3Q 2026 5Perspectives Small-Mid Growth Commentary
Explore the 3Q 2026 Polen 5Perspectives Small-Mid Growth commentary, including market views, portfolio positioning, and performance.
During the third quarter of 2026, the Polen 5Perspectives Small-Mid Growth Composite Portfolio (the “Portfolio”) returned -12.52% net of fees, compared with the -10.35% return of the Russell 2500 Growth Index (the “Index”). Markets opened the quarter with a sharp, mechanically driven selloff in AI-related equities, recovered swiftly into mid-August, and then a hawkish pivot from the Federal Reserve and a 25 basis point rate hike in September pushed the Russell 2500 Growth Index into a roughly -9% drawdown. The team views the volatility largely as a “pause that refreshes” rather than a broad deterioration in the fundamentals of AI infrastructure and its adjacent themes.
How did the Polen 5Perspectives Small-Mid Growth strategy perform in 3Q 2026?
In the third quarter of 2026, the Portfolio returned -12.52% (net of fee), compared with the -10.35% return of the Index.
The top contributors to the Portfolio’s relative performance were Twist Bioscience, Twilio, and Embraer. The most significant detractors from relative performance were nLight, Terawulf, and BWX Technologies.
| Qtr | YTD | 1 Yr | 3 Yr | 5 Yr | 10 Yr | Since Inception (10-1-2005) | |
|---|---|---|---|---|---|---|---|
| Polen 5Perspectives Small-Mid Growth (Gross) | -12.42 | 8.66 | 8.60 | 28.52 | 8.09 | 18.49 | 13.53 |
| Polen 5Perspectives Small-Mid Growth (Net) | -12.52 | 8.14 | 7.88 | 27.49 | 7.20 | 17.52 | 12.38 |
| Russell 2500 Growth | -10.35 | 7.28 | 7.63 | 14.92 | 3.46 | 10.60 | 9.54 |
Performance shown represents results achieved at prior firms. As of 12-31-2025, the Polen U.S. SMID Cap Growth strategy has been renamed to Polen 5Perspectives Small-Mid Growth. The Polen 5Perspectives Small-Mid Growth strategy (the “Strategy”) began in October 2005 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?
Markets in the third quarter of 2026 opened with a sharp selloff in AI-related equities, rebounded into mid-August, and then pulled back as attention pivoted toward inflation and monetary policy. The team describes the quarter as an example of markets pushing investors out of their comfort zones and challenging them to separate signal from noise.
The quarter began 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 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. The Russell 2500 Growth Index rebounded significantly into mid-August.
That strength proved short-lived. 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 mid-August through the end of the quarter, the Russell 2500 Growth entered a -9% drawdown.
In the team’s view, the 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. The team believes the underlying demand drivers across much of the ecosystem remain supportive.
The team notes it has worked over the course of 26 years to refine its process for navigating this kind of volatility. It believes drawing on three disciplines—fundamental, thematic, and technical—provides an opportunity, especially when the signal becomes clouded by noise.
What helped performance?
Twist Bioscience, Twilio, and Embraer were the top contributors to the Portfolio’s relative performance in 3Q 2026.
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.
Twilio is a cloud communications platform whose APIs enable businesses to embed messaging, voice, and customer engagement capabilities into their applications, increasingly in support of AI-driven interactions. Shares outperformed following a strong second-quarter report. Management also raised full-year operating income and free cash flow guidance, reinforcing investor confidence in the company’s positioning as infrastructure for customer engagement in the AI era.
Embraer is an aerospace company that designs and manufactures commercial, executive, and defense aircraft. Shares outperformed after the company reported record second-quarter revenue, its strongest second-quarter deliveries in 16 years, and a record order backlog, supported by a sharp increase in defense orders. Management also raised full-year margin and free cash flow guidance, reinforcing investor confidence in the durability of the company’s growth across its commercial, executive, and defense businesses.
What hurt performance?
nLight, Terawulf, and BWX Technologies were the most significant detractors from the Portfolio’s relative performance in 3Q 2026.
nLight provides high-power fiber lasers for aerospace, defense, and industrial applications. Despite solid quarterly results, shares underperformed after the company issued third-quarter revenue guidance 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 it believes remains a durable long-term growth driver.
Terawulf is a digital infrastructure company that has increasingly pivoted from bitcoin mining toward leasing high-performance computing capacity to AI and cloud customers. Shares underperformed as the stock, which 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, gave back a portion of those gains during the July drawdown. This came amid investor scrutiny of the pace at which new data center capacity will be monetized.
BWX Technologies supplies nuclear components and fuel to the U.S. government and provides nuclear technology for commercial applications, including naval propulsion, medical isotopes, and advanced reactors. Shares underperformed, giving back a portion of their earlier gains amid the broader pullback in AI-adjacent power and nuclear-related themes and investor scrutiny of valuation. This came despite a strong second-quarter report in which revenue grew 18%, backlog increased approximately 40%, and management raised full-year guidance. The team retains conviction in the position given the company’s durable government franchise and the growth potential in nuclear power.
How did the team change the Portfolio?
In 3Q 2026, the salient changes to the Portfolio were increased exposure to Health Care and decreased exposure to Industrials. As a result, Technology overtook Industrials as the largest sector exposure, followed by Health Care as the second largest.
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 Industrials exposure 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—companies seeking to leverage AI in powerful ways to drive efficiencies and bring innovation to many sectors of the economy.
The team feels Health Care Innovation is among the best examples of this, though there are other notable themes under the “AI appliers” banner.
What is the team’s outlook?
The team views 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 believes we are in the early stages of a transition from the “suppliers” of AI, which provide infrastructure and components, to the “appliers”: businesses leveraging AI to make their core businesses more productive and introduce new products and services.
The team still sees meaningful opportunities for the suppliers in the quarters and years ahead amid the AI capex cycle. However, it believes the thematic timeliness, a distinct element of its process, has changed since the spring of this year. As a result, it 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 smid cap universe in the US is home to some of the most innovative, dynamic companies and entrepreneurs in the world. It has found that its performance is fueled by the accelerating pace of change, and it has sought to build a process that harnesses change and disruption to its advantage. The team says this has only become more important amid the paradigm shift with AI in recent years, and it expects that to continue.
Who manages the Polen 5Perspectives Small-Mid Growth strategy?
Drew Cupps manages the Polen 5Perspectives Small-Mid Growth strategy as Head of Team, Portfolio Manager & Analyst, with 34 years of industry experience.
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