(All MSCI index returns are shown net and in U.S. dollars unless otherwise noted.)

Markets Review

Sources: CAPS CompositeHubTM, Bloomberg
Past performance is not indicative of future results. Aristotle International Equity ADR Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets continued to climb during the first quarter. Overall, the MSCI ACWI Index rose 8.20% during the period. Concurrently, the Bloomberg Global Aggregate Bond Index fell 2.08%. In terms of style, value stocks underperformed their growth counterparts during the quarter, with the MSCI ACWI Value Index trailing the MSCI ACWI Growth Index by 2.65%.

The MSCI EAFE Index climbed 5.78% during the first quarter, while the MSCI ACWI ex USA Index increased 4.69%. Within the MSCI EAFE Index, Asia and Europe & Middle East were the strongest performers, while the U.K. gained the least. On a sector basis, eight of the eleven sectors within the MSCI EAFE Index posted positive returns, with Information Technology, Consumer Discretionary and Financials generating the largest gains. Conversely, Utilities, Consumer Staples and Materials declined.

Economic conditions varied by region, though most developed countries reported slowing inflation. For the month of February, both the U.K. and U.S. reported annual inflation descending toward the 3% mark, while the eurozone recorded an annual rate of 2.6%. As such, the respective central banks held monetary policy steady while signaling the possibility of rate cuts starting in June as the countries make progress toward the 2% target.

However, in Asia, Japan raised interest rates for the first time since 2007 to a range of 0.0% to 0.1%, as both inflation and wage growth have recently accelerated. This marked a historic shift and ended Japan’s period of negative rates, finally removing the world’s last remaining negative rates regime. Conversely, China lowered its five-year loan prime rate to bolster its faltering economy that is battling deflation and a troubled real estate sector.

In geopolitics, the conflict in the Middle East continued, with increased fighting in Lebanon and direct conflict in the Red Sea between the U.S. and Yemen’s Houthis, which have targeted more than two dozen ships traveling to and from the Suez Canal. The heightened activity in surrounding countries has sparked concerns of further regional escalation and the possibility of a wider conflict. In Europe, Russia made small advances in Ukraine, including the capture of the city of Avdiivka, as Ukrainian troops struggle with supply shortages. The U.S. has recently partnered with countries such as South Korea and Turkey to provide additional ammunition and supplies to Ukraine.

Performance and Attribution Summary

For the first quarter of 2024, Aristotle Capital’s International Equity ADR Composite posted a total return of 3.89% gross of fees (3.73% net of fees), underperforming the MSCI EAFE Index, which returned 5.78%, and the MSCI ACWI ex USA Index, which returned 4.69%. Please refer to the table below for detailed performance.

Performance (%) 1Q241 Year3 Years5 Years10 Years Since Inception*
International Equity ADR Composite (gross)3.8915.183.997.595.696.40
International Equity ADR Composite (net)3.7314.623.457.085.195.89
MSCI EAFE Index (net)5.7815.324.787.324.795.73
MSCI ACWI ex USA Index (net)4.6913.261.935.964.254.91
*The inception date for the International Equity ADR Composite is June 1, 2013. Past performance is not indicative of future results. Aristotle International Equity ADR Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Source: FactSet
Past performance is not indicative of future results. Attribution results are based on sector returns which are gross of investment advisory fees. Attribution is based on performance that is gross of investment advisory fees and includes the reinvestment of income.

From a sector perspective, the portfolio’s underperformance relative to the MSCI EAFE Index can be attributed to security selection, while allocation effects had a positive impact. Security selection in Consumer Discretionary, Information Technology and Industrials detracted the most from the portfolio’s relative performance. Conversely, security selection in Consumer Staples and Health Care and a lack of exposure to Utilities contributed to relative return.

Regionally, both security selection and allocation effects were responsible for the portfolio’s underperformance. Security selection in Asia and exposure to Canada detracted the most from relative performance, while security selection in the U.K. and Europe & Middle East contributed.

Contributors and Detractors for 1Q 2024

Relative ContributorsRelative Detractors
SafranDaikin Industries
Munich ReinsuranceSony
GlaxoSmithKlineAIA Group
Pan Pacific InternationalAccenture
CredicorpAzko Nobel

Sony, the global provider of videogames and consoles, image sensors, music and movies, was one of the largest detractors for the period. Sony cut its guidance from 25 million PlayStation 5 (PS5) units sold to 21 million units for the fiscal year. Despite the underwhelming hardware results, management has emphasized the importance of balancing profitability and sales in the latter stage of the PS5’s life cycle which it expects to achieve through engagement, with monthly active users reaching a record high of 123 million accounts. Furthermore, we will continue to monitor management’s ability to improve game development, streamline project management and control costs, as Sony has already begun to implement structural reforms in its Game & Network Services segment. In its Pictures segment, Sony terminated its merger with Zee Entertainment, as closing conditions were not met within the set two-year window. Nevertheless, management believes India remains a promising market and will proactively explore opportunities to bolster its position in the country. We remain confident in Sony’s ability to build on its industry leadership, and we feel the company’s continued optimization of business operations, including its plan for a partial spinoff of its Financial Services business, positions the company to enhance long-term value.

AIA Group, a pan-Asian life insurance company headquartered in Hong Kong, was one of the largest detractors for the quarter. While macro concerns over the state of the Chinese economy may have placed pressure on AIA’s share price during the quarter, business fundamentals continue to improve. As evidence, the company’s VONB* increased 33% in 2023. This, in our opinion, reflects AIA’s resiliency and the progress it has made across Asia, with mainland China, Hong Kong and the ASEAN countries (excluding Vietnam) all reporting double-digit percentage increases. The company has also completed a multi-year digital transformation that has not only reduced costs per transaction by over 30% but has also improved customer experience. (85% of customer transactions are now completed in a day or less.) With these technological investments in place, the support of its highly productive agency sales force, and further partnerships with major banks, we remain confident in AIA’s ability to continue increasing its market share in mainland China and expanding across Asia.

*Value of New Business (VONB) is an insurance term for the present value of new business written during a period.

Safran, the French aerospace propulsion and equipment manufacturer, was the top contributor. As the leading supplier of narrow-body aircraft engines, Safran has benefited from the increase in narrow-body air traffic (above 2019 levels) and an aging fleet of aircraft that has spurred demand for required service. Part of our attraction to Safran is the nature of its product categories, which tend to exhibit pricing power, and the benefits of higher-margin aftermarket businesses, which we expect to expand in the years ahead. As an example, the company recently signed several multi-year equipment contracts with international airline customers. In addition, deliveries of Safran’s new-generation LEAP engines (which reduce fuel consumption and CO2 emissions) increased 38% in 2023, supporting the company’s proposed 63% year-over-year dividend increase. Longer term, we believe Safran will benefit from the continued transition to LEAP engines as airlines upgrade their fleets to be more efficient and environmentally friendly.

Munich Re, the world’s largest reinsurance company, was a leading contributor for the quarter. The company reported strong results as it continues to win market share, leverage its global scale and demonstrate underwriting discipline. Perhaps counterintuitively, recent global crises, such as war in both the Middle East and Ukraine and natural disaster losses that topped $100 billion, as well as the impact of inflation, showcase Munich Re’s strengths. Through these crises, the company has, we believe, displayed its prudent risk-taking and global diversification. Moreover, Munich Re (and its peers) have benefited from industry-wide price increases, which have contributed to increased return of capital to shareholders. The company raised its dividend by nearly 30% in 2023 and announced a new €1.5 billion share buyback program. We continue to believe Munich Re is attractively positioned to gain market share in a variety of areas, including cybersecurity, specialty insurance and in the fast-growing economies in Asia where the market is large, but insurance penetration remains relatively low.

Recent Portfolio Activity

BuysSells
dsm-firmenichNone

During the quarter, we invested in dsm-firmenich. Following the merger of DSM and Firmenich, an ADR was reintroduced, allowing us to add the company to the ADR portfolio. We have owned the company for clients invested in our ordinary share portfolio since the fourth quarter of 2022.

dsm-firmenich

Founded in 1902, dsm-firmenich is a Dutch-Swiss multinational corporation. The company has nearly 30,000 employees (including more than 2,000 scientists in 15 research laboratories) across 60 countries. dsm-firmenich produces flavors, fragrances and pure active ingredients (e.g., vitamins, lipids, minerals, enzymes and UV filters) that go into a wide range of products, including food, drinks, medical nutrition, cosmetics, and pet and animal products.

Over the past two decades, legacy DSM has gone through a dramatic transformation, divesting nearly all of its cyclical, commodity chemicals businesses and investing the proceeds in specialty nutrition product companies with more stable sales and higher profit margins. The 2023 merger with Firmenich, a global flavors and fragrances company, completed the transition into a pure-play nutrition, health and ingredients company. The combined businesses, now known as dsm-firmenich, have more than €12 billion in annual revenue across four segments: Perfumery & Beauty (~30% of sales); Animal Nutrition & Health (25%); Taste, Texture & Health (25%); and Health, Nutrition & Care (20%).

Some of the quality characteristics we have identified for dsm-firmenich include:

  • Leading market share positions in numerous categories;
  • Many markets dsm-firmencich participates in consolidated and enjoy stable margins due to high barriers to entry; and
  • Scale and global footprint results in close relationships with.

Valuation is attractive based on our estimates of higher normalized cash earnings power. Moreover, we believe the current valuation reflects dsm-firmenich’s historical status as a commodity conglomerate and does not fully appreciate the improvement in quality that can be created as a result of the merger with Firmenich. We recognize this transaction is the largest in dsm-firmenich’s history and brings considerable integration risks; however, we believe current valuation provides a margin of safety for the long-term investor.

Catalysts we have identified for dsm-firmenich, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include:

  • Successful integration of Firmenich merger, as well as previous bolt-on acquisitions, can produce revenue and expense synergies, along with an improved business mix;
  • Continued market share gains from recently launched product innovations (e.g., Bovaer, an animal health nutritional product that reduces methane emissions); and
  • Balance sheet optionality as low leverage allows for increased return of capital to shareholders while simultaneously continuing bolt-on acquisitions.

Conclusion

Despite the U.S. economy’s continued expansion, economic data points remain mixed. Additionally, investors face uncertainty the rest of the year, whether it be the path of central bank policy, the outcome of the 2024 U.S. presidential election, or the potential for new and/or escalating geopolitical conflicts.

However, while our analysis considers long-term developments in the macroeconomy, we focus most of our time and attention on individual companies that, in our opinion, possess a combination of qualities that are sustainable and difficult to reproduce. It is our belief that a diversified portfolio of investments in these companies will thrive over full market cycles.

Disclosures

The opinions expressed herein are those of Aristotle Capital Management, LLC (Aristotle Capital) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Capital makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle International Equity ADR strategy. Not every client’s account will have these characteristics. Aristotle Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Capital’s International Equity ADR Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Capital does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Capital Management, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Capital, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACM-2404-109

Performance Disclosures

Sources: CAPS CompositeHubTM, MSCI

Composite returns for all periods ended March 31, 2024 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. The information provided should not be considered financial advice or a recommendation to purchase or sell any particular security or product.  Performance results for periods greater than one year have been annualized.

Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

Index Disclosures

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The MSCI ACWI captures large and mid-cap representation across 23 developed market countries and 24 emerging markets countries. With approximately 3,000 constituents, the Index covers approximately 85% of the global investable equity opportunity set. The MSCI ACWI Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 developed markets countries and 24 emerging markets countries. The MSCI ACWI ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the United States) and 24 emerging markets countries. With approximately 2,300 constituents, the Index covers approximately 85% of the global equity opportunity set outside the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Brent Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japanese market. With approximately 250 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Global Aggregate Bond Index is a flagship measure of global investment grade debt from 28 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the U.K. market. With nearly 100 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization in the United Kingdom. The MSCI Europe Index captures large and mid-cap representation across 15 developed markets countries in Europe. With approximately 430 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. These indexes have been selected as the benchmarks and are used for comparison purposes only. The volatility (beta) of the Composite may be greater or less than the respective benchmarks. It is not possible to invest directly in these indexes.

For more on International Equity, access the latest resources.

Summary

U.S. corporate credit markets ended the first quarter with mixed performance, as a strong rally across risk assets saw U.S. yields edge higher and corporate credit spreads narrow to near cycle tights. Longer duration bonds felt the impact of higher rates, and the Bloomberg U.S. Aggregate Bond Index ended the quarter lower, with a total return of -0.78%. Following a strong 2023, bank loans outperformed both high yield bonds and investment grade corporate bonds during the quarter, as the Credit Suisse Leveraged Loan Index gained 2.52%. High yield bonds benefited from tighter credit spreads, as the Bloomberg U.S. High Yield Corporate Bond Index returned 1.47%, while investment grade corporate bonds felt the impact of higher yields, as the Bloomberg U.S. Corporate Bond Index returned -0.40%.

U.S. equity markets staged an impressive rally to begin the year, with the S&P 500 Index gaining 10.56%, its largest first-quarter gain since 2019. After a sharp rally through the end of 2023, equities continued higher despite rising yields, a stronger dollar and higher oil prices. U.S. equities remained underpinned by solid economic data and supportive Federal Reserve (Fed) rhetoric. U.S. economic growth continued to beat expectations, as fourth quarter GDP showed the economy expanding at an annual rate 3.1% in the fourth quarter. The labor market also remained resilient with nonfarm payrolls exceeding expectations, despite the unemployment rate rising to 3.9% in February. Meanwhile, U.S. inflation remained sticky, as annual CPI exceeded expectations in the first two months of the year, rising to 3.2% in February.

The Fed remained unfazed by slightly hotter-than-expected inflation readings in the first quarter; however, the interest rate futures market began to pare back expectations for rate cuts in 2024, from roughly six at the end of 2023 to three at the end of the first quarter. At its March meeting, the Fed left its benchmark rate unchanged for the fifth consecutive meeting at 5.25% to 5.50%, a 23-year high. According to the Fed’s Summary of Economic Projections (SEP), the committee continues to expect 75 basis points of rate cuts this year and nudged up median rate projections slightly over the next two years. Nonetheless, Chairman Powell suggested the recent higher-than-expected inflation data did not change the Fed’s view of a continued disinflationary trend while signaling rate cuts will remain dependent on incoming inflation data, emphasizing cutting rates too soon or too much could reverse the progress already made by the central bank.

Market Environment

U.S. Treasuries sold off during the first quarter, as yields rose across the curve in a modest bear-flattening move. The yield on the U.S. 2-year note climbed roughly 37 basis points, while the yield on the U.S. 10-year note rose about 31 basis points. As a result, the yield spread between the 2-year and 10-year notes widened to around 42 basis points. The current inversion has persisted since July 2022, surpassing the previous record from 1978 for the longest continuous inversion of this spread.

Corporate credit spreads continued to tighten in the first quarter, as historically attractive all-in yields in corporate credit drove demand for spread product. High yield bond spreads ended the quarter approximately 24 basis points tighter, as measured by the Bloomberg U.S. Corporate High Yield Bond Index. Notably, the spread on the high yield index ended the quarter under 300 basis points, a level not seen since January 2022 and less than 70 basis points above the all-time tight from 2007. Investment grade corporate bond spreads tightened roughly 9 basis points, as measured by the Bloomberg U.S. Corporate Bond Index, ending the quarter around 15 basis points from the all-time low seen in 2005.

U.S. corporate bond issuance picked up sharply during the quarter, and the majority was related to refinancing. High yield bond supply topped $87 billion, making it the busiest quarter in more than two years. Leveraged loan supply also surged, totaling more than $315 billion, more than triple the total from the same period a year ago and well above the 10-year average. Additionally, investment grade corporate bond issuance surged to nearly $500 billion, a record quarterly sum.

Following two years of retail outflows, high yield bond and leveraged loan fund flows turned around in the first quarter. High yield bond inflows topped $2.6 billion during the quarter, which was a sharp reversal compared to the nearly $14 billion of outflows seen in the first quarter of 2023. Leveraged loan funds inflows totaled roughly $2.8 billion during the period compared to the nearly $11 billion first-quarter outflow last year. Leveraged loans were bolstered by robust collateralized loan obligation (CLO) demand, with CLO volume topping $48 billion ex-refi/resets during the quarter, a 40% increase compared to the first quarter of 2023. Continuing the positive trend from 2023, investment grade corporate bond funds experienced solid inflows in the first quarter totaling more than $55 billion.

Within the high yield bond market, lower-quality bonds outperformed by a small margin in the first quarter, as ‘CCC’s (+2.14%) outperformed ‘B’s (+1.36%) and ‘BB’s (+1.13%). From an industry perspective, within the Bloomberg U.S. High Yield Bond Index, Retailers & Restaurants (+3.72%) and Financials (+2.86%) outperformed, while Cable & Satellite (-3.38%) and Telecommunications (-1.43%) underperformed.

Defaults and distressed exchanges moderated in the first quarter. The 12-month trailing, par-weighted U.S. high yield default rate, including distressed exchanges, declined around 25 basis points to end the quarter at 2.59% (1.67%, excluding distressed exchanges), more than 50 basis points below its long-term historical average. Meanwhile, the loan par-weighted default rate, including distressed exchanges, increased roughly 37 basis points to end March at 3.52% (1.86%, excluding distressed exchanges), which is now about 50 basis points above its long-term historical average.

Performance and Attribution Summary

High Yield Bond

The Aristotle High Yield Bond Composite returned 1.66% gross of fees (1.59% net of fees) in the first quarter, outperforming the 1.30% return of the ICE BofA BB-B U.S. Cash Pay High Yield Constrained Index. Industry allocation was the primary contributor to relative performance, while sector rotation detracted from relative performance.

Industry allocation contributed to relative performance led by an underweight in Cable & Satellite and an overweight in Energy. This was partially offset by underweights in Brokerage and Healthcare. Security selection also contributed to relative performance led by holdings in Finance Companies and Utilities. This was partially offset by selection in Retailers & Restaurants and Cable & Satellite. Conversely, sector rotation detracted from relative performance led by the allocation to investment grade corporate bonds, which was partially offset by the allocation to bank loans.

Top Five Contributors Top Five Detractors
Air LeaseVenture Global LNG
Next Alt SARLTelecom Italia
Energy TransferADT Corporation
Teine EnergyOutFront Media
Precision DrillingQVC
*Bold securities held in representative account

Short Duration High Yield Bond

The Aristotle Short Duration High Yield Bond Composite returned 1.30% pure gross of fees (1.17% net of fees) in the first quarter, underperforming the 1.54% return of the ICE BofA 1-3 Year BB-B U.S. Cash Pay Fixed Maturity High Yield Constrained Index. Security selection was the primary detractor from relative performance, while industry allocation contributed to relative performance.

Security selection detracted from relative performance led by holdings in Building Materials & Home Construction and Cable & Satellite. This was partially offset by selection in Lodging & Leisure and Telecommunications. Sector rotation also detracted marginally from relative performance led by the allocation to investment grade corporate bonds. The allocation to cash also detracted slightly from relative performance, with no offsetting contributors. Conversely, industry allocation contributed to relative performance led by underweights in Cable & Satellite and Media & Entertainment. This was partially offset by underweights in Gaming and Industrials.

Top Five Contributors Top Five Detractors
Next Alt SARLBeazer Homes
Global PartnersStaples
Millenium EscrowU.S. Acute Care Solutions
PetrofacSBA Communications
MarriottSpirit Airlines
*Bold securities held in representative account

Outlook

U.S. corporate credit markets had a relatively strong start to the year, as underlying fundamentals remained solid while technical factors and the macroeconomic backdrop continued to be supportive. We believe current all-in yields remain attractive in U.S. corporate credit, which should continue to drive demand. In our view, while valuations and spreads sit near historically rich levels, the yield available in corporate credit will continue to present opportunities and the potential for positive total returns this year.

Overall, the macroeconomic backdrop remains favorable for risk assets. In our opinion, the U.S. economy has been resilient, as labor market and growth data remain supportive despite interest rates sitting at 23-year highs. Compared to the rest of the world, the U.S. economy continues to be the strongest performer, while the European and Chinese economies have both shown modest improvement over the last several months. With the U.S. economy in a late-cycle expansion, we believe the strong consumer and continued impact of fiscal stimulus will help support risk assets, although we acknowledge the economy may face greater risks as the year progresses. As always, it will be important to monitor incoming economic data for any warning signs ahead.

With the U.S. economy continuing to outperform expectations, one of the biggest risks is a scenario in which inflation reaccelerates and leads to persistently higher-for-longer rates. Equity and credit markets shrugged off higher commodity prices and a stronger U.S. dollar in the first quarter, but should inflation begin to tick up further, there is a chance the Fed pares back expectations for rate cuts in the second half of the year. Most companies have been able to weather interest rates at current levels due to prudent refinancing decisions in the past few years. However, the longer rates stay at elevated levels, especially into next year, the greater the potential for cracks to emerge in rate-sensitive areas of the economy such as commercial real estate and smaller companies with weaker balance sheets.

In our view, corporate balance sheets remain quite strong and currently compressed credit spreads reflect this reality. We expect the yield curve to steepen in 2024, with longer-end U.S. yields likely to be rangebound with a bias to the topside. As a result, we continue to favor the front end of the curve. Furthermore, geopolitical tensions continue to rise, and while markets have quickly brushed off geopolitical risks in the past year, we believe an abrupt escalation of tensions could result in a risk-off scenario, leading to wider credit spreads and a steeper yield curve with lower front-end rates.

We believe there is limited room for credit spreads to tighten significantly from here, especially given current valuations. However, technical factors continue to be supportive of corporate credit. While new issue activity has picked up, it has largely been focused on refinancing. Additionally, with more rising stars than fallen angels, the high yield bond market remains constrained. We expect corporate fundamentals to remain healthy, with higher-quality credits maintaining moderate leverage and solid interest coverage, which should contain default activity in the coming months. We are also seeking to avoid some of the lower-quality large-cap structures in the market that have begun to face difficulties. We continue to focus on companies with sound capital structures, which should be able to withstand an extended period of elevated interest rates. We believe the higher-quality segment of the high yield bond market, particularly in the short to intermediate part of the curve, presents relatively attractive opportunities for income and the potential for positive total returns.

High Yield Bond Positioning

In our high yield bond portfolios, we continue to favor higher-quality credits in the short to intermediate part of the curve, while maintaining overall duration below the benchmark. We favor industries with a domestic focus, which we believe should benefit from a healthy U.S. consumer, as well as credits that have prudently managed their balance sheets to withstand persistent higher rates.

While higher-quality credits underperformed during the quarter, mostly due to rate sensitivity, they began to outperform at the end of the quarter. We continue to favor the higher-quality segment of the market, and we believe certain lower-quality areas will likely face the worst of any potential refinancing risks, which could emerge later this year as a result of an extended period of higher-for-longer rates. We are maintaining a modest duration underweight relative to the benchmark and continue to look for attractive opportunities in the belly of the curve that may benefit from a steeper yield curve.

Industry-wise, we favor credits with a domestic focus in areas of the market we believe should benefit from a strong consumer. We are maintaining an overweight in Energy and Retailers & Restaurants while avoiding companies facing significant financing risks in Cable & Satellite and Telecommunications. At the end of the quarter, we held overweights in Energy, Transportation and Retailers & Restaurants alongside underweights in Cable & Satellite, Technology and Chemicals.

Disclosures

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. There are risks specifically associated with fixed income investments such as interest rate risk and credit risk. Bond values fluctuate in price in response to market conditions. Typically, when interest rates rise, there is a corresponding decline in bond values. This risk may be more pronounced for bonds with longer-term maturities. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. High yield securities are generally rated lower than investment grade securities and may be subject to greater market fluctuations, increased price volatility, risk of issuer default, less liquidity, or loss of income and principal compared to investment grade securities.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Credit does not guarantee the accuracy, adequacy or completeness of such information.

The opinions expressed herein are those of Aristotle Credit Partners, LLC (Aristotle Credit) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to buy or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report are or will be profitable, or that recommendations Aristotle Credit makes in the future will be profitable or equal the performance of the securities listed in this report. The portfolio characteristics shown relate to the Aristotle Credit High Yield Bond strategy and the Aristotle Credit Short Duration High Yield Bond strategy. Not every client’s account will have these characteristics. Aristotle Credit reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. For a full list of all recommendations made by Aristotle Credit during the last 12 months, please contact us at (949) 681-2100. This is not a recommendation to buy or sell a particular security.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Composite returns are preliminary pending final account reconciliation.

High Yield Bond Returns: Composite and benchmark returns reflect the reinvestment of income. Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

Short Duration High Yield Bond Returns – Pure Gross: Pure gross returns do not reflect the deduction of any trading costs, fees or expenses. Pure gross returns prior to September 2017 reflect the deduction of transaction costs. Model Net Performance: Starting from September 2017, composite returns are presented pure gross and net of the highest wrap fee stated. Performance for periods prior to September 2017 are presented pure gross and net of actual investment advisory fees.

Aristotle Credit Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Credit, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. ACP-2404-1

Performance Disclosures

Sources: SS&C Advent; ICE BofA

*Composite returns are preliminary pending final account reconciliation.

**2014 is a partial-year period of nine months, representing data from April 1, 2014 to December 31, 2014.

***2009 is a partial-year period of ten months, representing data from March 1, 2009 to December 31, 2009.

Past performance is not indicative of future results. Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. The Aristotle High Yield Bond strategy has an inception date of April 1, 2014; however, the strategy initially began at Douglas Lopez’s predecessor firm. A supplemental performance track record from March 1, 2009 to December 31, 2013 (Mr. Lopez’s departure from the firm) is provided. The returns are based on a separate account from the strategy while it was being managed at Doug Lopez’s predecessor firm and performance results are based on custodian data. During this time, Mr. Lopez had primary responsibility for managing the account. Please refer to disclosures at the end of this document.

Sources: SS&C Advent; ICE BofA

*Composite returns are preliminary pending final account reconciliation.

**2014 is a partial-year period of nine months, representing data from April 1, 2014 to December 31, 2014.

Past performance is not indicative of future results. Composite and benchmark returns reflect the reinvestment of income. Pure Gross: Pure gross returns do not reflect the deduction of any trading costs, fees or expenses. Pure gross returns prior to September 2017 reflect the deduction of transaction costs. Model Net Performance: Starting from September 2017, composite returns are presented pure gross and net of the highest wrap fee stated. Performance for periods prior to September 2017 are presented pure gross and net of actual investment advisory fees. Please refer to disclosures at the end of this document.

Index Disclosures

The Bloomberg U.S. Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. The Index is frequently used as a stand-in for measuring the performance of the U.S. bond market. In addition to investment grade corporate debt, the Index tracks government debt, mortgage-backed securities (MBS) and asset-backed securities (ABS) to simulate the universe of investable bonds that meet certain criteria. In order to be included in the Index, bonds must be of investment grade or higher, have an outstanding par value of at least $100 million and have at least one year until maturity. The Bloomberg U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers that are all U.S. dollar denominated. The Bloomberg U.S. Corporate Bond Index is a component of the Bloomberg U.S. Credit Bond Index. The Bloomberg U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded. The S&P 500 Index is the Standard & Poor’s Composite Index and is a widely recognized, unmanaged index of common stock prices. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization. The ICE Bank of America (ICE BofA) BB-B U.S. Cash Pay High Yield Constrained Index measures the performance of the U.S. dollar-denominated BB-rated and B-rated corporate debt issued in the U.S. domestic market, a fixed coupon schedule and a minimum amount outstanding of $100 million, issued publicly. Allocations to an individual issuer in the Index will not exceed 2%. The Credit Suisse Leveraged Loan Index is a market-weighted index designed to track the performance of the investable universe of the U.S. dollar-denominated leveraged loan market. The ICE Bank of America (ICE BofA) 1-3 Year BB-B U.S. Cash Pay Fixed Maturity High Yield Constrained Index tracks the performance of the U.S. dollar-denominated below investment grade corporate debt, currently in a coupon paying period, that is publicly issued in the U.S. domestic market; including 144A securities, both with and without registration rights. Qualifying securities must have risk exposure to countries are members of the FX-G10, Western Europe, or territories of the United States and Western Europe. The FX-G10 includes all Euro members: the United States, Japan, the United Kingdom, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. Qualifying securities include only those rated BB1 through B3. Perpetual securities are not included as all securities must have a fixed final maturity date. All final maturity dates must range between one and three years. It is a capitalization-weighted index, constrained to 2% maximum weighting per issuer. The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The volatility (beta) of the Composites may be greater or less than the indices. It is not possible to invest directly in these indices. Composite and index returns reflect the reinvestment of income.

Markets Review

The U.S. equity market continued to rally, as the S&P 500 Index rose 10.56% during the period. Concurrently, the Bloomberg U.S. Aggregate Bond Index fell, returning -0.78% for the quarter. In terms of style, the Russell 1000 Value Index underperformed its growth counterpart by 2.42%.

Sources: CAPS CompositeHubTM, Bloomberg
Past performance is not indicative of future results. Aristotle Atlantic Focus Growth Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Gains were broad-based, as ten of the eleven sectors within the Russell 1000 Growth index finished higher. The Utilities and Communications Services were the best-performing sectors. Consumer Discretionary had the least gains followed by the Real Estate sector finishing lower for the quarter.

U.S. economic growth remained positive, as real GDP increased at an annual rate of 3.4% in the fourth quarter, though less than the third quarter’s 4.9% reading. The composition of growth was broad-based, having been driven by consumer spending, state and local government investment, and exports. In more recent data, consumer spending increased 0.8% month-over-month in February—the largest gain since January 2023—while housing starts surged 11.6%, touching the highest level in nearly two years. Furthermore, the labor market remained resilient, with unemployment at 3.9% and real average hourly earnings increasing 1.1% year-over-year in February. Meanwhile, inflation, though lower than its level at the end of last year, slightly increased during the quarter, as annual CPI rose from 3.1% in January to 3.2% in February.

Due to continued steady economic growth, the strength of the labor market and higher-than-expected inflation data, the Federal Reserve maintained the benchmark federal funds rate’s targeted range of 5.25% to 5.5% for the fifth consecutive meeting. Chair Powell reaffirmed that the policy rate is likely at its peak for this tightening cycle, but also emphasized that reducing policy restraint too soon or too much could reverse the progress already made by the central bank. However, most recent committee projections indicate that the federal funds rate will be at 4.6% at the end of this year and it will soon be appropriate to slow the pace of the Fed’s balance-sheet runoff.

On the corporate earnings front, results were mixed, as S&P 500 companies reported earnings growth of 4.0%, the second straight quarter of year-over-year growth, but fewer companies exceeded EPS estimates compared to the previous period. Inflation continued to be a major talking point, but companies reported resilient consumer spending, leading to fewer mentions of a potential recession on earnings calls.

Lastly, in U.S. politics, Congress passed, and President Biden signed, the $1.2 trillion spending package that will fund the government for the rest of the fiscal year. In election news, both President Biden and former President Trump secured enough delegates to clinch their parties’ respective nominations, setting up the first presidential rematch in nearly 70 years.

Performance and Attribution Summary

For the first quarter of 2024, Aristotle Atlantic’s Focus Growth Composite posted a total return of 10.42% gross of fees (10.40% net of fees), underperforming the 11.41% total return of the Russell 1000 Growth Index.

Performance (%)1Q241 Year3 Years5 YearsSince Inception*
Focus Growth Composite (gross)10.4233.996.7014.6613.82
Focus Growth Composite (net)10.4033.876.6014.4913.57
Russell 1000 Growth Index11.4139.0012.4918.5016.72
*The Focus Growth Composite has an inception date of March 1, 2018. Past performance is not indicative of future results. Aristotle Atlantic Focus Growth Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Sources: FactSet
Past performance is not indicative of future results. Attribution results are based on sector returns which are gross of investment advisory fees. Attribution is based on performance that is gross of investment advisory fees and includes the reinvestment of income. Please see important disclosures at the end of this document.

During the first quarter the portfolio’s underperformance relative to the Russell 1000 Growth Index was due to both allocation effects and security selection. Security selection in Health Care and Financials detracted the most from relative returns. Conversely, security selection in Information Technologies and an underweight in Consumer Discretionary contributed the most to relative performance.

Contributors and Detractors for 1Q 2024

Relative ContributorsRelative Detractors
NvidiaS&P Global
AppleAdaptive Biotechnologies
TeslaBio-Techne
KLA CorporationDarling Ingredients
NetflixON Semiconductor

Contributors

Nvidia

Nvidia contributed to portfolio performance in the first quarter, as the company continues to see accelerating demand for its GPU semiconductors from hyperscalers and enterprises. Nvidia’s GPU semiconductors continue to be the industry-leading building blocks of the accelerated computing data-center architecture to drive AI compute and applications.

Apple

Apple contributed to portfolio performance in the first quarter due to the strategy’s underweight relative to the benchmark. Investors continue to be concerned about weak handset sales globally, as well as declining market share and competitive dynamics in the Chinese market, as Huawei has returned to the market with a more competitive premium-priced handset. Apple has yet to demonstrate a competitive AI product, which could present further competitive headwinds for the company.

Detractors

S&P Global

S&P Global detracted from portfolio performance in the quarter, as shares were weak following a lower-than-expected earnings report and newly issued fiscal year 2024 financial guidance that was slightly below expectations. The company’s lower-than-expected forecast of bond issuance activity for the year was the primary focus of the guidance, although management acknowledged that the guidance is likely conservative, which could result in actual activity exceeding expectations later in the year.

Adaptive Biotechnologies

Adaptive Biotechnologies detracted from portfolio performance in the quarter as investors waited for the outcome of the strategic review. Post quarter-end, Adaptive announced that it plans to continue to run its minimal residual disease (MRD) diagnostic business along with its immune medicine drug discovery business. The company mentioned that after fielding multiple offers for the MRD business, it believes it can attract significantly more value for the asset once it reaches profitability. Adaptive reiterated its plan for EBITDA breakeven in late 2025 and cashflow breakeven in 2026. The company also pre-announced first quarter revenue that came in ~9% ahead of consensus estimates. We believe Adaptive is trading at a very low valuation, and we believe the potential remains strong.

Recent Portfolio Activity

The table below shows all buys and sells completed during the quarter, followed by a brief rationale.

BuysSells
Expedia GroupTesla

Buys

Expedia Group

Expedia Group provides online travel services for leisure and small business travelers. The company offers a wide range of travel, shopping and reservation services and also provides real-time access to schedule, pricing and availability information for airlines, hotels and car rental companies. Expedia serves customers worldwide.

We see Expedia benefiting from the growth in booking travel online, both for leisure and corporate travel. The company also benefits from rapid growth in alternative accommodations and vacation home rentals through VRBO. The main sources of revenue and profitability are from hotel and vacation home rentals. Additionally, Expedia has exposure to airline ticket sales and automobile rentals. Following the COVID-19 pandemic, Expedia’s debt has been reduced, technology platforms have been rationalized, share repurchase has resumed and we expect a dividend will eventually be reinstated.

Sells

Tesla

We sold Tesla due to deteriorating fundamentals, and there have been significant negative earnings revisions over the past year. Tesla has announced several price cuts to its vehicles and has underscored competition in electric vehicles (EVs) globally. China seems especially competitive. More U.S. EV offerings are expected this year. The Full-Self Driving Capability feature is controversial, has regulatory and litigation risk, and has been chronically late. Elon Musk is trying to gain additional voting shares in Tesla stock. This could present governance issues where his voting share could exceed his economic share of the company.

Outlook

The equity markets in the first quarter finished strong despite a rise in interest rates from year end.  The move in interest rates is due to inflation staying above the targeted level set by the Federal Reserve.  Expectations for a 2024 rate reduction have been pushed out into the back half of the year.  A resilient U.S. economy has provided support for higher corporate profits.  The first quarter double-digit returns on top of a very strong fourth quarter leave equity valuations at the high end of historical averages. The continued uncertainty around geopolitical tensions and the pending US Presidential election will add to market volatility. Although a pause in equity prices is likely, higher earnings and an easing interest rate cycle should help support equity prices for the balance of the year. Our focus will continue to be at the company level, with an emphasis on seeking to invest in companies with secular tailwinds or strong product-driven cycles. 

Disclosures

The opinions expressed herein are those of Aristotle Atlantic Partners, LLC (Aristotle Atlantic) and are subject to change without notice. Past performance is not a guarantee or indicator of future results. This material is not financial advice or an offer to purchase or sell any product. You should not assume that any of the securities transactions, sectors or holdings discussed in this report were or will be profitable, or that recommendations Aristotle Atlantic makes in the future will be profitable or equal the performance of the listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Focus Growth strategy. Not every client’s account will have these characteristics. Aristotle Atlantic reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. The performance attribution presented is of a representative account from Aristotle Atlantic’s Focus Growth Composite. The representative account is a discretionary client account which was chosen to most closely reflect the investment style of the strategy. The criteria used for representative account selection is based on the account’s period of time under management and its similarity of holdings in relation to the strategy. Recommendations made in the last 12 months are available upon request. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

All investments carry a certain degree of risk, including the possible loss of principal. Investments are also subject to political, market, currency and regulatory risks or economic developments. International investments involve special risks that may in particular cause a loss in principal, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in emerging markets. Securities of small‐ and medium‐sized companies tend to have a shorter history of operations, be more volatile and less liquid. Value stocks can perform differently from the market as a whole and other types of stocks.

The material is provided for informational and/or educational purposes only and is not intended to be and should not be construed as investment, legal or tax advice and/or a legal opinion. Investors should consult their financial and tax adviser before making investments. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Information and data presented has been developed internally and/or obtained from sources believed to be reliable. Aristotle Atlantic does not guarantee the accuracy, adequacy or completeness of such information.

Aristotle Atlantic Partners, LLC is an independent registered investment adviser under the Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Aristotle Atlantic, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, which is available upon request. AAP-2404-22

Performance Disclosures

Sources: CAPS CompositeHubTM, Russell Investments

Composite returns for all periods ended March 31, 2024 are preliminary pending final account reconciliation.

Past performance is not indicative of future results. Performance results for periods greater than one year have been annualized. Returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of actual investment advisory fees and after the deduction of all trading expenses.

Index Disclosures

The Russell 1000® Growth Index measures the performance of the large cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. This index has been selected as the benchmark and is used for comparison purposes only. The Russell 1000® Value Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The S&P 500® Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. The Russell 2000® Index measures the performance of the small cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Dow Jones Industrial Average® is a price-weighted measure of 30 U.S. blue-chip companies. The Index covers all industries except transportation and utilities. The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite includes over 3,000 companies, more than most other stock market indices. The Bloomberg U.S. Aggregate Bond Index is an unmanaged index of domestic investment grade bonds, including corporate, government and mortgage-backed securities. The WTI Crude Oil Index is a major trading classification of sweet light crude oil that serves as a major benchmark price for oil consumed in the United States. The 3-Month U.S. Treasury Bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of three months. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. The volatility (beta) of the Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indices.

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