During the third quarter of 2025, equity markets sustained their robust upward trajectory, primarily fueled by the burgeoning enthusiasm for generative AI and the impressive performance of the semiconductor industry. Investors largely overlooked macroeconomic concerns such as elevated tariffs, persistent inflation, and a softening labor market, instead choosing to focus on unexpected positive economic indicators, optimistic fiscal policy outlooks, and stronger-than-anticipated corporate earnings reports. This period saw a notable concentration of leadership in sectors driven by AI, especially semiconductors, reflecting a 'risk-on' market sentiment that favored high-beta growth stocks. Consequently, traditionally defensive sectors like healthcare, consumer staples, and real estate experienced significant underperformance, as the market sharply divided companies into perceived 'AI winners' and 'AI losers,' intensifying performance disparities.
Against this backdrop, the Polen Focus Growth Portfolio delivered a return of 3.3% in Q3 2025, which lagged behind the Russell 1000 Growth Index's 10.5% and the S&P 500's 8.1%. Key contributors to the Portfolio's performance included Oracle, Shopify, and Alphabet, with Oracle's substantial contract growth particularly noteworthy. Conversely, the Portfolio's relative underperformance was largely attributable to its minimal or absent exposure to 'Magnificent 7' companies such as Apple, Tesla, and NVIDIA, which hold significant weightings in benchmark indices. Despite these short-term challenges stemming from a concentrated 'risk-on' market environment, the investment team maintains its conviction in a quality-driven strategy, emphasizing durable, high-quality businesses that are expected to achieve mid-teens or better long-term earnings growth and demonstrate resilience across various market cycles. The focus remains on companies with differentiated offerings, strong competitive advantages, and consistent earnings streams that position them to thrive amid technological advancements like generative AI.
In terms of portfolio adjustments, new positions were initiated in NVIDIA, Broadcom, Boston Scientific, Intuit, Synopsys, and Uber. These additions reflect a strategic reevaluation and willingness to adapt to evolving market dynamics, particularly in the AI and technology sectors. For instance, the re-entry into NVIDIA and Broadcom, following their significant appreciation, is based on the belief that the generative AI infrastructure buildout is still in its early stages, promising continued strong demand for their products. Conversely, positions in Gartner and Thermo Fisher Scientific were eliminated, reflecting a reallocation of capital to more promising opportunities. The portfolio also saw adjustments in holdings like Starbucks, ServiceNow, CoStar Group, Netflix, Alphabet, and Visa, demonstrating an active management approach to optimize for long-term growth and stability. The re-evaluated landscape of AI demand, combined with strategic capital allocation, aims to ensure the portfolio's continued ability to achieve its objective of high-quality, persistent earnings growth.
In a world characterized by rapid technological advancement and dynamic market shifts, maintaining a clear and principled investment philosophy is paramount. The disciplined pursuit of high-quality businesses with durable competitive advantages and consistent earnings growth not only navigates short-term market enthusiasms but also lays a resilient foundation for sustained long-term prosperity. As evidenced by the strategic adjustments within the Polen Focus Growth Portfolio, an open-minded and intellectually honest approach to reevaluating investment theses in light of new information is crucial. This proactive stance, balancing conviction with adaptability, underscores a commitment to fostering growth and stability, ultimately contributing to a robust financial ecosystem that rewards thoughtful and forward-looking investment decisions.