3Q 2026 Focus Growth Commentary

Q3 2026 was a modestly positive one for US equities following a sharp sell-off early in the quarter, as the Russell 1000 Growth Index (the “Index”) returned 0.92% for the quarter. The Polen Focus Growth Composite Portfolio (the “Portfolio”) outperformed the Index, returning 4.46% (net of fees) for the quarter.

How did the Polen Focus Growth strategy perform in 3Q 2026?

Top relative contributors to the Portfolio’s performance included ServiceNow, Shopify, and Microsoft. By contrast, the largest relative detractors in the quarter were NVIDIA, Apple (not owned), and Lam Research.

The performance data quoted represents past performance and does not guarantee future results. ^The performance presented prior to April 1, 1992, is not in compliance with the GIPS Standards. Current performance may be lower or higher. Periods over one-year are annualized. Performance figures are presented gross and net of fees and have been calculated after the deduction of all transaction costs and commissions, and include the reinvestment of all income. 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. Contribution to relative return is 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 (%)).

All company-specific information has been sourced from company financials as of the relevant period discussed.

What happened in markets during the quarter?

The central feature of the market performance this quarter was a material reversal in leadership, especially early in the quarter. In the first half of the year, the market sharply rewarded direct AI-capex beneficiaries, particularly semiconductors, memory, and certain industrial businesses tied to data center construction, power, and AI infrastructure. While during the third quarter, that trade cooled notably, with the semiconductor complex underperforming during the July and August market selloff while software and services businesses, which had been under significant pressure from generative AI disruption fears, began to recover.

In the team’s view, this was less a change in the underlying fundamentals than a change in what the market was willing to recognize. For much of 2026 (and prior years), investors have treated the AI trade as almost binary in nature: direct infrastructure beneficiaries were deemed as winners, while many software and services businesses were presumed to be losers. In the team’s opinion, that was always too simplistic. Many of the software, services, and information-based businesses the Portfolio owns continued to grow, continued to generate cash flow, and continued to demonstrate strong competitive positions even while their stocks were under pressure. During the third quarter, it finally felt like some of these negative narratives were overcome.

The team thinks this is an important development. The team has never believed that generative AI is uniformly negative for software, because while some businesses will clearly be disrupted, it also sees many examples where AI can enhance these businesses rather than displace them. And, in the team’s view, the third quarter offered at least some evidence that some investors may be beginning to make those distinctions.

At the same time, the team does not dismiss the AI infrastructure opportunity as the growth across the broader ecosystem remains meaningful. Demand for compute, memory, storage, data center capacity, power, and grid infrastructure remains significant, and many of the companies enabling that buildout continue to report strong fundamentals. However, what changed in the quarter was how much investors were willing to pay for that growth. Valuations declined across parts of the semiconductor supply chain as investors focused more closely on how AI-related investment is being financed, the impact of elevated spending on major cloud providers’ free cash flow, reliance on a relatively small number of large customers, and whether current supply constraints could ease over time.

The team thinks that distinction is important, as underlying fundamentals continue to point to healthy demand across much of the AI ecosystem, even as stock prices in certain areas had risen significantly over a relatively short period. In those situations, even strong operating results can be met with declining valuations if investor expectations have moved too far ahead of fundamentals. Conversely, when expectations become overly pessimistic, solid execution can lead to meaningful rebounds.

In the third quarter, the team saw a little more synchronization between what companies were reporting and how their stocks reacted—a welcome change from earlier in the year, when even strong quarterly results did not always translate into positive share-price reactions as investors seemed to focus more heavily on broader market narratives.

What helped performance?

ServiceNow was the Portfolio’s top-performing holding during the quarter as improving sentiment toward high-quality software companies coincided with another strong earnings report. In a market that had spent much of the year questioning the durability of software business models in an AI world, ServiceNow delivered what the team viewed as an excellent quarter, beating expectations across key metrics (and notably showing an acceleration in AI revenues) and raising full-year guidance. Importantly, the company continues to demonstrate broad-based strength across IT service management, IT operations, security, creator workflows, CRM, and industry workflows, while also showing that AI can be a revenue opportunity rather than a headwind.

What hurt performance?

NVIDIA was the Portfolio’s largest relative detractor during the quarter, not because the stock declined, but because the Portfolio’s approximately 7.5% position remained materially underweight its roughly 15% weight in the Index. NVIDIA’s shares increased nearly 15% during the quarter, reinforcing the team’s positive view of the business and its importance as one of the Portfolio’s largest absolute holdings. The company once again delivered exceptional growth, with revenue more than doubling year-over-year, data center representing approximately 92% of revenue, and management indicating that the growth outlook remains supply constrained rather than demand constrained. NVIDIA’s upcoming Vera Rubin product cycle may further expand the company’s revenue opportunity, with the company reporting improvements in customer economics via higher throughput and lower token costs. The team remains mindful of risks, including potential gross margin pressure from rising memory and component costs and extended customer payment terms, but continues to believe NVIDIA is one of the most competitively advantaged companies in the AI infrastructure ecosystem.

How did the team change the portfolio?

In Q3 2026, the team initiated new positions in Adyen, ASML, Quanta Services, and Seagate Technology, while selling MSCI and Rollins. The team also added to existing positions in EMCOR Group and Meta Platforms, while trimming Eli Lilly, Shopify, and Starbucks. The net goal of this activity was to improve the Portfolio’s balance by redeploying capital toward businesses where the team sees stronger current momentum, attractive long-term growth prospects, and more visible demand tailwinds.

The team initiated a new position in Adyen, a global payments platform that is evolving from a pure-play processor into a broader financial operating system for modern commerce. The team believes Adyen’s single-stack technology, banking licenses, and deep enterprise relationships position the company well as commerce becomes increasingly complex across online, offline, cross-border transactions, as well as emerging payment activity initiated or managed by AI agents. Recent growth remains strong, and the team sees a meaningful opportunity to continue gaining share from more fragmented legacy payment providers.

The team also initiated a new position in ASML, which it views as a uniquely advantaged provider of advanced lithography equipment used in leading-edge semiconductor manufacturing. ASML’s position in extreme ultraviolet (EUV) lithography remains critical to the continued scaling of advanced logic and memory, while its service business provides a recurring component to revenues. Recent concerns around China exposure and domestic deep ultraviolet (DUV) development have contributed to share price volatility, but the team believes ASML remains one of the most competitively advantaged businesses in the semiconductor supply chain.

Additionally, the team acquired a new position in Quanta Services, North America’s largest specialty infrastructure contractor, mostly focused on the electric power grid in North America. Quanta provides end-to-end services for electric utilities, renewables developers, hyperscalers, pipelines, and industrial customers. The team views the company as a picks-and-shovels beneficiary of grid modernization, rising electricity demand, and the broader infrastructure buildout. Importantly, much of this work relates to essential infrastructure needs and multi-year projects, which can be constrained by permitting, supply chain, and skilled labor availability. The team believes the company’s capabilities and positioning should support growth over time.

Lastly, the team also acquired a new position in Seagate Technology, one of only two major suppliers in the hard disk drive market. Demand for data storage continues to grow, driven by cloud, AI training data, video, telemetry, archival storage, and physical AI data. Hard disk drives remain an economically attractive solution compared to SSDs at datacenter-relevant capacities, while supply is constrained and major customers are entering into longer-term supply arrangements. The team believes this creates an attractive combination of volume visibility, pricing power, and operating leverage, though it remains mindful of cyclical hyperscaler capex risk and potential pressure from NAND pricing.

During the quarter, the team exited its position in MSCI to help fund the addition to Meta Platforms. The team continues to like MSCI’s business but as Meta is now beginning to monetize its non-core AI investments, it views the risk/reward opportunity of the latter to be more attractive.

The team also sold its position in Rollins. Its original thesis was based on steady organic growth, accretive acquisitions, pricing power, and margin expansion. However, recent difficulty in new business generation and the CFO resignation increased the team’s concern that the thesis may no longer be playing out as expected. Given better opportunities elsewhere, the team decided to redeploy the capital.

In terms of existing positions, the team added to EMCOR Group using proceeds from the Rollins sale. EMCOR continues to show strong business momentum, is growing meaningfully faster than Rollins, and trades at a similar valuation. In the team’s view, this offered a more attractive use of capital.

As mentioned earlier, the team added to the Portfolio’s Meta position following the launch of Meta Muse, its personal AI agent. In the team’s view, Muse gives Meta another potential avenue to monetize the company’s heavy AI investments outside of its core advertising businesses. With more than 3 billion daily active users across Facebook, Instagram, and WhatsApp, the team believes Meta has a powerful distribution advantage and the potential to create new revenue opportunities across subscriptions, transactions, and agentic consumer use cases.

At the same time, the team trimmed Eli Lilly to right size the position to a more typical weight and help fund the purchase of Seagate Technology. Lilly continues to benefit on the back of its portfolio of incretin-based medicines, including GLP-1 therapies. The team remains positive on the company’s outlook and still holds a meaningful position in the Portfolio.

The team also trimmed Shopify following strong share price performance and used the proceeds to help fund the purchase of Adyen. Like Eli Lilly, the team remains positive on the outlook for Shopify and sees agentic commerce as a likely tailwind. That said, personal agents like Meta’s Muse, could encroach on the transaction revenue garnered by payments companies like Shopify in the long run by bringing transactions directly to online merchants. Now though, it appears to the team that Shopify’s offerings are more complementary than competitive.

Lastly, the team trimmed its position in Starbucks to help fund the purchase of ASML. The team is pleased with the turnaround Starbucks is executing with improving same-store sales trends and margins. That said, the team believes the valuation is beginning to price in that turnaround.

What is the team’s outlook?

In recent quarters, it has felt as if capital has been running from one side of the boat to the other. Earlier this year, the boat tilted heavily toward semiconductors and AI infrastructure. In the third quarter, it shifted back toward software and services. As stewards of its client’s capital, the team does not want the Portfolio to be swung around violently by every thematic or sentiment driven rotation. The team’s goal is to own competitively advantaged businesses in their respective market while maintaining enough balance that the Portfolio can navigate through leadership rotations.

Importantly, that is the broader purpose of the changes the team has made this year. The team has added select exposure to semiconductor supply chain businesses, AI infrastructure enablers, commercial aerospace, and power-related companies where it believes industry structures are attractive and demand visibility has improved. Importantly, within these more cyclical areas, the team has emphasized businesses that it believes hold leading competitive positions and may provide greater resilience across market and economic cycles. At the same time, the team continues to own software, services, payments, internet, and information-based businesses where it believes long-term competitive advantages remain underappreciated. The third quarter may suggest that this improved balance is beginning to matter.

Additionally, the macro backdrop also remains worth watching, as interest rates moved higher during the quarter, inflation remains somewhat persistent, and energy prices have added pressure—reinforcing the need to remain disciplined on valuation. The team continues to be careful about the prices it pays, particularly for businesses with more distant earnings power.

Overall, the team is encouraged by the quarter, but it also remains clear-eyed. However, it believes the Portfolio has improved balance today amidst the broader market backdrop, with exposure to what it finds to be both durable compounders and areas of strong business momentum, and it remains focused on applying its time-tested process with discipline, humility, and enough flexibility to help it avoid getting caught on the wrong side of the boat.

Who manages the Polen Focus Growth strategy?

The Polen Focus Growth strategy is managed by Dan Davidowitz, CFA, Portfolio Manager & Analyst, who has 27 years of industry experience, and Damon Ficklin, Head of Team, Portfolio Manager, who has 24 years of industry experience.