Core Equity 2Q 2022

Markets Review

The U.S. equity market posted its second consecutive quarterly decline, as the S&P 500 Index fell -16.10% during the period, bringing its year-to-date return to -19.96%. The year-to-date performance marked the worst first half of a year since 1962. Concurrently, the Bloomberg U.S. Aggregate Bond Index dropped -4.69% for the quarter, bringing the year-to-date return to -10.35%. In terms of style, the Russell 1000 Value Index outperformed its growth counterpart by 8.71% during the quarter. For the first half of the year, that outperformance was 15.21%, on track to be the largest calendar year lead for value since the early 2000s.

Sources: SS&C Advent, Bloomberg
Past performance is not indicative of future results. Aristotle Atlantic Large Cap Growth Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Aristotle Atlantic Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

On a sector basis, all eleven sectors within the S&P 500 Index finished lower for the quarter, with Consumer Discretionary, Communication Services and Information Technology posting the largest declines. Meanwhile, Consumer Staples, Utilities and Energy declined the least.

Soaring inflation, combined with a 1.6% decrease in first quarter GDP and estimates for another decline in the second quarter, is increasing fears that a recession may be on the horizon. The CPI rose 8.6% for the year ended in May, and average U.S. gasoline prices (briefly) breached $5 per gallon in June for the first time in history. Consumers responded to the broad-based increase in prices by reducing their personal savings rate to 4.4% in April, the lowest level since September 2008. The negative effects of supply-chain disruptions also persist, and management teams have highlighted that the strengthening dollar has reduced demand for U.S. goods sold abroad.

In many ways, the economy has continued to show signs of strength. The labor market has remained tight, with unemployment at 3.6% in May, similar to previous cyclical lows. Companies again reported robust earnings, as S&P 500 constituents grew earnings 9%, year over year, with 77% of companies exceeding consensus EPS estimates.

In response to elevated inflation, in May, the Federal Reserve raised the federal funds rate 0.50%. In June, it raised rates an additional 0.75%, the largest increase since 1994, moving the benchmark rate to a range of 1.50% to 1.75%. Additionally, the U.S. central bank officially began quantitative tightening, as it moved to reduce its $9 trillion balance sheet. So far, the increase in rates has been felt most notably in the housing market. The average 30-year fixed-rate mortgage ended the quarter at 5.70% – more than double its low of 2.65% in January 2021. Higher rates have decreased homeownership affordability and raised concerns about a potential slowdown in the real estate market.

Furthermore, geopolitical tensions remained high as the war in Ukraine continued. Western governments intensified their pressure on Russia through various sanctions, such as bans on Russian oil and gold, causing the country to default on its foreign debt for the first time since 1918. Nevertheless, a great deal of uncertainty remains surrounding a potential resolution of the conflict, further complicating the outlook for global economic activity and inflation.

Performance and Attribution Summary

For the second quarter of 2022, Aristotle Atlantic’s Core Equity Composite posted a total return of -17.37% gross of fees (-17.47% net of fees), underperforming the S&P 500 Index, which recorded a total return of -16.10%. Since its inception on August 1, 2013, the Core Equity Composite has posted an annualized return of 12.59% gross of fees (12.07% net of fees), while the S&P 500 Index has reported a total return of 11.63%.

2Q22 YTD1 Year 3 Years 5 Years Since Inception*
Core Equity Composite (gross)-17.37-22.98-14.4410.4911.9312.59
Core Equity Composite (net)-17.47-23.15-14.8010.0311.4812.07
S&P 500 Index-16.10-19.96-10.6210.5911.3011.63
*The Core Equity Composite has an inception date of August 1, 2013. Past performance is not indicative of future results. Returns are presented gross and net of actual investment advisory fees and after the deduction of all trading expenses and include the reinvestment of all income. Aristotle Atlantic 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 and include the reinvestment of all income. Please see important disclosures at the end of this document.

During the second quarter, the portfolio’s underperformance relative to the S&P 500 Index was entirely due to security selection. Security selection in Consumer Staples, Health Care and Industrials detracted the most from relative performance. Conversely, security selection in Consumer Discretionary and Materials as well as an overweight in Health Care contributed the most to relative performance.  

Contributors and Detractors for 2Q 2022

Relative ContributorsRelative Detractors
CignaSpirit AeroSystems Holdings
Dollar GeneralDarling Ingredients
Bristol-MyersIntercontinental Exchange
Phillips 66Teleflex



Cigna contributed to performance in the second quarter, outpacing the benchmark Health Care sector return.  We believe Cigna benefited from investors seeking relative safety in the managed care sector and the stock’s attractive valuation at just over 10 times next year’s earnings. During the quarter, Cigna reported an earnings beat due to a better-than-expected medical loss ratio. 

Dollar General

Dollar General contributed to performance in the second quarter following the report of first quarter earnings that were above expectations. Strength in the second quarter was driven by better-than-expected sales of consumable items. Guidance for the remainder of the year was increased. In addition to solid earnings, forecasts for the increasing expectations of a recession drove positive sentiment towards consumer discretionary companies with more predictable revenue like dollar stores.


Spirit AeroSystems Holdings

Spirit AeroSystems published a disappointing first quarter earnings report during the second quarter. The company’s largest customer, Boeing, has not increased aircraft production to the extent that Spirit management was expecting. The company experienced headwinds from COVID-19, disrupted supply chains and inflation during the quarter. Although airlines are currently seeing strong demand for flights, sentiment for travel-related stocks turned negative in the second quarter as recession fears increased.     

Darling Ingredients

Darling Ingredients detracted from performance in the second quarter, versus the benchmark Consumer Staples sector return. Darling was an outperformer in the first quarter; however, the Energy sector rolled over late in the second quarter, and Darling, given its exposure to biodiesel, sold off in sympathy. Darling was up for most of the second quarter, until the Energy sector began its decline in early June. During the quarter, the company reported a mainly in-line earnings report; however, they accelerated the timeline for the opening of their third joint-venture biodiesel facility to the fourth quarter of 2022. We remain encouraged on Darling’s diversified business and prospects for strong cash flow once the joint venture facilities are all up and running in 2023. 

Recent Portfolio Activity

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

AccentureFidelity National Information Systems



Accenture provides management and technology consulting services and solutions. The company delivers a range of specialized capabilities and solutions to clients across all industries and around the world. Accenture offers a portfolio of management consulting, strategy, digital, technology, interactive and business operations services to some of the leading companies and government organizations.

We see digital transformation strategies remain a key initiative for global enterprises and believe Accenture is well-positioned. The company’s IT service and solutions business has an attractive mix to capitalize on digital transformation strategies. We have a positive view on Accenture’s historical success in M&A, which supports the company’s growth through talent acquisition as well as niche technology bolt-ons.


ServiceNow provides digital workflows on a single enterprise cloud platform called the Now Platform. The company offers products on the Now Platform and standard applications specially designed for automating IT, Employee and Customer workflows. ServiceNow delivers software via the Internet through a simple and easy-to-use interface that can deploy the package offerings and allow customers to build their applications. Customers can choose to host software by themselves or through third-party service providers. The company offers professional services, both directly and through partners, to help customers deploy and utilize the products and platform.

We consider ServiceNow a leading beneficiary of the digital transformation initiatives taking place in enterprises around the world. We believe it is the best-of-breed technology company with attractive topline growth metrics supported by a growing TAM along with positive FREE cash flow which is recycled into accelerating growth initiatives both organically and through selective M&A. 


Fidelity National Information Systems

We sold our position in Fidelity National Information Services, thereby, reducing our exposure to the payments processing space within the portfolio. While the first half of 2022 for Fidelity National Information Services should show improving trends in the merchant space due to better Small-to-Medium Business (SMB) and travel industry metrics, we are focusing our concerns on the impact of rising inflation on the second half of 2022 trends. The concern we see is that inflation will begin to impact the purchasing power of consumers and merchant processors, like Fidelity, and will see a slowdown in the growth rate of transaction volumes.


We sold our position in Adobe to reduce our weighting in the Information Technology sector. We continue to see risk in higher valuation technology names, such as Adobe, due to both slowing business trends and multiple compression. Adobe has exposure to both the SMB market segment as well as e-commerce, both areas which have shown pockets of weakness during the current earnings season. 


The outlook for the U.S. large cap equity market for the second half of 2022 will be impacted by the pace of the U.S. economy slowing in reaction to a Federal Reserve tightening cycle. With the focus on the Federal Reserve raising interest rates and shrinking the balance sheet to stem inflation, there is now an increased probability of a recession. We will most likely see companies reducing earnings expectations for the balance of 2022 to reflect the uncertain economic climate. Many commodity prices like copper and lumber have already experienced sharp corrections. However, energy prices remain stubbornly high due to a sizable imbalance between supply and demand as global economies emerge from the pandemic shutdown. The equity markets will most likely shift from a focus on price to earnings multiples compressing to a focus on an earnings downdraft. This could precipitate a rotation in sector performance towards defensive sectors like Health Care and Consumer Staples and away from economically sensitive sectors like Energy and Materials. Equity markets typically decline in the mid-30% range from their highs in periods of recession. The U.S. equity market is already in bear market territory having declined over 20% year-to-date. Our focus will continue to be at the company level, with an emphasis on companies experiencing secular tailwinds or strong product-driven cycles.


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 securities listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Core Equity 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 Core Equity 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.

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. 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. 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.

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-2207-9

Performance Disclosures




Composite returns for all periods ended June 30, 2022 are preliminary pending final account reconciliation.

The Aristotle Core Equity Composite has an inception date of August 1, 2013 at a predecessor firm. During this time, Mr. Fitzpatrick had primary responsibility for managing the strategy. Performance starting November 1, 2016 was achieved at Aristotle Atlantic.

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.