The Touchstone Sands Capital Select Growth Fund (Class A Shares, Load Waived) experienced underperformance relative to its benchmark, the Russell 1000® Growth Index, during the fourth quarter of 2025. This period was characterized by moderate advancements in U.S. large-cap growth equities, occurring against a backdrop of increasing examination of artificial intelligence (AI) expenditures and shifting anticipations regarding monetary policy. The fund's investment philosophy centers on identifying leading companies poised for significant wealth creation through sustainable, above-average earnings growth, strong leadership in their respective sectors, notable competitive advantages, and a well-defined mission. Recently, strategic adjustments have been made to the portfolio to align with the dynamic landscape of AI trends.
Detailed Report on Touchstone Sands Capital Select Growth Fund's Q4 2025 Performance and Strategic Outlook
In the final quarter of 2025, the Touchstone Sands Capital Select Growth Fund, operating under Class A Shares with waived load fees, recorded a performance that trailed its comparative benchmark, the Russell 1000® Growth Index. This period, culminating on December 31, 2025, marked a complex environment for investors, where U.S. large-cap growth equities registered only modest gains. The market's behavior was significantly influenced by an intense focus on artificial intelligence (AI) spending and a recalibration of expectations concerning monetary policy. These factors collectively contributed to a volatile yet ultimately upward trajectory for growth equities, building on a seven-month winning streak observed leading into October.
The fund's core strategy is built upon a meticulous selection process, aiming to identify companies that exhibit a robust potential for dramatic wealth creation. This involves a stringent evaluation based on four primary investment criteria:
- Sustainable, above-average earnings growth: Prioritizing companies that consistently demonstrate strong financial expansion.
- Leadership position in a promising business space: Investing in entities that dominate or are poised to dominate their niche markets.
- Significant competitive advantages: Seeking out businesses protected by durable competitive moats.
- Clear mission: Favoring companies with a well-articulated purpose and strategic direction.
Beyond these foundational principles, the fund's managers are actively adapting the portfolio to navigate the rapidly evolving technological landscape, particularly concerning AI. Key portfolio changes implemented include an increased allocation to companies providing AI infrastructure and model development. Conversely, the fund has reduced its exposure to application software holdings and divested from positions identified with higher risks of disruption due to advancements in AI. These tactical adjustments are designed to capture enduring growth opportunities presented by AI, ensuring the portfolio remains agile and responsive to market shifts.
Looking ahead to 2026, the fund acknowledges several pivotal risks and opportunities. A significant risk factor is the escalating reliance on debt to finance AI infrastructure, alongside the increasing market concentration among key AI enablers. However, substantial opportunities exist in diversifying exposure across a broader spectrum of AI beneficiaries and companies that are compounding their value through AI adoption, as this transformative technology becomes more integrated across various sectors.
Reflections on Investment Strategy in an AI-Driven Era
The performance and strategic shifts of the Touchstone Sands Capital Select Growth Fund offer valuable insights into the contemporary investment landscape, particularly in an era increasingly defined by artificial intelligence. From a financial journalist's perspective, it highlights the delicate balance between adhering to a disciplined investment philosophy and adapting to rapid technological advancements. The fund's underperformance in Q4 2025, despite the broader market's modest gains, underscores the challenges even well-managed funds face in highly dynamic sectors. It points to the critical importance of sector-specific security selection and the potential impact of underweights in mega-cap technology giants, which often drive benchmark performance.
The strategic adjustments made by the fund—increasing exposure to AI infrastructure and model providers while reducing application software holdings—reflect a proactive approach to mitigating risk and seizing opportunity. This move illustrates a broader trend in investment: a pivot from traditional software applications to the foundational layers of AI, recognizing where the most durable value creation might lie. The emphasis on identifying companies with “significant competitive advantages” and a “clear mission” remains timeless, yet its application must evolve to encompass the unique dynamics of AI development and deployment.
Moreover, the identified forward risks, such as debt reliance for AI infrastructure and market concentration, are crucial considerations for any investor. These risks suggest that while AI presents immense opportunities, it also brings systemic challenges that could impact market stability and broader economic health. The fund's strategy to seek diversified exposure to AI beneficiaries is a pragmatic response, aiming to capture the widespread impact of AI rather than concentrating on a few high-flying, potentially overvalued entities. This comprehensive approach, balancing focused criteria with adaptive strategies, serves as a compelling case study for navigating the complexities of modern investment.