2Q2023 – U.S. Small Company Growth Commentary

High-quality companies with effective management teams and robust business models, can provide stability in volatile market conditions

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  • During the second quarter, the U.S. Small Company Growth Composite Portfolio (the “Portfolio”) returned 4.10% gross and 3.87% net of fees, respectively, compared to the 7.05% return of the Russell 2000 Growth Index (the “Index”).
  • The second quarter provided yet another demonstration of how rapidly market sentiment can shift. Whether it’s the ongoing debate over hard or soft landing, pessimism over bank failures and tightening credit standards, or optimism around AI, it is abundantly clear that market narratives can change quickly. We believe the answer to this dilemma is a time-tested and disciplined investment process and a portfolio built for resilience.
  • The top contributors to the Portfolio’s relative performance in the second quarter included AppFolio, Goosehead Insurance, and Progyny. These were also the top contributors on an absolute basis. By contrast, the most significant detractors from the Portfolio’s relative performance in the quarter included Revolve Group, Blackline, and Fox Factory Holdings. These were also the top detractors on an absolute basis.
  • The activity this quarter was limited to one new addition, Leslie’s. We also added to two existing positions in the quarter—SiTime and Alight—and trimmed five existing positions, including SiteOne Landscape Supply, Goosehead Insurance, Altair Engineering, AppFolio, and Wingstop.
  • We favor businesses with strong free cash flow, persistent growth, and high returns on capital, and we always seek to own undervalued businesses relative to their long-term compounding potential. While we can’t predict when markets will recover, we believe that maintaining our focus on high-quality growth companies that are well-positioned to drive cash flow and earnings growth over the next five years will generate attractive long-term performance.

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