3Q 2026 International Small Cap Equity Commentary

The Polen International Small Cap Equity Composite Portfolio (the “Portfolio”) outperformed the MSCI ACWI ex-US Small Cap Index (the “Index”) in the third quarter, returning 2.70% gross and 2.48% net of fees, respectively, versus 2.08% for the Index. Year-to-date, the Portfolio outperformed the Index, returning 18.39% gross and 17.63% net of fees versus 11.36% for the Index. Major global equity indices continued to advance in the third quarter following pronounced strength in Q2, although the pace of gains slowed considerably. Within international markets, a more risk-averse environment weighed particularly heavily on growth stocks.

How did the Polen International Small Cap Equity strategy perform in 3Q 2026?

Both stock selection and sector allocation contributed positively to relative performance during the quarter. The strategy’s underweight to Real Estate and overweight to Financials accounted for most of the positive allocation effect, while underweights to Materials and Energy were the largest detractors.

In terms of country allocation, overweights to Japan, the United Kingdom and Canada contributed, while the Portfolio’s overweight to Germany and underweight to South Korea detracted. These effects essentially offset each other, and the net country effect was not meaningful.

Source: Archer. Returns are trailing through 9-30-2026. Current performance may be lower or higher. Annualized returns are presented for periods greater than one year. Past performance is not indicative of future results. Returns are presented gross and net of management fees and include the reinvestment of all income. Net of fee returns are calculated by deducting a model investment management fee of 0.85% (85 bps) annually, applied monthly. The model fee represents the highest fee applicable to the strategy per the current fee schedule and is intended to reflect the fee most relevant to a prospective investor. Performance shown represents results achieved at prior firms. Performance shown prior to July 1, 2026 represents results achieved for CastleArk Management (“CastleArk”). The International Small Cap Equity strategy (the “Strategy”) performance from July 1, 2026 onward was achieved at Polen Capital. CastleArk and Polen Capital formed a joint venture co-owned by the Strategy’s key personnel in May 2026. This includes Mr. Ajoy Reddi, who has served as the portfolio manager of the Strategy since inception. At all times, Mr. Reddi has had ultimate decision-making authority with respect to the Strategy. Mr. Maneesh Singhal joined the Strategy team on March 1, 2019 and became co-portfolio manager on April 1, 2024. On August 31, 2024, Mr. Singhal left CastleArk and joined Polen Capital. Mr. Singhal rejoined the Strategy team as portfolio manager as part of the joint venture. 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?

Major global equity indices continued to advance in the third quarter following pronounced strength in Q2, although the pace of gains slowed considerably. U.S. equities led global markets for the second consecutive quarter, following strong international equity index leadership in Q1. The S&P 500 and NASDAQ Composite rose 2.3% and 2.6%, respectively, compared with gains of 0.5% for the MSCI ACWI ex-US Index and 2.1% for the MSCI ACWI ex-US Small Cap Index.

Within international markets, a more risk-averse environment weighed particularly heavily on growth stocks. The MSCI ACWI ex-US Growth Index declined 2.5% during the quarter, trailing the 3.5% gain for its value counterpart by almost 600 basis points. The reversal was particularly pronounced within semiconductors. After rising 88% in Q2, the Philadelphia Semiconductor Index declined approximately 12% in Q3, having fallen nearly 29% from its June peak to its late-July low before recovering toward quarter-end.

The more challenging environment was driven in part by a renewed energy shock as the U.S.-Iran military conflict re-escalated. Brent crude increased from roughly $70 per barrel at the beginning of the quarter to more than $100 in September. At the same time, global interest-rate expectations moved higher amid renewed inflation concerns. The European Central Bank raised its deposit rate to 2.50% from 2.25% in September, the U.S. Federal Reserve increased its target range to 3.75%–4.00% in its first rate hike since 2023, and the Bank of Japan raised its policy rate to 1.25%, its highest level since 1995.¹ Together, these developments contributed to a more risk-averse market environment.

The shift had its most significant impact on the semiconductor sector, an important area of overweight exposure in the Portfolio and one of the strongest-performing groups in Q2. During Q3, increasing macroeconomic uncertainty contributed to concerns that weaker economic conditions could eventually slow the AI-related demand supporting the industry’s recent earnings growth. The group began to recover toward the end of the quarter as several semiconductor companies reported strong results and forward outlooks that generally exceeded expectations, providing additional support for expectations of continued growth through Q4 2026 and into 2027.

Higher interest rate expectations were also a broad headwind for consumer discretionary stocks, another important area of Portfolio exposure. Even so, company-specific fundamentals remained strong across a number of the Portfolio’s holdings, allowing several positions to outperform despite the broader sector backdrop. Banks, the Portfolio’s third major sector overweight, responded in a more mixed but ultimately resilient fashion. Higher rates supported expectations for net interest income, while concerns about slower economic growth represented a potential offset.

¹ Sources: U.S. Energy Information Administration (EIA), Brent Crude Oil Spot Prices, July–September 2026; European Central Bank, Monetary Policy Decisions, September 10, 2026; U.S. Federal Reserve, FOMC Statement, September 16, 2026, and Open Market Operations: Historical Policy Rates; Bank of Japan, Change in the Guideline for Money Market Operations, September 18, 2026.

What helped performance?

The three top individual contributors to absolute return were Happinet, Hokuhoku Financial Group, and Nippon Avionics. The Portfolio’s strongest contributors were companies the team believes are approaching or undergoing earnings-growth inflections that may prove durable and are not yet fully reflected in market expectations.

Happinet, a Japanese entertainment company that distributes video games and consumer products for companies including Nintendo, Sony and Bandai Namco, rose 79% during the quarter as demand for newly launched products materially exceeded market expectations. The team continues to hold the position because it believes results during the fourth quarter, which includes the important year-end holiday season, may continue to benefit from strong product demand and could provide additional support for the company’s earnings-growth outlook.

Hokuhoku Financial Group, a Japanese regional bank, rose 43% during the quarter as higher policy rates continued to improve the earnings outlook. The bank’s profits have been accelerating as its loan book reprices at higher yields, supporting stronger capital generation and the potential for additional shareholder returns. The team continues to believe this is an earnings inflection point that has further room to develop.

Nippon Avionics, a Japanese provider of information-system controls and displays, rose 50% as order growth accelerated amid increased spending by Japan’s Ministry of Defense and a growing number of large-scale customer projects. The team believes continued growth in Japanese defense spending may provide a supportive backdrop for demand. The team maintained the position because it believes the company’s earnings-growth inflection has room to further develop and is not yet fully reflected in market expectations.

What hurt performance?

The three largest absolute detractors were Mitsui Kinzoku, Pfisterer Holding, and Nextage. The strategy’s largest detractors to absolute return were primarily companies affected by stock-specific concerns even as, in the team’s view, their underlying earnings inflections can still develop.

Mitsui Kinzoku, a Japanese producer of high-grade copper alloys used in advanced AI semiconductor manufacturing, declined 44% as investors became concerned that new competitors could threaten the company’s near-monopoly market position. The team believes these concerns overstate the competitive risk. While competitors have begun supplying lower-grade, lower-priced alloys, Mitsui Kinzoku continues to hold a dominant position in the highest-grade products that are central to its growth outlook. Management has also increased its engagement with investors to address these concerns. Given the strength of the underlying earnings trajectory and the team’s view that the competitive position remains durable, the team maintained the position.

Pfisterer Holding, a German manufacturer of components used in electrical grids, declined 33% following disappointing order intake during the quarter. The team believes the weakness reflected capacity constraints rather than deterioration in underlying demand. The company remains exposed to several long-term growth drivers, including grid modernization and expansion, renewable-energy development and data-center investment. The team maintained the position as Pfisterer continues to expand production capacity, which it believes may improve its ability to meet demand and support future earnings growth as additional capacity comes online.

Nextage, a Japanese operator of new and used automobile dealerships, declined 28% amid concerns that higher interest rates would weaken vehicle demand and pressure pricing. Results to date have been more resilient than market expectations, with the company continuing to generate solid sales volumes while maintaining margins. The team maintained the position because it believes the underlying operating performance remains stronger than current market sentiment implies, while forthcoming strategic initiatives could provide additional visibility into the company’s growth trajectory.

How did the team change the portfolio?

During the quarter, the team initiated positions in Codan, Optima Bank, Hiab and Hill & Smith. It exited positions in Kalmar, Camtek, Premium Brands Holdings, Vossloh, Ashtead Technology Holdings, Buzzi and Integra Resources.

What is the team’s outlook?

The team remains focused on bottom-up stock selection and seeking to identify companies undergoing positive fundamental inflection, where it believes improving earnings power, returns on capital or competitive positioning are not yet fully reflected in market expectations.

Who manages the Polen International Small Cap Equity strategy?

The Polen International Small Cap Equity strategy is led by Ajoy Reddi, Head of Team, Portfolio Manager & Analyst, who has 27 years of industry experience, and Maneesh Singhal, CFA, Portfolio Manager & Analyst, who has 16 years of industry experience.