3Q 2026 Focus Growth Commentary

Q3 2026 was a modestly positive quarter for U.S. equities following a sharp sell-off early in the period. The Russell 1000 Growth Index (the “Index”) returned 0.92%, while the Polen Focus Growth Composite Portfolio (the “Portfolio”) returned 4.46% net of fees, outperforming the Index by 3.54%.

The central feature of the quarter was a material reversal in market leadership, as many direct AI-capex beneficiaries, including semiconductors, memory, and certain industrial businesses tied to data center construction and power infrastructure, cooled after significant strength earlier in the year.

At the same time, software and services businesses, which had been under pressure from generative AI disruption fears, began to recover as investors appeared more willing to distinguish between companies that may be disrupted by AI and those where AI may enhance long-term growth.
 

What Drove the Market in Q3 2026?

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.

Which Holdings Contributed Most — and Least — to 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 we 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. 

NVIDIA was the Portfolio’s largest relative detractor during the quarter, not because the stock declined, but because our approximately 7.5% position remained materially underweight its roughly 15% weight in the Index. 

How Is the Team Repositioning the Portfolio?

In Q3 2026, we initiated new positions in Adyen, ASML, Quanta Services, and Seagate Technology, while selling MSCI and Rollins. We also added to our 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 we see stronger current momentum, attractive long-term growth prospects, and 
more visible demand tailwinds.

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.