3Q 2026 5Perspectives Small Growth Commentary

During the third quarter of 2026, the Polen 5Perspectives Small Growth Composite Portfolio (the “Portfolio”) returned -14.1% net of fees, compared to the -9.4% return of the Russell 2000 Growth Index. The top contributors to relative performance in the period were Twist Bioscience, RingCentral, and Five9. The most significant detractors from the Portfolio's relative performance in the quarter were Terawulf, nLight, and Brookdale Senior Living.

Markets opened the quarter with a sharp, mechanically driven selloff in AI-related equities, then recovered to a fresh high in mid-August before a hawkish pivot from the Fed and a 25bps rate hike in September pushed the Russell 2000 Growth into a roughly -10% correction from its peak. We view the volatility largely as a "pause that refreshes," resetting extreme positioning and expectations rather than signaling a broad deterioration in the fundamentals of AI infrastructure and its adjacent themes.

We believe we are 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. We recognize that while we still see a meaningful opportunity for the suppliers in the quarters and years ahead amidst this AI capex cycle, we have incrementally shifted our positioning towards the “appliers”—a powerful theme we believe has a more meaningful growth runway.

What Fueled the Small Cap Sell-off in Q3 2026?

The quarter opened with a meaningful air pocket in AI-related equities, as a wave of hyperscaler earnings reports raised fresh questions about whether enormous AI-related capital expenditures would generate commensurate returns. These fundamental concerns were quickly compounded by crowded 
positioning, elevated leverage, and forced selling, producing one of the sharpest, most concentrated selloffs the AI trade had experienced since the current cycle began in 2023, with semiconductor and AI infrastructure-related stocks bearing the brunt of the decline. Hawkish commentary from new Fed Chair Kevin Warsh raised the odds of a 25bps rate hike, which ultimately came in mid-September. From that mid-August high through the end of the quarter, the Russell 2000 Growth entered a -10% correction.

Which Holdings Influenced the Portfolio's Return Most?

Twist Bioscience was the top contributor, while Terawulf was the top detractor. Twist Bioscience is a provider of synthetic DNA and other next-generation genomic products used across drug discovery, diagnostics, and data storage applications. Shares outperformed during the quarter following 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.

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 during the quarter 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 amid investor scrutiny of the pace at which new data center capacity will be monetized.

How Is the Portfolio Evolving Its Exposure?

The salient changes to positioning this quarter included our increased exposure to Health Care and decreased exposure to Industrials. The additions within Health Care fall under a broader theme of Health Care Innovation which encompasses Biotech and Medtech, but more specifically, themes like precision  medicine/diagnostics, genomics, next generation therapeutics, and innovations that transform the delivery of care and improve on the standard of care. 

By contrast, the reduced exposure to Industrials came as we pared back exposures within the Electrification and AI infrastructure-related themes. While we still see a meaningful opportunity for these picks and shovels “suppliers” to the AI build out, we have increasingly used these positions as a source of funds to add to the “appliers” of AI—the companies that are seeking to leverage AI in powerful ways to drive efficiencies and bring innovation to many sectors of the economy. 

Past performance does not guarantee future results. The commentary is not intended as a guarantee of profitable outcomes. Please see Important Disclosures in the full commentary.