Not an AI Bet
In a market increasingly driven by AI narratives, credit underwriting discipline matters more than ever.
In periods when markets are captivated by powerful narratives, whether cloud computing, digital transformation, or today’s focus on artificial intelligence, sector labels can obscure what truly matters in credit investing: downside protection.
Technology and AI-related businesses currently command significant investor attention. Equity markets oftentimes reward growth narratives, and credit markets typically follow. In this environment, it is particularly important to distinguish between thematic enthusiasm and disciplined underwriting.
Our approach begins and ends with credit fundamentals.
The Story Behind the Sector Weight
In today’s AI-focused market, sector allocations are often viewed as signals of portfolio positioning. At times, our exposure to Software and Services within the Technology and Electronics sector exceeds the high yield benchmark, which can be interpreted as a directional bet on artificial intelligence. That conclusion, however, overlooks the underlying drivers of our positioning.
This paper explains the rationale behind our holdings and why our exposure reflects disciplined credit underwriting rather than participation in a market narrative. The Technology and Electronics sector itself spans a wide range of businesses, including both software and hardware companies. Our investments within it are guided not by macroeconomic themes, but by a consistent focus on individual company balance sheet strength, ability to create and sustain durable cash flow, and downside protection.
While each client portfolio may differ based on mandate, cash flows, and timing of inception, our representative account1 (the “Portfolio”) provides a view into our current positioning and underwriting approach.
The figure below highlights how our exposure is concentrated in a small number of high-conviction positions, rather than broad participation across the sector.
Selectivity Within Technology & Electronics
Exposure is concentrated in a few high-conviction positions, with limited ownership across the broader index.
1The representative account is an account within the Polen Credit U.S. Opportunistic High Yield Composite that Polen Capital Credit has deemed the most representative of the accounts managed by Polen Capital pursuing the U.S. Opportunistic High Yield investment strategy.
Important Disclosures
This information has been prepared by Polen Capital without taking into account individual objectives, financial situations or needs. As such, it is for informational purposes only and is not to be relied on as legal, tax, business, investment, accounting, or any other advice. Recipients should seek their own independent financial advice. Investing involves inherent risks, and any particular investment is not suitable for all investors; there is always a risk of losing part or all of your invested capital.
No statement herein should be interpreted as an offer to sell or the solicitation of an offer to buy any security (including, but not limited to, any investment vehicle or separate account managed by Polen Capital). This information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Unless otherwise stated, any statements and/or information contained herein is as of the date represented above, and the receipt of this information at any time thereafter will not create any implication that the information and/or statements are made as of any subsequent date. Certain information contained herein is derived from third parties beyond Polen Capital’s control or verification and involves significant elements of subjective judgment and analysis. While efforts have been made to ensure the quality and reliability of the information herein, there may be limitations, inaccuracies, or new developments that could impact the accuracy of such information. Therefore, the information contained herein is not guaranteed to be accurate or timely and does not claim to be complete. Polen Capital reserves the right to supplement or amend this content at any time but has no obligation to provide the recipient with any supplemental, amended, replacement or additional information.
Any statements made by Polen Capital regarding future events or expectations are forward-looking statements and are based on current assumptions and expectations. Such statements involve inherent risks and uncertainties and are not a reliable indicator of future performance. Actual results may differ materially from those expressed or implied.
References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.
Past investments and results are not necessarily indicative of any future investments or results. There is no assurance that the securities discussed will be in the portfolio as of the date of this document or that any securities sold have not been repurchased. The securities discussed do not necessarily represent the composite’s entire portfolio. Actual holdings will vary. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable or that any investment recommendations we make in the future will equal the investment performance of the securities discussed herein. For a complete list of Polen Capital's past specific recommendations and holdings as of the current quarter end, please contact info@polencapital.com.
The ICE BofA U.S. High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its Third-Party Suppliers and has been licensed for use by Polen Capital Credit, LLC ICE Data and its Third-Party Suppliers accept no liability in connection with its use. Please contact Polen Capital Credit for a full copy of the applicable disclaimer.
Classifications are based on underlying business models. Electronics includes manufacturers of electronic components, equipment, and instruments, including semiconductors and electronic manufacturing services. Software & Services includes providers of software and IT services, such as application and systems software, IT consulting, data processing, and outsourced services. Technology Hardware & Equipment includes manufacturers of computer hardware, communications equipment, storage devices, peripherals, and related technology infrastructure.