3Q 2026 5Perspectives Small Growth Commentary
Explore the 3Q 2026 Polen 5Perspectives Small Growth commentary, including market views, portfolio positioning, and performance.
During the third quarter of 2026, the Polen 5Perspectives Small Growth Composite Portfolio (the "Portfolio") returned -14.13% net of fees, compared with the -9.39% return of the Russell 2000 Growth Index (the "Index"). Markets opened the quarter with a sharp, mechanically driven selloff in AI-related equities, then recovered to a fresh high in mid-August. A hawkish pivot from the Federal Reserve and a 25 basis point rate hike in September then pushed the Russell 2000 Growth into a roughly -10% correction from its peak.
How did the Polen 5Perspectives Small Growth strategy perform in 3Q 2026?
In the third quarter of 2026, the Portfolio returned -14.13% net of fees, compared with the -9.39% return of the Index. The top contributors to relative performance were Twist Bioscience, RingCentral, and Five9. The most significant detractors from relative performance were Terawulf, nLight, and Brookdale Senior Living.
| Qtr | YTD | 1 Yr | 3 Yr | 5 Yr | 10 Yr | Since Inception (11-1-2000) | |
|---|---|---|---|---|---|---|---|
| Polen 5Perspectives Small Growth (Gross) | -13.86 | 18.55 | 17.02 | 39.14 | 10.84 | 22.72 | 12.13 |
| Polen 5Perspectives Small Growth (Net) | -14.13 | 17.51 | 15.70 | 37.74 | 9.74 | 21.53 | 10.74 |
| Russell 2000 Growth | -9.39 | 10.71 | 12.05 | 17.55 | 4.72 | 9.91 | 6.99 |
Performance shown represents results achieved at prior firms. As of 12-31-2025, the Polen U.S. Small Cap Growth strategy has been renamed to Polen 5Perspectives Small Growth. The Polen 5Perspectives Small Growth strategy (the “Strategy”) began in November 2000 and was managed by Cupps Capital until October 2016 at which time it was transitioned to Advisory Research Investment Management. In March 2024, it transitioned to Bosun Asset Management, and subsequently in June 2025, it transitioned to Polen Capital. Andrew Cupps has served as the portfolio manager of the Strategy since inception. Mr. Cupps has been supported in his role as portfolio manager by various individuals, including Kevin Leitner and Chris Bush. Mr. Leitner has worked on the Strategy since inception. Mr. Bush began working on the Strategy in 2007. At all times during his tenure as portfolio manager, Mr. Cupps has had ultimate decision-making authority with respect to the Strategy. Mr. Cupps, Mr. Leitner and Mr. Bush joined Polen Capital on June 30, 2025. Returns are presented gross and net of management fees and include the reinvestment of all income. Historical net of fee performance was calculated using either actual management fees or highest fees. During certain periods of the track record, net of fee performance was calculated using actual management fees, while the highest fee was used during others. Beginning, October 31, 2016, net of fee performance is being calculated using highest fee. Prior period net of fee performance was calculated using actual management fees plus fund expenses (where applicable). After July 1, 2025, net of fee performance was calculated using either actual management fees or highest fees for fund structures. Current performance may be lower or higher. Periods over one-year are annualized. Past performance does not guarantee future results. Please reference the GIPS Report which accompanies the full commentary. The commentary is not intended as a guarantee of profitable outcomes. Any forward-looking statements are based on certain expectations and assumptions that are susceptible to changes in circumstances. Opinions and views expressed constitute the judgment of Polen Capital as of the date herein, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change.
What happened in markets during the quarter?
In 3Q 2026, markets moved from a sharp selloff in AI-related equities to a fresh high in mid-August, and then into a -10% correction for the Russell 2000 Growth by quarter-end. The quarter opened with a meaningful air pocket in AI-related equities. A wave of hyperscaler earnings reports raised fresh questions about whether enormous AI-related capital expenditures would generate commensurate returns.
Crowded positioning, elevated leverage, and forced selling quickly compounded these fundamental concerns. The result was one of the sharpest, most concentrated selloffs the AI trade had experienced since the current cycle began in 2023. Semiconductor and AI infrastructure-related stocks bore the brunt of the decline.
As July came to a close, it became more apparent how much of the selloff was mechanically driven, and sentiment began to stabilize. Continued evidence of robust hyperscaler spending plans, resilient enterprise demand, and strong earnings results helped restore confidence in the AI investment cycle. This lifted the Russell 2000 Growth Index to a fresh high by mid-August.
That strength proved short-lived as attention pivoted sharply toward inflation and monetary policy. Hawkish commentary from new Federal Reserve Chair Kevin Warsh raised the odds of a 25 basis point rate hike, which came in mid-September. From that mid-August high through the end of the quarter, the Russell 2000 Growth entered a -10% correction.
The team believes this kind of volatility can be dizzying and, at worst, can lead some investors to mistake signal for noise at the wrong times without a robust process for navigating it. The team says it has worked very hard at this over the course of 26 years, continuously refining its approach. In the team's view, having three disciplines to draw on—fundamental, thematic, and technical—provides an opportunity, especially when the signal is clouded by noise.
In the team's view, the quarter's volatility largely reflected a resetting of elevated positioning and expectations built during the first half of the year, rather than a broad deterioration in fundamentals across AI infrastructure and its adjacent themes. While the volatility was at times significant, the team believes the underlying demand drivers across much of the ecosystem remain supportive.
What helped performance?
The top contributors to the Portfolio's relative performance in 3Q 2026 were Twist Bioscience, RingCentral, and Five9.
Twist Bioscience provides synthetic DNA and other next-generation genomic products used across drug discovery, diagnostics, and data storage applications. Shares outperformed after another quarter of record revenue and accelerating growth, driven in part by increasing adoption of the company's platform for AI-enabled drug discovery. Management also raised full-year guidance, reinforcing investor confidence in the durability of the company's growth trajectory as it approaches profitability.
RingCentral provides cloud-based business communications and contact center software. Shares outperformed following a strong earnings report in which the company beat expectations and raised full-year guidance. This was supported by continued momentum in its AI-powered contact center offering and newly expanded partnerships. Improving margins, strong free cash flow generation, and an increased capital return program further bolstered investor confidence in the durability of the company's growth and profitability profile.
Five9, similar to RingCentral, provides cloud-based contact center software that helps enterprises manage customer engagement. Shares outperformed as the company reported accelerating subscription growth alongside a sharp increase in AI-related revenue, and signed a significant multi-year contract with a large enterprise customer. Management also raised its full-year outlook for AI revenue growth, reinforcing investor conviction in the company's positioning within AI-enabled customer experience.
What hurt performance?
The most significant detractors from the Portfolio's relative performance in 3Q 2026 were Terawulf, nLight, and Brookdale Senior Living.
Terawulf is a digital infrastructure company that has increasingly pivoted from bitcoin mining toward leasing high-performance computing capacity to AI and cloud customers. The stock had been one of the biggest beneficiaries of enthusiasm for AI-adjacent data center and power infrastructure businesses in the first half of the year. Shares underperformed as the stock gave back a portion of those gains during the July drawdown, amid investor scrutiny of the pace at which new data center capacity will be monetized.
nLight provides high-power fiber lasers for aerospace, defense, and industrial applications. Despite reporting solid quarterly results, shares underperformed after the company issued third-quarter revenue guidance that came in below expectations, citing supply chain-related delays in sourcing optical components from overseas suppliers. The team continues to monitor the position given the company's leading position in high power defense related laser programs, which the team believes remains a durable long-term growth driver.
Brookdale Senior Living is one of the largest operators of senior living communities in the United States. Shares underperformed amid investor concerns over softer near-term sales and revenue growth trends. These concerns overshadowed continued favorable underlying fundamentals in the senior housing industry, including improving occupancy and healthy rate growth. The team retains conviction in the position, as its research shows favorable long-term supply and demand dynamics within senior housing.
How did the team change the Portfolio?
The salient changes to positioning in 3Q 2026 were increased exposure to Health Care and decreased exposure to Industrials. The Health Care additions fall under a broader theme of Health Care Innovation, which encompasses Biotech and Medtech. More specifically, this includes themes like precision medicine/diagnostics, genomics, next generation therapeutics, and innovations that transform the delivery of care and improve on the standard of care.
The reduced exposure to Industrials came as the team pared back exposures within the Electrification and AI infrastructure-related themes. The team still sees a meaningful opportunity for these picks and shovels "suppliers" to the AI build out. However, it has increasingly used these positions as a source of funds to add to the "appliers" of AI—the companies seeking to leverage AI in powerful ways to drive efficiencies and bring innovation to many sectors of the economy.
The team views Health Care Innovation as among the best examples of this, though there are other notable themes under the "AI appliers" banner. As a result of these shifts, Technology and Health Care overtook Industrials as the Portfolio's largest and second largest sector exposures by the end of the quarter.
What is the team's outlook?
The team sees the volatility of 3Q 2026 as consistent with what it has come to think of as "the pause that refreshes." In its view, the quarter's volatility largely reflected a resetting of elevated expectations and related positioning built during the first half of the year, rather than a broad deterioration in fundamentals across AI infrastructure and its adjacent themes. The team believes the underlying demand drivers across much of the ecosystem remain supportive.
The team says its primary objective has always been optimizing around performance. Given the set of conditions present today, it seeks to best position the Portfolio to pursue attractive long-term performance. The team believes it is in the early stages of seeing a transition from the "suppliers" of AI—providing infrastructure and components—to the "appliers," the businesses leveraging AI to make their core businesses more productive and introduce new products and services.
The team sees meaningful opportunities for the suppliers in the quarters and years ahead amid this AI capital expenditure (capex) cycle. However, it believes the thematic timeliness, a distinct element of its process, has changed since Spring of this year. As a result, the team has incrementally shifted positioning toward the "appliers," a powerful theme it believes has a more meaningful growth runway.
Taking a step back, the team believes the small cap universe in the U.S. is home to some of the most innovative, dynamic companies and entrepreneurs in the world. The team says it has found that its performance is fueled by the accelerating pace of change, and that orienting around this has provided opportunities largely irrespective of the prevailing market environment. It has sought to build a process that harnesses change and disruption to its advantage. Amid the paradigm shift experienced with AI in recent years, the team says this has only become more important, and it expects that to continue into the future.
Who manages the Polen 5Perspectives Small Growth strategy?
The Polen 5Perspectives Small Growth strategy is led by Drew Cupps, Head of Team, Portfolio Manager & Analyst, who has 34 years of industry experience.
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Definitions:
Contribution to relative return: a measure of a security’s contribution to the relative return of a portfolio versus its benchmark index. The calculation can be approximated by the below formula, taking into account purchases and sales of the security over the measurement period. Please note this calculation does not take into account transactional costs and dividends of the benchmark, as it does for the portfolio. Contribution to relative return of Stock A = (Stock A portfolio weight (%) - Stock A benchmark weight (%)) x (Stock A return (%) – Aggregate benchmark return (%)).
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