2Q 2026 Focus Growth Commentary
The Polen Focus Growth Composite Portfolio returned +6.33% (net of fees) in the second quarter of 2026, compared to +16.74% for the Russell 1000 Growth Index. The source of the gap was specific: a narrow, momentum-driven rally concentrated in AI infrastructure beneficiaries — particularly semiconductors and memory-related businesses — rewarded near-term acceleration while penalizing the software, IT services, and healthcare companies where the portfolio has historically found high-quality, recurring-revenue businesses. Semiconductors now represent roughly one-third of the Russell 1000 Growth Index, approximately four to five times their weighting just a few years ago.
In response, the team made its most active quarter of portfolio changes in recent memory, initiating six new positions and exiting five, with a clear objective: redeploy capital toward companies with stronger current business momentum, competitive advantages, and visible long-term demand tailwinds.
What Drove the Market in Q2 2026?
The dominant feature of the quarter was not that growth stocks rallied, but that the rally remained narrow and momentum-driven. Investors focused on supply bottlenecks, accelerating demand for compute, and the capital intensity required to support generative and agentic AI. Businesses associated with these themes attracted capital in a self-reinforcing cycle, while companies without obvious thematic associations remained under pressure regardless of their underlying fundamentals. The team observed that temporary slowdowns were priced as permanent impairments, while temporary bottlenecks in favored areas were extrapolated as enduring advantages.
Which Holdings Contributed Most — and Least — to Performance?
Lam Research led the portfolio as investors rewarded its leadership in wafer fabrication equipment at a time of acute AI-driven semiconductor demand. Eli Lilly and the decision not to own Netflix also contributed positively. On the other side, CoStar Group continued to weigh on performance as the market focused on elevated Homes.com spending and the timeline for margin recovery, while Zoetis lagged amid competitive pressure in companion animal dermatology.
How Is the Team Repositioning the Portfolio?
The quarter's activity reflected a deliberate shift. The team sold positions in Accenture, Aon, Synopsys, Uber, and Zoetis — all high-quality businesses where growth had either slowed or become more difficult to sustain — and initiated positions in ATI Inc., EMCOR Group, GE Aerospace, GE Vernova, Howmet Aerospace, and TSMC. The team also added to NVIDIA at a valuation it considered attractive relative to the company's earnings growth.
The new holdings share common characteristics: concentrated industry structures, supply-constrained environments, and multi-year demand visibility driven by aerospace aftermarket cycles, data center construction, power infrastructure needs, and leading-edge semiconductor manufacturing.
Key Takeaways
The rally was narrow and momentum-driven.
Semiconductor and AI infrastructure businesses drove the bulk of index returns, and the Russell 1000 Growth Index now has roughly one-third of its weight in semiconductors.
The team executed its most active quarter in recent memory.
Six new positions were initiated across aerospace, power infrastructure, and semiconductors, while five holdings were sold where near-term growth had slowed.
The team is finding quality growth in less obvious places.
Beyond AI infrastructure, new positions in commercial aerospace and power generation reflect concentrated industry structures, long-duration backlogs, and supply-demand imbalances that may support durable earnings growth for years.
Frequently Asked Questions
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.