2Q 2026 International Growth Commentary

The MSCI ACWI ex-USA (the "Index") advanced nearly 15% in the second quarter of 2026, marking its strongest quarterly return since the initial stages of the COVID recovery in mid-2020. The Polen International Growth Composite Portfolio (the "Portfolio") also generated positive absolute returns, rising 11.20% (net of fees), despite lagging the Index. In our view, the rally remained highly influenced by cyclical factors and momentum, with semiconductor and memory-related businesses delivering exceptional returns while many high-quality software, healthcare, and consumer companies generally lagged.

The Portfolio's more balanced sector and factor composition — a deliberate design choice — meant it carried more exposure to what the market penalized and less to the narrow set of names driving the bulk of Index returns. Not owning SK Hynix, which surged roughly 220% during the quarter on high-bandwidth memory (HBM) demand, was the single largest source of relative underperformance.

What Drove International Growth Markets in Q2 2026?

In our view, the quarter's rally was powered by investors rewarding businesses with direct, near-term exposure to AI infrastructure spending — particularly in semiconductors, memory, and compute. Software businesses remained pressured by concerns that generative AI could disrupt existing business models and compress pricing power. Healthcare and consumer companies generally lacked the narrative excitement investors sought during the quarter. We believe temporary slowdowns in out-of-favor businesses were being priced as permanent impairments, while temporary bottlenecks in favored areas were extrapolated indefinitely — a self-reinforcing dynamic we feel is driven by momentum, thematic flows, and passive index concentration.

Which Holdings Had the Largest Impact on Relative Performance?

Top relative contributors to the Portfolio's performance included Tokyo Electron, ASML, and ASM International. Tokyo Electron led the Portfolio as a top supplier of semiconductor manufacturing equipment benefiting from robust investment in leading-edge logic, high-bandwidth memory, and advanced packaging. ASML and ASM International also contributed positively through their positions in the semiconductor equipment supply chain.

The largest relative detractors were SK Hynix (not owned), MercadoLibre, and SAP. Not owning SK Hynix — the world's leading supplier of HBM for AI accelerators — was the Portfolio's largest relative headwind as the stock surged on expectations that HBM demand would remain supply-constrained for years. Though SK Hynix is not owned in the Portfolio, its near peer Samsung Electronics is held and is a slight overweight compared with the Index. MercadoLibre and SAP also weighed on relative returns during the quarter.

What Portfolio Changes Were Made During the Quarter?

Activity was lighter than the prior quarter, focused primarily on adds and trims of existing positions, though we did eliminate two positions — InPost and Medtronic.

We exited our position in InPost during the quarter as the date on which it will be acquired and delisted approaches. Following the announcement of the recommended all-cash acquisition by a consortium that includes FedEx, Advent, and existing shareholders, we believed much of the company's near-term upside had become reflected in the offer price. As a result, we elected to realize the value created by the investment and redeploy the proceeds into existing holdings where we believe there is more compelling long-term earnings growth potential.

We also sold our position in Medtronic. We continue to view Medtronic as a high-quality medical technology company, but with some of the challenges the business continues to face, we felt there were better opportunities elsewhere with what we felt have stronger current business momentum.

What Is the Team's Outlook for International Growth?

We feel that semiconductor-related businesses have become an increasingly important component of the Index, as measured by the MSCI ACWI ex-USA, making it less of a broad representation of international large-cap equities and more a reflection of their belief that the AI infrastructure buildout will remain the defining source of growth and value creation. We own and continue to study businesses that we believe can benefit from these trends, but we also seek for our hurdle to remain high. Some businesses benefiting today may be structurally advantaged and may compound value for many years, while others may simply be experiencing powerful cyclical scarcity. Our job is trying to distinguish between the two.

We aim to apply the same fundamental research discipline with greater attention to business momentum, timing, and opportunity cost. We are finding some of those opportunities in obvious places, such as portions of the AI infrastructure supply chain, but we are also finding them in less obvious places, including commercial aerospace and power infrastructure, where concentrated industry structures, long-duration backlogs, and supply-demand imbalances may support strong growth for many years.

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.