforced the multi-year growth demand outlook from AI compute and infrastructure, particularly the memory upcycle leveraged to AI and high-bandwidth memory (HBM). The company’s end-market exposure remains well-positioned, with 80%+ of 2026 industry WFE growth expected from leading-edge foundry/logic, DRAM and advanced packaging, the three areas where Applied Materials is either leading or gaining share. In addition, management’s outlook reinforced that customers continue to prioritize rapid capacity expansion, which was further supported by Samsung and SK Hynix announcing in June a $515-$518 billion capacity expansion plan aimed at doubling South Korea’s DRAM output over the next five years. This capex announcement supports expectations for global WFE spend to grow from ~$145 billion in 2026 to ~$250 billion by 2028.

Guardant Health

Guardant Health contributed to performance in the second quarter following a string of positive developments, as several catalysts played out during the quarter. These developments include FDA approval of an updated version of the Guardant360 liquid biopsy test, American Cancer Society inclusion of the company’s Shield test for colorectal cancer screening, and a report of stronger-than-expected first quarter earnings driven by volume growth and coverage expansion.

Recent Portfolio Activity

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

Buys	Sells
Advanced Micro Devices	Amphenol
Exxon Mobil	Boston Scientific
Micron Technology	Synopsys

Buys

Advanced Micro Devices

Advanced Micro Devices is a high-performance and adaptive computing company that designs and delivers processors, accelerators, graphics products, adaptive computing platforms and software used across data centers, cloud computing, personal computers, gaming, embedded systems, edge computing and AI. Its portfolio includes central processing units, graphics processing units, accelerated processing units, data processing units, field programmable gate arrays, adaptive systems on chips, semi-custom systems on chips, smart network interface cards and related development tools, compilers, and drivers that help customers build customized computing solutions. The company operates through four segments: Data Center, which serves data centers and AI environments; Client, which provides desktop and notebook processors and chipsets; Gaming, which includes discrete graphics products and semi-custom solutions; and Embedded, which provides processors and adaptive computing products for embedded applications.

We initiated Advanced Micro Devices, as the company’s roadmap and rack-scale system capability now position it as a credible second source in data center central processing unit (CPU) and accelerated compute, a structural shift in markets that have historically operated as single-vendor franchises, with corresponding implications for pricing power and customer allocation. We believe the company is a compelling long-term investment because it is positioned at the center of several durable computing growth trends, including AI, cloud computing, data center expansion, edge computing, personal computers and gaming. Advanced Micro is benefiting from rising demand for high-performance processors, graphics processing units, AI accelerators and adaptive computing products, while management expects its data center opportunity to expand significantly through 2030 as AI workloads proliferate across cloud, enterprise and edge environments. Advanced Micro is also gaining share in server central processing units through its efficient EPYC processor lineup, building momentum in AI accelerators with its MI300 products and future MI400 and MI500 roadmap, and strengthening its software ecosystem through Radeon Open Compute. Combined with improving profitability targets, a resilient personal computer and gaming foundation, and continued market share gains against competitors, we think the company has a credible path to sustained revenue growth, margin expansion and earnings growth over the next several years. We believe a premium is justified, as the company is seeing a multi-year acceleration in revenue and earnings from AI hyperscalers and other areas of the AI infrastructure buildout.

Exxon Mobil

Exxon Mobil’s principal business involves exploration for, and production of, crude oil and natural gas; manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a wide variety of specialty products; and pursuit of lower-emission and other new business opportunities, including carbon capture and storage, hydrogen and ammonia, lower-emission fuels, Proxxima resin systems, carbon materials, low-carbon data centers, and lithium.

Affiliates of Exxon Mobil conduct extensive research programs in support of these businesses. The energy and petrochemical industries are highly competitive, both within the industries and also with other industries in supplying the energy, fuel and chemical needs of industrial and individual consumers. Certain industry participants, including Exxon Mobil, are expanding the scope of investments in lower-emission energy and emission-reduction services and technologies.

We view Exxon Mobil as a compelling investment thesis built on its strong balance sheet, flexible capital program and advantaged growth portfolio. The company’s low net debt relative to earnings before interest, taxes, depreciation and amortization can give it meaningful resilience through commodity cycles while supporting continued dividend growth, share repurchases and opportunistic acquisitions. Production growth in the Permian Basin and Guyana can provide attractive low-cost volume expansion, while its large refining footprint offers counter-cyclical earnings support when upstream conditions weaken. The integration of Pioneer Natural Resources is delivering stronger-than-expected synergies and improving corporate breakeven economics, reinforcing free cash flow generation and shareholder returns. In addition, Exxon Mobil’s Western Hemisphere production base reduces exposure to Middle Eastern transit risk, while longer-term investments in liquefied natural gas, carbon capture and lithium provide additional growth options beyond the current oil and gas cycle. We view the valuation as fair for a long-term investment based on our belief in a multi-year commodity upcycle combined with Exxon’s leading industry exposure to strategically advantaged oil and gas assets and the continued strong global demand growth for liquefied natural gas.

Micron Technology

Micron Technology is a leading global supplier of memory and storage products and the only U.S.-headquartered pure-play memory manufacturer, designing, manufacturing and selling dynamic random-access memory, NAND memory and nonvolatile read-only memory products under the Micron and Crucial brands. Its products are essential to modern electronic systems and increasingly central to AI infrastructure, where memory bandwidth and capacity are critical to computing performance. The company operates within a highly concentrated dynamic random-access memory market alongside Samsung Electronics and SK Hynix, while also competing in a more fragmented but still concentrated NAND market. Most of Micron’s revenue comes from dynamic random-access memory, with the remainder from NAND products, and the company is rapidly expanding in HBM, a specialized stacked memory product used with AI graphics processing units and application-specific integrated circuits. Micron recently reorganized its reporting structure around four business units serving cloud memory, core data center, mobile and client, and automotive and embedded customers, reflecting its increasing alignment with data center and AI demand.

We initiated Micron Technology on the view that the memory industry has entered a structurally longer and stronger upcycle than the historical two- to three-year pattern, with signs pointing to a four- to five-year duration. Generative AI workloads consume memory at multiples of prior compute paradigms, and the rising trade ratio of HBM absorbs disproportionate wafer capacity even as hyperscaler long-term agreements impose unprecedented supply discipline on the industry. The combination—secular demand acceleration against structurally constrained supply—should keep the market in deficit through 2027 and supports our view of a memory super-cycle. We believe the company is positioned to benefit from a structurally stronger memory cycle driven by AI demand, constrained industry supply and rising pricing across dynamic random-access memory and NAND memory markets. Micron has rapidly gained share in HBM, a higher-margin product category that is increasingly essential for AI accelerators, and its output through 2026 is effectively sold out as demand from cloud computing and AI customers continues to expand. Beyond HBM, Micron is benefiting from growth in AI servers, enterprise solid-state drives, personal computers, smartphones, automotive systems and industrial applications, where memory content continues to rise. Improved industry supply discipline, long-term customer agreements and Micron’s position as the only U.S.-headquartered pure-play memory manufacturer further support the investment case, while domestic semiconductor funding and planned manufacturing expansion in Idaho and New York provide an additional strategic advantage. We believe the current upcycle and the inherent cyclicality of memory warrant a higher peak multiple and see the valuation on forward earnings as reasonable in absolute terms.

Sells

Amphenol

We sold Amphenol, a leading global provider of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors, and specialty cable. While we continued to recognize the company’s high-quality operating model, diversified end-market exposure, strong free cash flow generation and disciplined acquisition strategy, our assessment of the company’s role within the broader Core portfolio changed, as the stock’s valuation increasingly reflected sustained AI data center growth. In particular, in a portfolio where we seek to balance quality, growth and valuation discipline, the combination of a premium valuation and greater uncertainty around the durability of copper-related data center growth reduced our confidence that the forward-looking return adequately compensated for the risk of valuation downside. As a result, we exited the position.

Boston Scientific

We sold Boston Scientific on concerns around continued pressure in its two growth engines: the Watchman device and Farapulse. Despite good data in the Champion trial, hesitation around the use of Watchman has resulted in declining growth rates. Changes to the modality of implantation are also pressuring Watchman growth. Farapulse, while a clear leader in pulse field ablation (PFA), is experiencing slower growth rates due to competitive entrants. While we are encouraged by management’s actions to address these issues, we believe it will take time to regain investor confidence in the name and restore the premium valuation that Boston Scientific once enjoyed.

Synopsys

We sold Synopsys and see its core electronic design automation (EDA) software business growth decelerating, with the business ex-Ansys growing only high single digits, and fiscal year 2026 remains a “transition year” that could slow into the low single digits. In addition, Chinese EDA/IP competition is pressuring the shares, and tightening export controls add demand risk. We are reallocating the capital to higher-conviction semiconductor exposure where we believe the revision cycle is inflecting upward.

Outlook

The equity markets in the second quarter increased mid-teens on the strength in technology and related companies tied into the AI infrastructure spend. Interest rates rose slightly for the quarter, as inflation continues to run above the Federal Reserve’s target level. There was a sizable decline in energy-related equities on the pullback in energy commodity prices. We believe equity valuations on forward earnings expectations are reasonable, as the growth in earnings has continued to surprise to the upside. The economic data points to a moderately growing economy with lingering inflation, putting the Federal Reserve on hold with a bias toward a rate increase in the latter half of the year. The conflicts in Iran and Ukraine will likely continue to drive uncertainty, especially in the energy commodity space. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

U.S. small cap equities delivered a strong rebound during the second quarter of 2026, outperforming large cap stocks as investor sentiment improved amid resilient economic growth, easing geopolitical tensions, and broadening market participation. The Russell 2000 Index gained 21.49% during the quarter, marking its strongest quarterly return since 2020 and one of the best quarterly performances in its history. Healthy consumer spending, a stable labor market, and generally better than expected corporate earnings reinforced confidence in the economic outlook, while lower energy prices and reduced concerns surrounding Middle East tensions further supported expectations for moderating inflation and continued expansion. As optimism broadened beyond the largest technology companies, investors increasingly rotated into smaller companies poised to benefit from improving economic conditions, accelerating capital investment, and renewed capital markets activity.

Stylistically, growth stocks outperformed their value counterparts during the quarter, with the Russell 2000 Growth Index returning 25.71% versus 17.19% for the Russell 2000 Value Index. Performance was driven by AI-related beneficiaries, higher beta companies, and businesses with accelerating revenue growth. Technology was the standout sector, led by significant gains in semiconductors, semiconductor equipment, networking infrastructure, and other AI-enabling hardware, while Industrials benefited from strength in power infrastructure, electrical equipment, engineering, and manufacturing related businesses. Health Care also rebounded, led by biotechnology and life sciences. In contrast, Energy gave back a portion of its first quarter gains as oil prices declined, while traditionally defensive sectors, including Utilities, Consumer Staples, and Materials, lagged. More broadly, investors favored higher growth and economically sensitive companies over higher quality, dividend paying, and more defensive businesses, leaving slower growth retailers, banks, commercial services, and consumer staples among the quarter’s relative laggards. From a factor perspective, low leverage and low variability had strong payoffs, while low volatility and quality had negative payoffs.

At the sector level, almost all sectors paid off positively. The best performing sectors were Information Technology (+55.85%), Health Care (+24.54%), and Industrials (+24.02%) while the worst performing sectors were Energy (-10.06%), Utilities (+0.13%), and Materials (+2.58%).

 

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. Please see important disclosures at the end of this document.

Performance Review

For the second quarter of 2026, the Aristotle Small Cap Equity Composite posted a total return of 13.56% net of fees (13.75% gross of fees), underperforming the 21.49% total return of the Russell 2000 Index. Security selection detracted from performance, while allocation effect aided results. The largest detractors on a relative basis were security selection in the Information Technology (owning Everforth coupled with not owning Credo Technology or quantum computing stocks and non-earning SaaS companies) and Industrials sectors coupled with overweight allocations to Materials and Financials. This was partially offset by security selection and an underweight position in the Energy sector as well as positive security selection in Consumer Staples and an overweight position in Information Technology.

Relative Contributors	Relative Detractors
MACOM Technology Solutions	Alamos Gold
Mercury Systems	Huron Consulting Group
Benchmark Electronics	Credo Technology (not owned in the portfolio)
Pursuit Attractions and Hospitality	Bloom Energy (not owned in the portfolio)
WillScot Holdings	Everforth

CONTRIBUTORS

MACOM Technology Solutions (MTSI), is a designer and manufacturer of high performance semiconductor products. The stock benefitted from strong earnings results and forward guidance featuring continued strong revenue and profitability, driven by accelerating demand across data‑center, industrial/defense, and telecom end markets. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should continue to drive shareholder value.

Mercury Systems (MRCY), is a developer of mission critical computing, signal processing, software, and secure electronics technologies used in aerospace and defense applications. The stock was rewarded for the company’s successful acceleration of deliveries on several high priority defense programs, alongside continued progress on its restructuring initiatives and cost reduction efforts. We maintain our position as we believe Mercury Systems is emerging from a multi-year operational reset, with improving execution, expanding margins, and lower leverage. In addition, we believe the stock is trading at attractive valuations relative to its normalized earnings power given the strong underlying demand across its aerospace and defense end markets, which should continue to create shareholder value over time.

DETRACTORS

Alamos Gold (AGI), a Canadian gold producer focused on developing and operating high quality mines in North America, detracted from performance following a reduction in 2026 production guidance driven by operational challenges at its Young-Davidson mine, including seismic activity, lower mining rates, and higher costs. Weaker gold prices during the quarter also weighed on the shares. We believe these headwinds are temporary and continue to view the company favorably given the successful ramp up of the Island Gold District, a robust project pipeline, and attractive long term production growth.

Huron Consulting Group (HURN), is a provider of technology, data, and analytics solutions to Healthcare, Education, and corporate clients. The stock reported strong results and handily beat analyst expectations. Despite that, shares sold off amid market sentiment around AI potentially cannibalizing their business model which we believe is overly pessimistic. We maintain a position, as we believe the company may continue to benefit from durable demand, expanding margins, and secular growth tied to digital and regulatory complexity in their end markets over the long term.

Recent Portfolio Activity

Buys/Acquisitions	Sells/Liquidations
IPG Photonics	Americold Realty Trust
UMB Financial	Byline Bancorp
	Verra Mobility

BUYS/ACQUISITIONS

IPG Photonics (IPGP), is a global leader in high power fiber laser technology, providing mission critical laser systems used in industrial manufacturing, semiconductor fabrication, electric vehicle production, and medical applications. The company benefits from a vertically integrated business model, strong intellectual property, and technological leadership that support durable competitive advantages. The stock is well positioned to benefit from a recovery in manufacturing activity and secular growth trends including factory automation, reshoring, electrification, semiconductor investment, and advanced manufacturing, supporting improving earnings growth and long term shareholder value.

UMB Financial (UMBF), is a regional bank with a diversified business model spanning commercial banking, institutional asset servicing, private wealth management, healthcare payments, and specialty financial services. Unlike many regional banks, UMB generates a meaningful portion of its revenue from fee based businesses, providing a more stable earnings profile and reducing reliance on net interest income. The company has consistently demonstrated disciplined underwriting, strong credit quality, and a conservative balance sheet, positioning it to perform across economic cycles. We believe UMB is well positioned to benefit from improving loan growth, expanding fee income, and continued market share gains, while its strong capital position and attractive returns on equity support long term earnings growth and shareholder value.

SELLS/LIQUIDATIONS

Americold Realty Trust (COLD), is a real estate investment trust  focused on the ownership, operation, development, and acquisition of temperature controlled warehouses. The position was liquidated due to deteriorating fundamentals.

Byline Bancorp (BY), is a full service commercial bank offering a broad range of products and service to small and medium sized businesses, commercial real estate, and consumers. The position was sold as the stock appreciated and reached our valuation target, reducing the risk/reward opportunity. Proceeds were redeployed into what we view as more attractive investment opportunities.

Verra Mobility (VRRM), is a provider of automated enforcement, tolling, and parking technologies and solutions. We exited the position after the loss of a significant customer contract materially changed our investment thesis, reducing confidence in the company’s long term earnings and growth outlook. The proceeds were redeployed into higher conviction opportunities.

Outlook

We remain constructive on the long term outlook for U.S. small cap equities. Valuations continue to appear attractive, with the Russell 2000 trading near multi-decade lows relative to large caps, while earnings have begun to reaccelerate. Consensus estimates point to small cap earnings growth surpassing large cap growth by late 2026/early 2027. Incremental increase in M&A activity, improving domestic manufacturing trends supported by reshoring and infrastructure investment, and a more favorable regulatory and tariff backdrop should provide longer term tailwinds for the asset class. Near term, we remain cautious as geopolitical risks, including the Iran conflict and related inflationary spillovers, may contribute to elevated volatility. Separately, mid-term election uncertainty has historically been associated with increased market volatility but has often given way to more durable small cap recoveries following the election cycle.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweight allocations in Information Technology and Materials 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 Health Care as we do not hold Biotechnology companies as that industry has significant binary risk. We are also underweight in Real Estate, as the sector has elevated interest rate sensitivity, refinancing risk, and structural challenges in segments such as office and retail, combined with generally weaker balance sheets, leading us to seek what we consider to be more attractive reward to risk opportunities. Given our focus on long term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

U.S. small/mid cap equities delivered a strong rebound during the second quarter of 2026, outperforming large cap stocks as investor sentiment improved amid resilient economic growth, easing geopolitical tensions, and broadening market participation. The Russell 2500 Index gained 20.26% during the quarter, marking its strongest quarterly return since 2020 and one of the best quarterly performances in its history. Healthy consumer spending, a stable labor market, and generally better than expected corporate earnings reinforced confidence in the economic outlook, while lower energy prices and reduced concerns surrounding Middle East tensions further supported expectations for moderating inflation and continued expansion. As optimism broadened beyond the largest technology companies, investors increasingly rotated into smaller companies poised to benefit from improving economic conditions, accelerating capital investment, and renewed capital markets activity.

Stylistically, growth stocks outperformed their value counterparts during the quarter, with the Russell 2500 Growth Index returning 24.02% compared to the 18.50% return of the Russell 2500 Value index. Performance was driven by AI-related beneficiaries, higher beta companies, and businesses with accelerating revenue growth. Technology was the standout sector, led by significant gains in semiconductors, semiconductor equipment, networking infrastructure, and other AI-enabling hardware, while Industrials benefited from strength in power infrastructure, electrical equipment, engineering, and manufacturing related businesses. Health Care also rebounded, led by biotechnology and life sciences. In contrast, Energy gave back a portion of its first quarter gains as oil prices declined, while traditionally defensive sectors, including Utilities, Consumer Staples, and Materials, lagged. More broadly, investors favored higher growth and economically sensitive companies over higher quality, dividend paying, and more defensive businesses, leaving slower growth retailers, banks, commercial services, and consumer staples among the quarter’s relative laggards. Factors that had the strongest payoffs were sentiment and efficiency, while factors such as low volatility, low variability, low leverage, and quality paid off negatively.

At the sector level, almost all sectors paid off positively. The best performing sectors were Information Technology (+65.79%), Health Care (+19.32%), and Industrials (+19.09%) while the worst performing sectors were Energy (-9.72%), Materials (+1.01%), and Utilities (+1.54%).

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. Please see important disclosures at the end of this document.

Performance Review

For the second quarter of 2026, the Aristotle Small/Mid Cap Equity Composite generated a total return of 9.91% net of fees (10.08% gross of fees), underperforming the 20.26% total return of the Russell 2500 Index. Security selection detracted from performance, while allocation effect aided results. The largest detractors to relative performance were security selection in Information Technology (owning Everforth coupled with not owning SanDisk or quantum computing stocks and non-earning SaaS companies) and Industrials coupled with overweight allocations to Materials and Energy. This was partially offset by security selection in the Utilities and Consumer Staples sectors coupled with underweight allocations to Information Technology and Consumer Discretionary.

Relative Contributors	Relative Detractors
MACOM Technology Solutions	SanDisk (not owned in the portfolio)
Mercury Systems	Alamos Gold
Insmed (not owned in the portfolio)	Huron Consulting Group
Knowles	Range Resources
WillScot Holdings	Permian Resources

CONTRIBUTORS

MACOM Technology Solutions (MTSI), is a designer and manufacturer of high performance semiconductor products. The stock benefitted from strong earnings results and forward guidance featuring continued strong revenue and profitability, driven by accelerating demand across data‑center, industrial/defense, and telecom end markets. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should continue to drive shareholder value.

Mercury Systems (MRCY), is a developer of mission critical computing, signal processing, software, and secure electronics technologies used in aerospace and defense applications. The stock was rewarded for the company’s successful acceleration of deliveries on several high priority defense programs, alongside continued progress on its restructuring initiatives and cost reduction efforts. We maintain our position as we believe Mercury Systems is emerging from a multi-year operational reset, with improving execution, expanding margins, and lower leverage. In addition, we believe the stock is trading at attractive valuations relative to its normalized earnings power given the strong underlying demand across its aerospace and defense end markets, which should continue to create shareholder value over time.

DETRACTORS

SanDisk (SNDK), engages in the development, manufacture, and provision of storage devices and solutions based on NAND flash technology. Its products include solid state drives, memory cards, and USB flash drives. The stock rallied during the quarter and was up 229% on improving memory cycle sentiment and AI‑driven storage demand. The portfolio did not own the position which resulted in a drag on relative performance versus the benchmark.

Alamos Gold (AGI), a Canadian gold producer focused on developing and operating high quality mines in North America, detracted from performance following a reduction in 2026 production guidance driven by operational challenges at its Young-Davidson mine, including seismic activity, lower mining rates, and higher costs. Weaker gold prices during the quarter also weighed on the shares. We believe these headwinds are temporary and continue to view the company favorably given the successful ramp up of the Island Gold District, a robust project pipeline, and attractive long term production growth.

Recent Portfolio Activity

Buys/Acquisitions	Sells/Liquidations
Jones Lang LaSalle	Americold Realty Trust
UMB Financial	Verra Mobility
WesBanco

BUYS/ACQUISITIONS

Jones Lang LaSalle (JLL), is a leading global commercial real estate services firm positioned to benefit from a recovery in leasing, capital markets, and investment activity as commercial real estate fundamentals improve. Its diversified business mix, growing recurring revenue streams, and global scale can provide resilient earnings and durable competitive advantages. We believe improving transaction volumes and continued growth in higher value advisory and outsourcing services will support long-term earnings growth and shareholder value.

UMB Financial (UMBF), is a regional bank with a diversified business model spanning commercial banking, institutional asset servicing, private wealth management, healthcare payments, and specialty financial services. Unlike many regional banks, UMB generates a meaningful portion of its revenue from fee based businesses, providing a more stable earnings profile and reducing reliance on net interest income. The company has consistently demonstrated disciplined underwriting, strong credit quality, and a conservative balance sheet, positioning it to perform across economic cycles. We believe UMB is well positioned to benefit from improving loan growth, expanding fee income, and continued market share gains, while its strong capital position and attractive returns on equity support long term earnings growth and shareholder value.

WesBanco (WSBC), is a regional bank with a diversified franchise spanning commercial banking, consumer banking, wealth management, and trust services. We believe the stock is trading at an attractive valuation as the market underappreciates the earnings potential created by the successful integration of Premier Financial, improving operating efficiency, expanding margins, strong capital levels, and robust loan growth.

SELLS/LIQUIDATIONS

Americold Realty Trust (COLD), is a real estate investment trust  focused on the ownership, operation, development, and acquisition of temperature controlled warehouses. The position was liquidated due to deteriorating fundamentals.

Verra Mobility (VRRM), is a provider of automated enforcement, tolling, and parking technologies and solutions. We exited the position after the loss of a significant customer contract materially changed our investment thesis, reducing confidence in the company’s long term earnings and growth outlook. The proceeds were redeployed into higher conviction opportunities.

Outlook

We remain constructive on the long-term outlook for the small/mid-cap segment of the U.S. market. Valuations continue to appear attractive, with the Russell 2500 Index trading near multi-decade lows relative to large caps, while earnings have begun to reaccelerate. Consensus estimates point to small cap earnings growth surpassing large cap growth by late 2026/early 2027. Incremental increase in M&A activity, improving domestic manufacturing trends supported by reshoring and infrastructure investment, and a more favorable regulatory and tariff backdrop should provide longer term tailwinds for the asset class. Near term, we remain cautious as geopolitical risks, including the Iran conflict and related inflationary spillovers, may contribute to elevated volatility. Separately, mid-term election uncertainty has historically been associated with increased market volatility but has often given way to more durable small cap recoveries following the election cycle.

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 Financials and Materials are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. We are also underweight in Industrials as we have been unable to identify what we consider to be more compelling long-term opportunities that fit our discipline versus companies belonging to other sectors. Given our focus on long-term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

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

Markets Review

As the two sides worked toward peace, global economies continued to feel the negative impact of the war. Due to the inflationary shock from the conflict, the European Central Bank raised interest rates during the quarter; however, concerns about stagflation increased on news that real GDP growth in the eurozone had contracted versus the previous quarter. Meanwhile, the Bank of England and U.S. Federal Reserve kept rates steady, despite elevated inflation in both countries. In Asia, the Bank of Japan raised rates, and South Korea’s government passed a $17.7 billion emergency supplementary budget to offset rising oil prices.

Despite the fragile global economic backdrop, earnings in Europe and Asia remained robust, supported by continued demand tied to AI infrastructure and strength in select commodity-linked industries. Beneath the surface, market leadership reflected a more risk-on environment globally, with high-beta stocks generally outperforming low-beta stocks. Companies tied to the buildout of AI-related infrastructure, including semiconductors, memory, power equipment and other data center suppliers, were among the strongest performers, while more defensive and lower-volatility areas generally lagged.

Performance and Attribution Summary

For the second quarter of 2026, Aristotle Capital’s International Equity Composite posted a total return of 10.18% gross of fees (10.04% net of fees), underperforming the MSCI EAFE Index, which returned 10.82%, and the MSCI ACWI ex USA Index, which returned 14.49%. Please refer to the table below for detailed performance.

Performance (%)	2Q26	YTD	1 Years	3 Years	5 Years	10 Years	Since Inception*
International Equity Composite (gross)	10.18	5.24	12.96	13.27	6.69	8.94	6.69
International Equity Composite (net)	10.04	4.98	12.41	12.71	6.16	8.40	6.16
MSCI EAFE Index (net)	10.82	9.44	20.23	16.44	9.05	9.66	4.62
MSCI ACWI ex USA Index (net)	14.49	13.68	27.66	18.82	8.79	9.93	4.61

Pan Pacific International Holdings, the Japanese discount retailer, was the largest detractor during the period. Shares declined as investors weighed the company’s acquisition of Tokyo metropolitan supermarket chain Olympic Group, the potential upfront costs associated with its new Robin Hood format, and broader concerns about gross margin sustainability in a competitive retail environment. Management also announced leadership changes at Gelson’s, its California-based premium grocery subsidiary, as the business works to improve operating performance amid a more challenging consumer backdrop. Nevertheless, we believe Pan Pacific’s long-term investment case remains intact. The company continues to benefit from differentiated store formats, decentralized merchandising, strong value positioning, as well as management’s experience improving acquired retail assets. Same-store sales in the discount store business remain strong, while private-label expansion, UNY margin improvement, and new concepts such as Robin Hood and Rail-side Donki extend the company’s domestic growth runway. We remain confident that Pan Pacific’s distinctive retail culture and disciplined execution position it well for long-term growth.

Accenture, the global provider of IT consulting and technology services, was a primary detractor during the quarter. Shares declined as investors reacted to weaker bookings, a lower revenue outlook, continued pressure on discretionary IT spending and disruptions tied to the conflict in the Middle East, while also debating whether generative AI could reduce demand for traditional consulting services. Despite these near-term headwinds, Accenture remains a premier enterprise transformation partner, with advantages rooted in scale, deep industry expertise, broad technology partnerships and long-standing client relationships. Management continued to highlight growing demand for large-scale AI reinvention programs as clients move from experimentation to production, with AI increasingly embedded in broader managed services contracts. The company also expanded its capabilities through the acquisitions of Dragos, runZero and NetRise, building a leading operational technology cybersecurity platform with more software- and platform-oriented revenue streams. In addition, Accenture Edge, supported by Microsoft and Avanade, extends the company’s reach into the underpenetrated mid-market. We believe these initiatives reinforce Accenture’s ability to adapt to technology shifts and sustain its long-term competitive position.

Samsung Electronics, the South Korean technology conglomerate, was the largest contributor. Shares advanced as memory pricing continued to ramp sharply, driven by tight supply and accelerating demand from data centers and AI infrastructure. While Samsung is often viewed through the lens of smartphones and consumer electronics, the company’s earnings power is increasingly tied to memory, particularly DRAM, where Samsung remains one of the global leaders and where we have long identified memory and smartphones as the two core profit drivers. Importantly, the current strength in the share price seems to reflect more than simply higher spot pricing. Samsung is shifting its portfolio toward higher-value products such as HBM4, server DDR5 and enterprise SSDs, while longer-term supply agreements should provide better visibility through the cycle. After trailing peers in earlier generations of high-bandwidth memory, the company has improved its competitive position, supported by renewed investment focus, DRAM line conversion and HBM4 progress. Beyond memory, Samsung continues to benefit from its scale and manufacturing expertise across displays, image sensors, smartphones, consumer electronics and custom semiconductor manufacturing. We remain mindful of memory cyclicality, Chinese competition and the capital intensity required to remain at the leading edge. However, Samsung’s improving product mix, disciplined capacity allocation and broader component opportunities should support higher normalized earnings and FREE cash flow over our investment horizon.

Techtronic Industries, the Hong Kong-based manufacturer of power tools, was a primary contributor during the period. We initiated our investment in the first quarter of 2026, attracted to the company’s Milwaukee and Ryobi brands, culture of product innovation, and battery ecosystems that create loyalty and repeat purchases across hundreds of compatible tools. Recent results highlight the company’s progress, with Milwaukee driving revenue growth through deeper penetration of professional trades, new product introductions and expansion into additional geographies, while Ryobi remains a leading DIY platform with opportunities to expand beyond its core markets. The company has also improved the quality of its earnings base by shifting further toward Milwaukee, exiting lower-return areas such as HART and rationalizing underperforming product lines. Importantly, the business is increasingly broader than residential repair and remodel demand. Milwaukee is becoming embedded in the workflows of mechanical, electrical and plumbing contractors working on data centers, grid infrastructure and other complex non-residential projects, where productivity, safety and uptime are critical. This is a natural extension of Techtronic’s strategy: expand the Milwaukee ecosystem around the jobsite, then deepen customer loyalty through batteries, accessories, personal protective equipment, storage and service support that can make the platform more valuable over time.

Recent Portfolio Activity

Buys	Sells
Magnum Ice Cream	Unilever

During the quarter, we sold our position in Unilever and invested in Magnum Ice Cream.

We first invested in Unilever, the global consumer staples company, in the second quarter of 2013. We have long been attracted to the company’s broad portfolio of leading personal care and food brands (such as Dove, Knorr and Axe), global scale, significant emerging markets exposure and strong position across everyday use categories. Over our more than decade-long holding period, Unilever strengthened and simplified its portfolio, divesting lower-growth food assets, improving efficiency, increasing focus behind its largest brands, and shifting the business toward faster-growing, higher-margin beauty, wellbeing, personal care and home care categories. More recently, the separation of the ice cream business and continued reshaping of the food portfolio have further narrowed Unilever’s strategic focus. While we continue to view the remaining Unilever franchise as high quality, we believe the more compelling opportunity now resides in the independent ice cream business, where dedicated management and a category-specific strategy should provide a clearer path to value creation. We therefore elected to exit Unilever and redeploy the proceeds into Magnum Ice Cream, discussed in greater detail below.

The Magnum Ice Cream Company N.V.

Headquartered in Amsterdam, the Netherlands, Magnum Ice Cream is the world’s largest dedicated ice cream manufacturer. The company was formed following its separation from Unilever in 2025 and owns a portfolio of leading global, regional and local brands, including Magnum, Ben & Jerry’s, Cornetto, Wall’s, Breyers, Klondike, Popsicle, Talenti and Yasso. Collectively, these brands generate more than €8 billion in annual revenue, are sold across roughly 80 countries and span a wide range of price points, formats and consumption occasions.

Magnum sells products through both at-home and away-from-home channels. The at-home business includes pints, tubs, and multipacks sold through grocery, club and other retail stores, while the away-from-home business consists primarily of single-serve products sold through a global network of approximately three million freezer cabinets. Supporting this distribution model is one of the most extensive cold-chain networks in the consumer staples industry, including more than 30 manufacturing facilities, 200 warehouses and over 2,000 distributors. Following its separation from Unilever, Magnum is now focused exclusively on frozen desserts, allowing management to optimize sales, marketing, innovation and supply chain decisions around the unique dynamics of the ice cream category.

High-Quality Business

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

• The global market leader in ice cream, with approximately 21% market share and ownership of four of the five largest ice cream brands worldwide;
• A portfolio of iconic brands that benefit from strong consumer recognition, pricing power and customer loyalty;
• A premium-oriented portfolio, with approximately 80% of revenue generated from premium products and pricing that is roughly 2.5x higher per kilogram than private label competitors;
• A difficult-to-replicate global cold-chain distribution network, including three million freezer cabinets that improve product availability and support impulse purchases in the away-from-home channel; and
• Strong returns on invested capital, supported by leading market positions, premium products and significant scale advantages across procurement, manufacturing and distribution.

Attractive Valuation

Historically, the ice cream business operated within Unilever’s broader portfolio, where it lacked a dedicated sales force and was supported by a supply chain optimized for a diverse mix of consumer products rather than the unique requirements of frozen desserts. This contributed to lower factory utilization, underinvestment in certain markets and suboptimal retailer negotiations. In addition, one-time separation costs and transitional service agreements have weighed on current profitability following the company’s separation from Unilever.

At approximately 11x our estimate of normalized earnings, we believe shares do not fully reflect Magnum’s leading global market position, premium brand portfolio and ability to generate attractive returns on invested capital.

Compelling Catalysts   

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

• Expansion of its global freezer cabinet fleet, improving product availability and supporting market share gains in the attractive away-from-home channel;
• Continued premiumization of its portfolio through innovation, new product formats and increased penetration of higher-value brands such as Magnum, Ben & Jerry’s and Yasso;
• Expansion into new formats, including Yasso handhelds, Ben & Jerry’s handhelds and Magnum BonBons, which should increase consumption occasions and support mix improvement;
• Supply chain optimization initiatives, including a transition toward more localized manufacturing and distribution, which should improve operating margins and capacity utilization;
• Increased focus and investment following its separation from Unilever, including a dedicated sales force, category-specific retailer negotiations and a commercial strategy designed specifically for frozen desserts; and
• Market share recovery opportunities in key geographies, including India, where Magnum acquired a majority stake in Kwality Wall’s. The business had previously lost meaningful share due to poor management, insufficient manufacturing and distribution investment, pricing missteps, and the removal of dairy from certain products.

Conclusion

As we look ahead, the global backdrop remains complex. Geopolitical developments, central bank decisions and changes in investor risk appetite can all influence returns over shorter periods, but these factors are difficult to forecast with consistency. Rather than position the portfolio around macro outcomes, we continue to focus on the businesses we own and the actions management teams are taking to increase value over time.

Our investment process centers on the three pillars of Quality, Valuation and Catalysts. We seek companies with strong competitive positions, capable management teams, financial resilience and identifiable opportunities to improve profitability and FREE cash flow. While markets can move quickly from one theme to the next, we believe owning high-quality businesses at attractive valuations remains the best way to create value for clients over the long term.