2Q 2026 5Perspectives Ultra-Small Growth Commentary

The Polen 5Perspectives Ultra-Small Growth Composite Portfolio (the "Portfolio") returned 37.38% (net of fees) in the second quarter of 2026, compared to the 28.98% return of the Russell Microcap Growth Index (the "Index"). Micro-cap growth stocks staged one of their best quarterly returns of the past 25 years as investor sentiment recovered from early-quarter concerns surrounding economic growth, trade policy, and the durability of the AI investment cycle. Companies with exposure to long-duration secular growth themes — including AI infrastructure, electrification, aerospace, and defense modernization — were among the strongest performers.

The quarter also marked a significant shift in Portfolio construction: our exposure to Technology nearly doubled from the beginning of the period, driven primarily by what we might loosely characterize as neocloud providers — specialized cloud infrastructure companies dedicated to AI workloads — alongside positions tied to Agentic AI, semiconductors, and networking equipment.

What Defined the Micro-Cap Growth Rally in Q2 2026?

It was a banner quarter for micro-cap growth stocks. While concerns surrounding economic growth, trade policy, and the durability of the AI investment cycle weighed on markets early in the quarter, many of those fears quickly receded as the quarter progressed. Investor sentiment sharply improved and micro-caps staged one of their best quarterly returns of the past 25 years, with the Index advancing 28.98%.

One of the defining features of the quarter was the market's ongoing debate surrounding AI-related capital spending. Following periods of concern earlier this year that investment in AI infrastructure could moderate, a steady stream of announcements from hyperscalers and enterprise customers assuaged those concerns and instilled confidence that spending growth would continue. In our view, rather than slowing, the race to build AI infrastructure appears to be accelerating, benefiting a broad range of companies across power generation, electrical equipment, networking, and data center infrastructure.

The market's attention also increasingly shifted toward power availability as one of the primary bottlenecks on future AI growth. As electricity demand forecasts continued to move higher, investors focused on companies we believe are well positioned to benefit from the need to expand generation capacity, strengthen grid infrastructure, and provide alternative power solutions.

Which Holdings Had the Largest Impact on the Portfolio's Relative Performance?

The top contributors to the Portfolio's relative performance in the quarter were Vishay Precision Group, AEHR Test Systems, and Rackspace Technology.

Vishay Precision Group develops highly engineered precision measurement technologies, including sensors, weighing systems, and specialized measurement solutions used across industrial, aerospace, and infrastructure applications. Shares performed well during the quarter as investors increasingly appreciated the company's exposure to improving industrial demand, manufacturing reshoring, and high-value niche end markets where precision measurement remains mission-critical. We continue to believe the company's differentiated technology portfolio positions it well as customers invest in greater automation and manufacturing efficiency.

AEHR Test Systems provides semiconductor test and burn-in equipment, with a particular focus on silicon carbide power semiconductors used in electric vehicles, industrial power applications, and other high-performance computing markets. Shares appreciated significantly during the quarter as investors grew more confident that semiconductor capital spending would remain robust and that demand for advanced testing solutions would accelerate alongside next-generation power semiconductor adoption. We believe AEHR remains well positioned to benefit from several long-duration semiconductor investment cycles.

Rackspace Technology provides managed cloud, hybrid cloud, and AI infrastructure services that help enterprises deploy and manage increasingly complex computing environments. Shares rallied sharply during the quarter as investors reassessed the company's ability to participate in growing enterprise AI deployments while benefiting from improving operational execution and stabilization of its underlying business. We believe Rackspace's expertise in managing complex cloud infrastructure creates an attractive opportunity as organizations continue integrating AI capabilities into existing IT environments.

The most significant detractors from the Portfolio's relative performance in the quarter were Babcock & Wilcox Enterprises, Ouster (not owned), and GeneDx.

Babcock & Wilcox Enterprises provides energy and environmental technologies serving utilities, industrial customers, and waste-to-energy facilities. Although we remain constructive on the company's longer-term positioning, shares underperformed during the quarter as investors weighed execution risk surrounding several growth initiatives and remained cautious toward portions of the traditional power and environmental infrastructure markets.

Ouster was among the Portfolio's largest relative detractors despite not being held during the quarter. The company develops digital lidar sensors used in industrial automation, robotics, smart infrastructure, and autonomous systems. Shares appreciated substantially as investors increasingly rewarded companies viewed as beneficiaries of expanding automation and AI-enabled physical infrastructure. As a result, our lack of exposure negatively impacted relative performance.

GeneDx is a provider of genomic testing and diagnostics that leverages advanced sequencing technology to support the diagnosis of rare diseases and improve patient outcomes. While we believe the company continues to make progress operationally, shares were volatile during the quarter driven by a material cut to 2026 guidance that caused investors to reassess growth expectations amidst broadly weakening healthcare sentiment. We exited the position during the period as our process led us to redeploy capital into opportunities where we saw a more compelling combination of thematic tailwinds, fundamentals, and technical characteristics.

How Is the Portfolio's Sector Exposure Shifting?

One of the most notable shifts in the quarter was a significant increase in our exposure to Technology — a near doubling of our weight from the beginning of the period. The biggest driver of this increase stems from a nascent theme around what we might loosely characterize as neocloud providers (specialized cloud infrastructure providers dedicated to AI workloads). Other drivers of the increased weight to Technology include Agentic AI as well as finding opportunities across Semis and Networking Equipment. This large addition to Technology was primarily funded by decreased exposures to Industrials. Industrials remain our second largest sector exposure but have declined on the margin given decreased exposure to a mix of holdings across our Electrification and Military 2.0 themes.

What Is Our Outlook for Ultra-Small Growth?

We believe the micro-cap universe in the US is home to some of the most innovative, dynamic companies and entrepreneurs in the world. More than anything, we have found that our performance is fueled by the accelerating pace of change. Unlike rate cuts or a turn in the economic cycle, orienting around this accelerating pace of change has provided us with opportunities largely irrespective of the market environment. We have sought to build a process that harnesses change and disruption to our advantage. Amidst the paradigm shift we've experienced with AI in recent years, this has only become more important for us and we expect that to continue into the future.

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.