During the third quarter of 2025, Ithaka's investment portfolio experienced a notable underperformance compared to the R1000G index, trailing by 940 basis points, with a return of +1.2% versus the index's +10.5% before fees. This significant gap was primarily driven by the Technology sector, where, in contrast to previous quarters, the underperformance was widespread. Only a minority, specifically 6 out of 17 period-end holdings, managed to surpass the benchmark within this sector. The market's strong positive returns were largely concentrated in companies benefiting from the AI supply chain, which saw substantial capital expenditure and consequently outperformed those businesses perceived to be negatively affected by the advancements of artificial intelligence.
The shift in market dynamics highlights a critical challenge for investors: navigating the intricate landscape of technological innovation where the beneficiaries of new paradigms, such as AI, are not always the most obvious. While some companies thrive by providing the foundational infrastructure for AI, others may face disruption. Ithaka's experience in Q3 2025 underscores the importance of adaptive investment strategies in a rapidly evolving tech environment. The portfolio's increased turnover rates, with trailing 12-month turnover at 20.3% and a 3-year average annual turnover climbing to 15.2%, reflect attempts to adjust to these market shifts and optimize holdings in response to changing industry trends.
This period of underperformance, while challenging, provides valuable insights into the complexities of modern market investing, particularly in high-growth sectors like technology. It reinforces the necessity for continuous evaluation of investment theses and a flexible approach to portfolio management. The market's favoritism towards AI infrastructure underscores a broader trend where foundational technologies often capture initial gains. For investors, this means balancing the pursuit of disruptive innovation with a keen awareness of how technological shifts can redefine market leadership and investment opportunities.