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- During the second quarter, the U.S. SMID Company Growth Composite Portfolio (the “Portfolio”) returned 5.94% gross and 5.82% net of fees, respectively, compared to the 6.42% return of the Russell 2500 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 quarter included The Trade Desk, Dynatrace, and Copart. 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, Etsy, and Aspen Technology. These were also the top detractors on an absolute basis.
- The activity this quarter included three new initiations— Alight, SiTime, and Morningstar—along with a modest trim to our existing position in Copart.
- 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 well-positioned to drive cash flow and earnings growth over the next five years will generate attractive long-term performance.
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