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

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle International Equity 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%.

Japan and North America were the strongest regions, while Latin America and Asia/Pacific ex-Japan posted negative returns. On a sector basis, ten out of the eleven sectors within the MSCI ACWI Index finished in the green, with Information Technology, Communication Services and Energy increasing the most. Meanwhile, Real Estate was the only sector to decline, while Utilities and Materials gained the least.

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 possibilty 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 Global Equity Composite posted a total return of 6.16% gross of fees (6.09% net of fees), underperforming the MSCI World Index, which returned 8.88%, and the MSCI ACWI Index, which returned 8.20%. Please refer to the table below for detailed performance.

Performance (%)	1Q24	1 Year	3 Years	5 Years	10 Years	Since Inception*
Global Equity Composite (gross)	6.16	20.19	5.75	11.74	9.84	10.31
Global Equity Composite (net)	6.09	19.84	5.42	11.38	9.45	9.88
MSCI World Index (net)	8.88	25.11	8.60	12.06	9.39	10.05
MSCI ACWI Index (net)	8.20	23.22	6.95	10.90	8.65	9.09

*The inception date for the Global Equity Composite is November 1, 2010. Past performance is not indicative of future results. Aristotle Global Equity 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 World Index can be primarily attributed to security selection, while allocation effects also had a negative impact. Security selection in Information Technology, Industrials and Energy detracted the most from the portfolio’s relative performance. Conversely, security selection in Materials and a lack of exposure to Real Estate and Utilities contributed to relative return.

Regionally, both security selection and allocation effects were responsible for the portfolio’s underperformance relative to the MSCI World Index. Security selection in North America and Japan detracted the most from relative performance, while security selection in Europe and an overweight in Japan contributed.

Contributors and Detractors for 1Q 2024

Relative Contributors	Relative Detractors
Martin Marietta Materials	Adobe
Lennar	AIA Group
Munich Reinsurance	Sony
FirstCash	Cameco
Qualcomm	Microchip Technology

Adobe, the content creation and publishing software provider, was the leading detractor for the quarter.The company continues to benefit from its shift to a subscription model, with almost 95% of its record $19.4 billion in fiscal year 2023 revenue coming from subscriptions, while continuing to invest in innovation that expands its addressable market. Nevertheless, investors seem concerned with some of the lower-cost alternatives entering the market, including Sora, an OpenAI platform that produces videos from text. While much attention has also been placed on Adobe’s Firefly, a generative AI service that has already produced more than 6.5 billion images since launch in March 2023, we will take our time to understand Adobe’s AI monetization strategy. In the meantime, we continue to believe that the combination of Express, Firefly, Creative Cloud, Acrobat and Experience Cloud provides a unique solution to address all the content and data needs of clients and their management of the customer experience. In addition to innovation, Adobe continues to generate and return cash to shareholders, exemplified most recently by its new $25 billion stock repurchase program.

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.

Aggregates producer Martin Marietta Materials was a top contributor for the period. As a result of the company’s successful execution of its value-over-volume commercial strategy, including 15% price increases in its aggregates business, Martin Marietta reported full-year records for revenues and profitability. Furthermore, the company continues to bolster its leadership position through the acquisitions of Albert Frei & Sons, a leading aggregates producer in Colorado, and the southeast aggregates operations of Blue Water Industries. These transactions are expected to add one billion tons of reserves, improve product mix and profitability, and allow for the expansion into new target markets such as Nashville and Miami. We believe Martin Marietta is well positioned to continue executing on its catalysts, including optimizing its product portfolio and further enhancing profitability from both pricing and operations initiatives, all while benefiting from continued increases in both non-residential construction and government spending.

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

Buys	Sells
None	None

Consistent with our long-term horizon and low turnover, there were no new purchases or sales completed during the quarter.

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 Global Equity 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 Global 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.

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 investment adviser registered under the Investment 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-2404-75

Performance Disclosures

Sources: CAPS CompositeHub^TM, MSCI

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

The Aristotle Global Equity Composite has an inception date of November 1, 2010; however, the strategy initially began at Howard Gleicher’s predecessor firm in July 2007. A supplemental performance track record from January 1, 2008 through October 31, 2010 is provided on this page and complements the Global Equity Composite presentation that is located at the end of this presentation. The performance results were achieved while Mr. Gleicher managed the strategy at a prior firm. The returns are those of a publicly available mutual fund from the fund’s inception through Mr. Gleicher’s departure from the firm. During that time, Mr. Gleicher had primary responsibility for managing the fund.

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 World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index consists of the following 23 developed market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure 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 MSCI ACWI captures large and mid-cap representation across 23 developed markets 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 Europe Index captures large and mid-cap representation across 15 developed markets countries in Europe. With more than 400 constituents, the Index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. 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 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 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 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 volatility (beta) of the Composite may be greater or less than the benchmarks. It is not possible to invest directly in these indexes.

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Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Value Equity 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.

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%.

Gains were broad-based, as ten out of the eleven sectors within the Russell 1000 Value Index finished higher. Energy, Financials and Industrials were the best-performing sectors. Meanwhile, Real Estate was the only sector to post a negative return, and Utilities and Health Care gained the least.

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 (Fed) maintained the benchmark federal funds rate’s targeted range of 5.25% to 5.50% 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 4.60% 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 Capital’s Value Equity Composite posted a total return of 7.63% gross of fees (7.56% net of fees), underperforming the 8.99% return of the Russell 1000 Value Index and the 10.56% return of the S&P 500 Index. Please refer to the table for detailed performance.

Performance (%)	1Q24	1 Year	3 Years	5 Years	10 Years
Value Equity Composite (gross)	7.63	24.93	8.24	13.85	12.18
Value Equity Composite (net)	7.56	24.62	7.97	13.55	11.84
Russell 1000 Value Index	8.99	20.27	8.10	10.30	9.00
S&P 500 Index	10.56	29.88	11.48	15.03	12.95

Past performance is not indicative of future results. Aristotle Value Equity 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.

The portfolio’s underperformance relative to the Russell 1000 Value Index in the first quarter can be attributed to both security selection and allocation effects. Security selection in Information Technology, Financials and Utilities detracted the most from relative performance. Conversely, security selection in Materials, Consumer Staples and Health Care contributed. (Relative weights are the result of bottom-up security selection.)

Contributors and Detractors for 1Q 2024

Relative Contributors	Relative Detractors
Parker Hannifin	Adobe
Martin Marietta Materials	Sony
Corteva	ANSYS
Lennar	Xcel Energy
Ameriprise Financial	Equity Lifestyle Properties

Adobe, the content creation and publishing software provider, was the leading detractor for the quarter.The company continues to benefit from its shift to a subscription model, with almost 95% of its record $19.4 billion in fiscal year 2023 revenue coming from subscriptions, while continuing to invest in innovation that expands its addressable market. Nevertheless, investors seem concerned with some of the lower-cost alternatives entering the market, including Sora, an OpenAI platform that produces videos from text. While much attention has also been placed on Adobe’s Firefly, a generative AI service that has already produced more than 6.5 billion images since launch in March 2023, we will take our time to understand Adobe’s AI monetization strategy. In the meantime, we continue to believe that the combination of Express, Firefly, Creative Cloud, Acrobat and Experience Cloud provides a unique solution to address all the content and data needs of clients and their management of the customer experience. In addition to innovation, Adobe continues to generate and return cash to shareholders, exemplified most recently by its new $25 billion stock repurchase program.

Xcel Energy, one of the largest renewable energy owners among regulated utilities, was a primary detractor during the period. Shares fell as the company’s facilities appear to have been involved in an ignition of the largest wildfire in Texas state history. As a result, insurance companies have begun filing lawsuits claiming Xcel should be held liable for damages related to the more than one million acres burned. Though the magnitude and likelihood of settlements are difficult to quantify, we believe potential payouts would be meaningfully less than the over $5 billion in market value the company lost in the days following the news. We will continue to closely monitor the situation and its impact on the company, as a full investigation is still underway. Over the long term, our conviction remains that Xcel is well positioned to benefit from increased demand for clean energy, as its service territories have what we believe to be some of the best wind and solar resources in the country.

Aggregates producer Martin Marietta Materials was a top contributor for the period.As a result of the company’s successful execution of its value-over-volume commercial strategy, including 15% price increases in its aggregates business, Martin Marietta reported full-year records for revenues and profitability. Furthermore, the company continues to bolster its leadership position through the acquisitions of Albert Frei & Sons, a leading aggregates producer in Colorado, and the southeast aggregates operations of Blue Water Industries. These transactions are expected to add one billion tons of reserves, improve product mix and profitability, and allow for the expansion into new target markets such as Nashville and Miami. We believe Martin Marietta is well positioned to continue executing on its catalysts, including optimizing its product portfolio and further enhancing profitability from both pricing and operations initiatives, all while benefiting from continued increases in both non-residential construction and government spending.

Corteva, the seed and crop protection company, was one of the largest contributors. As discussed in last quarter’s commentary, we believed the crop protection business was at or near a cyclical bottom in 2023, as customer destocking followed a 2020-2022 period of robust orders. Share prices have subsequently risen with Corteva’s crop protection sales falling just 5% in the previous quarter, an improved result compared to the 9% full-year decline, accompanied by guidance calling for a return to growth in the second half of 2024. However, as long-term investors, we look past cyclical fluctuations and are encouraged as Corteva further executes on many of the catalysts we identified. These include continued innovation (with over 400 new product launches in 2023) and share gains for the company’s Enlist E3 soybeans, which achieved 58% market penetration in 2023 and became the top-selling soybean technology in the U.S.

Recent Portfolio Activity

Buys	Sells
Lowe’s Companies	Phillips 66
TotalEnergies	Sysco

During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies and TotalEnergies.

We first purchased Phillips 66, the energy manufacturing and logistics company, in the third quarter of 2012. During our over decade-long ownership period, the company transformed itself from a predominately refining operation to a significantly more diversified energy business. In 2012, refining represented nearly 75% of earnings, and today it is less than half. With the expansion of other businesses, including midstream which is underpinned by long-term fee-based contracts, as well as chemicals and marketing, we believe Phillips 66 has reduced its cyclicality while enhancing FREE cash flow generation, supporting increased returns to shareholders. In addition, the company has started to position itself for the energy transition and remains on track to convert its San Francisco refinery into one of the world’s largest renewable fuels facilities. While we continue to believe Phillips 66 is a high-quality company on the path to further improvement, we decided to sell our shares to fund the purchase of what we consider a more suitable and attractive investment in TotalEnergies (discussed below).

We have owned Sysco, one of the largest food distribution companies in the world, since the fourth quarter of 2022. During our holding period, Sysco’s CEO Kevin Hourican has made progress transforming various aspects of the business, including implementing new technologies able to assist customers with their own changing menus and needs. Through leveraging its scale and purchasing power, we continue to view Sysco as well positioned to gain further share of the highly fragmented U.S. food distribution market, all while sustaining its more than 50-year streak of increasing dividends. Though the company meets each of our criteria for investment, we decided it was the best candidate for sale to fund the purchase of Lowe’s Companies, which we believe is a more optimal investment.

Lowe’s Companies, Inc.

Based in North Carolina, and with a history dating back to 1921, Lowe’s Companies is the world’s second-largest home improvement retailer (after Home Depot). The company operates more than 1,700 stores in the United States that offer a wide variety of products to enhance a home, from plants for the garden and house décor to hardware and appliances. Often located in suburban areas, Lowe’s stores primarily serve retail “do-it-yourself” customers (~75% of revenue) and sell products that are used for home maintenance and repair (over 60% of revenue). This contrasts with Home Depot, whose stores have a higher presence in metropolitan areas and cater more to professional customers.

We had previously been investors in Home Depot. Over much of the past decade Home Depot had, in our opinion, executed better than Lowe’s—expanding its presence with large professional customers and increasing its store productivity. However, with Lowe’s hiring of former Home Depot executive Marvin Ellison in 2018, we believe Lowe’s has started the process of closing the gap to better compete with its nearest rival.

High-Quality Business

Some of the quality characteristics we have identified for Lowe’s include:

Economies of scale and Lowe’s extensive store network allow for cost and procurement advantages—i.e., significant bargaining power with vendors and suppliers;
Difficult-to-replicate knowledge and expertise of Lowe’s associates create a differentiated experience for customers, contributing to the company’s ~10% share of the highly fragmented home improvement market;
Home improvement is one of the few retailing businesses that hasn’t been disrupted in a large way by online competition (namely Amazon), which should continue given products are either costly to ship or needed immediately (i.e., replacing a broken tool or buying more material necessary to complete a project); and
Strong brand awareness and the ability to serve as a one-stop shop for any home improvement need creates a positive flywheel effect, promoting customer loyalty and in turn driving further scale benefits.

Attractive Valutaion

We believe shares of Lowe’s are attractively valued given our estimates of normalized earnings. More specifically, our analysis indicates that Lowe’s opportunity to gain market share and enhance profitability is underappreciated by the market.

Compelling Catalysts

Catalysts we have identified for Lowe’s, which we believe will propel the business forward over our three- to five-year investment horizon include:

Market share gains through improvements to Lowe’s supply chains, upgraded IT systems and enhanced omnichannel sales, which include “buy online, pick up in store” purchases;
Increased share gains with professionals due to the company’s renewed focus on offering products and services for this larger-scale customer base (Lowe’s estimates a professional make ~70 store visits per year versus just ~4 per year for a “do-it-yourself” customer); and
Increased profitability and sales per square foot of retail space, as the company has shifted its focus from geographical expansion toward improving store efficiency.

TotalEnergies S.E.

Headquartered in Paris, France, TotalEnergies was founded in 1924 and is one of the world’s largest energy companies. The company operates in more than 130 countries and spans the entire energy value chain, producing and marketing oil and biofuels, liquid natural gas (LNG), renewables and electricity.

To meet the challenge of the energy transition and still ensure reliable energy in the short term, TotalEnergies has implemented a two-pillar strategy: on one end, the company continues to develop low-cost exploration and production projects, with LNG playing a vital role in the transition; on the other, it has been building its Integrated Power segment through investments in renewable power. As such, management plans to invest over 30% of total spending in low-carbon businesses and rank among the world’s top five providers of solar and wind energy by 2030. To emphasize this ambition, the company changed its name from Total to TotalEnergies in 2021.

High-Quality Business

Some of the quality characteristics we have identified for TotalEnergies include:

Low-cost and geographically diversified portfolio of upstream assets;
Commitment to research and development focused on clean energy sources (e.g., LNG, solar, wind);
Well-diversified business mix provides balance during periods of hydrocarbon price volatility; and
Experienced management team focused on cost discipline and FREE cash flow generation.

Attractive Valutaion

Using our estimates of normalized earnings, we believe TotalEnergies’ current stock price is offered at a discount to the company’s intrinsic value.

Compelling Catalysts

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

Uniquely positioned to benefit from increased global demand for clean energy;
Increased FREE cash flow and ROIC, as traditional exploration and production assets are used to fund short-cycle projects and as profitability in Integrated Power increases over the coming years;
Further ability of TotalEnergies’ LNG trading business to capture volatility in markets given the company’s global footprint and vast portfolio; and
Continued divestment of non-core assets as the company focuses on advantaged, low-cost and low-emission projects.

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 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 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 Value Equity 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 Value 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.

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 ADV Part 2, which is available upon request. ACM-2404-14

Performance Disclosures

Sources: CAPS CompositeHub^TM, Russell Investments, Standard & Poor’s

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. The Aristotle Value Equity strategy has an inception date of November 1, 2010; however, the strategy initially began at Mr. Gleicher’s predecessor firm in October 1997. A supplemental performance track record from January 1, 2001 through October 31, 2010 is provided above. The returns are based on two separate accounts and performance results are based on custodian data. During this time, Mr. Gleicher had primary responsibility for managing the two accounts, one account starting in November 2000 and the other December 2000.

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 Value® Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 Index 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 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. 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 indexes. 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 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 Composite may be greater or less than its respective benchmarks. It is not possible to invest directly in these indexes.

Related Resources

Commentary

Value Equity 4Q 2023

Commentary

Value Equity 3Q 2023

Commentary

Value Equity 2Q 2023

For more on Value Equity, access the latest resources.

View Strategy

Learn More About Aristotle Capital

Sign Up for Additional Resources

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

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle International Equity 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 possibilty 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 Composite posted a total return of 3.77% gross of fees (3.66% 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 (%)	1Q24	1 Year	3 Years	5 Years	10 Years	Since Inception*
International Equity Composite (gross)	3.77	14.85	3.46	7.46	5.48	5.78
International Equity Composite (net)	3.66	14.33	2.97	6.95	4.98	5.28
MSCI EAFE Index (net)	5.78	15.32	4.78	7.32	4.79	3.07
MSCI ACWI ex USA Index (net)	4.69	13.26	1.93	5.96	4.25	2.60

*The inception date for the International Equity Composite is January 1, 2008. Past performance is not indicative of future results. Aristotle International Equity 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 Contributors	Relative Detractors
Safran	Daikin Industries
Munich Reinsurance	Sony
Nemetschek	AIA Group
Pan Pacific International	Accenture
GlaxoSmithKline	Magna International

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

Buys	Sells
None	None

Consistent with our long-term horizon and low turnover, there were no new purchases or sales completed during the quarter.

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 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 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-2404-37

Performance Disclosures

Sources: CAPS CompositeHub^TM, 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.

Related Resources

Commentary

International Equity 4Q 2023

Commentary

International Equity 3Q 2023

Commentary

International Equity 2Q 2023

For more on International Equity, access the latest resources.

View Strategy

Learn More About Aristotle Capital

Sign Up for Additional Resources

Markets Review

The U.S. equity market rebounded, as the S&P 500 Index rose 11.69% during the period. Concurrently, the Bloomberg U.S. Aggregate Bond Index rallied, increasing 6.82% for the quarter. In terms of style, the Russell 1000 Value Index underperformed its growth counterpart by 4.66%.

Gains were broad-based, as ten out of the eleven sectors within the S&P 500 Index finished higher. Real Estate, Financials and Information Technology were the best-performing sectors. Meanwhile, Energy was the only sector to finish in the red, while Consumer Staples and Health Care gained the least.

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Atlantic Core Equity 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.

Data released during the period showed that the U.S. economy had accelerated in the third quarter, with real GDP rising at an annual rate of 4.9%—the fastest pace of growth in nearly two years. The robust results were driven by increases in consumer spending and inventory investment. Additionally, single-family housing starts rose 18% month-over-month in November, and the labor market remained tight with 3.7% unemployment. Meanwhile, inflation continued its downward trend, as the annual CPI fell from 3.7% in September to 3.1% in November. The drop was primarily driven by softening energy prices, as both WTI and Brent fell below $80 a barrel. These developments combined to send longer-term interest rates lower, with the 10-year U.S. Treasury yield falling over 70 basis points during the quarter to finish at 3.88%.

As a result of easing inflation, combined with potentially slowing economic activity and a strong but moderating job market, the Federal Reserve (Fed) held the benchmark federal funds rate steady during the quarter. Chair Jerome Powell stated that the central bank’s policy rate is likely at or near its peak for the current tightening cycle, while the Federal Open Market Committee members’ median estimates indicate three quarter-point cuts in 2024.

On the corporate earnings front, results were strong, as 82% of S&P 500 companies exceeded EPS estimates, leading to 4.7% growth in earnings for the Index. Looking forward, analysts expect earnings to accelerate in 2024, with growth of 11.5% year-over-year.

Lastly, in U.S. politics, after backing a bipartisan stopgap funding bill to stave off a partial government shutdown, Congressman Kevin McCarthy was removed as speaker of the United States House of Representatives. This marked the first time in American history that a speaker of the House was ousted through a motion to vacate. Subsequently, Congressman Mike Johnson was elected as McCarthy’s replacement.

Annual Markets Review

After a tumultuous year in 2022, the U.S. equity market rallied in 2023, as the S&P 500 Index posted a full-year return of 26.29%. The increase was primarily driven by the performance of the seven largest companies in the Index, which were responsible for 62% of the S&P 500’s gains. Additionally, after underperforming value last year by the largest amount since 2000, growth recovered, as the Russell 1000 Growth Index outperformed the Russell 1000 Value Index by 31.22% for the year. Meanwhile, the fixed income market also rebounded, as the Bloomberg U.S. Aggregate Bond Index rose 5.53% in 2023.

Macroeconomic news was dominated by inflation, central bank policies, regional bank failures and geopolitical conflicts, while other topics, such as artificial intelligence and congressional politics, made headlines as well. Economic data points were mixed throughout the year, and corporate earnings were just as unpredictable.

Performance and Attribution Summary

For the fourth quarter of 2023, Aristotle Atlantic’s Core Equity Composite posted a total return of 12.95% gross of fees (12.84% net of fees), outperforming the S&P 500 Index, which recorded a total return of 11.69%.

Performance (%)	4Q23	1 Year	3 Years	5 Years	10 Years	Since Inception*
Core Equity Composite (gross)	12.95	23.85	6.69	15.91	12.30	13.18
Core Equity Composite (net)	12.84	23.34	6.24	15.43	11.79	12.66
S&P 500 Index	11.69	26.29	10.00	15.68	12.03	12.61

*The Core Equity Composite has an inception date of August 1, 2013. Past performance is not indicative of future results. Aristotle Atlantic Core Equity 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.

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. Please see important disclosures at the end of this document.

During the fourth quarter, the portfolio’s outperformance relative to the S&P 500 Index was due to both security selection and allocation effects. Security selection in Consumer Discretionary and Financials, as well as an underweight in Energy, contributed the most to relative performance. Conversely, security selection and an overweight in Health Care, as well as security selection in Energy, detracted from relative performance.

Contributors and Detractors for 4Q 2023

Relative Contributors	Relative Detractors
Broadcom	Halliburton
Spirit AeroSystems	Becton, Dickinson & Company
Expedia	Chart Industries
ServiceNow	Darling Ingredients
Teleflex	Antero Resources

Contributors

Broadcom

Broadcom contributed to portfolio outperformance during the quarter, as the company reported fourth quarter results which continued to show strength in its AI business segments. With the VMware acquisition having closed at the end of November, the company also provided positive fiscal year 2024 guidance on its earnings call that included synergy target goals ahead of schedule and a more positive revenue ramp for the combined businesses.

Spirit AeroSystems

Spirit AeroSystems contributed to portfolio outperformance in the fourth quarter. The company replaced the CEO, following a series of manufacturing incidents which resulted in delays in deliveries of fuselages. Additionally, Spirit also came to an agreement with Boeing regarding pricing for the troubled 787 program, which previously was unprofitable. The company also issued equity, which we believe will improve the company’s balance sheet.

Detractors

Haliburton

Halliburton detracted from portfolio performance, as shares were weak in the fourth quarter due to lower global commodity prices amid concerns about excess oil and natural gas supply levels resulting from slowing global economic activity.

Becton, Dickinson & Company

Becton Dickinson & Company detracted from portfolio performance in the quarter, as the company announced lower-than-expected guidance for fiscal year 2024. The weaker guidance was mainly driven by adverse moves in foreign exchange markets; however, the guidance seemed to surprise investors, even though we believe the underlying business trends remain solid.

Recent Portfolio Activity

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

Buys	Sells
Eli Lilly	Bristol-Myers
Vertex Pharmaceuticals	PepsiCo

Buys

Eli Lilly & Company

Eli Lilly & Company is a leading pharmaceutical company that develops diabetes, oncology, immunology and neuroscience medicines. The company generates over half of its revenue in the U.S. from its top-selling drugs Trulicity, Verzenio and Taltz. The company operates in a single business segment, Human pharmaceutical products.

Eli Lilly has a deep pipeline in treatment areas focused on metabolic disorders, oncology, immunology and central nervous system disorders. Currently, there are two phase three assets, Orforglipron, an oral GLP-1 and retatrutide, a triple incretin agonist, which have the potential to expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease and chronic kidney disease. We belief the premium valuation is supported by this outsized growth profile.

Vertex Pharmaceuticals

Vertex Pharmaceuticals develops drugs for treating cystic fibrosis, cancer, inflammatory bowel, autoimmune disease and neurological disorders. The biotechnology company has four commercial drugs used to treat cystic fibrosis. Vertex has other drugs in development, including additional cystic fibrosis treatments and medications addressing sickle cell disease, beta thalassemia, alpha-1 antitrypsin deficiency and pain.

Vertex is the global leader in treating cystic fibrosis and has additionally built a robust pipeline in several therapeutic areas. Late-stage studies in acute and neuropathic pain are expected to be another catalyst for the company. We believe Vertex’s valuation is attractive and at a discount relative to their 5-year historical average. Additionally, the company is well capitalized, with roughly $12.5 billion in net cash on its balance sheet.

Sells

Bristol-Myers

We sold our position in Bristol-Myers, following the third quarter earnings report where the company reduced the medium-term guidance on the new product portfolio and lowered its 2025 target. Given the large amount of revenue associated with drugs going off-patent, the new product portfolio was key to the company’s ability to change investor perception. Certain launches are not performing as expected, and others are taking longer to scale. Additionally, Bristol-Myers reduced medium-term operating margin guidance to invest in its commercial drugs and the research and development (R&D) pipeline. We do not believe that the company exhibited the level of defensiveness in the strategy we expected given the low valuation.

PepsiCo

We sold PepsiCo based on our belief that the inflation and interest rate cycle has peaked, and the company may have difficulty maintaining the recent organic growth trends which were driven mainly by price increases. Furthermore, the market appears to be shifting away from defensive names and into a more cyclical positioning which could cause PepsiCo to lag.

Outlook

Major equity markets in the fourth quarter were positively impacted by a sharp decline in interest rates. The move in interest rates reflects the view that the tightening cycle implemented by the Fed to curb inflation may have run its course. Expectations for 2024 include rate reductions by the Fed and a high single-digit increase in S&P 500 earnings. Along with this positive view, we also expect a broadening of performance relative to the AI-focused returns in 2023. The sizable move in equity markets in the fourth quarter has left equity valuations at the upper end of historical levels, which could limit the upside, absent positive earnings revisions. The increased geopolitical tensions and a pending U.S. Presidential election may also weigh on markets in 2024. 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 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.

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-2401-30

Performance Disclosures

Sources: CAPS Composite Hub, Russell Investments

Composite returns for all periods ended December 31, 2023 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.

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 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 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 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.

Related Resources

Commentary

Core Equity 3Q 2023

Commentary

Core Equity 2Q 2023

Commentary

Core Equity 1Q 2023

For more on Core Equity, access the latest resources.

Visit Strategy

Learn More About Aristotle Atlantic

Sign Up for Additional Resources

Markets Review

The U.S. equity market rebounded, as the S&P 500 Index rose 11.69% during the period. Concurrently, the Bloomberg U.S. Aggregate Bond Index rallied, increasing 6.82% for the quarter. In terms of style, the Russell 1000 Value Index underperformed its growth counterpart by 4.66%.

Sources: CAPS CompositeHub^TM, 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. 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 out of the eleven sectors within the Russell 1000 Growth Index finished higher. Real Estate, Utilities and Information Technology were the best-performing sectors. Meanwhile, Energy was the only sector to finish in the red, while Consumer Staples and Health Care gained the least.

Data released during the period showed that the U.S. economy had accelerated in the third quarter, with real GDP rising at an annual rate of 4.9%—the fastest pace of growth in nearly two years. The robust results were driven by increases in consumer spending and inventory investment. Additionally, single-family housing starts rose 18% month-over-month in November, and the labor market remained tight with 3.7% unemployment. Meanwhile, inflation continued its downward trend, as the annual CPI fell from 3.7% in September to 3.1% in November. The drop was primarily driven by softening energy prices, as both WTI and Brent fell below $80 a barrel. These developments combined to send longer-term interest rates lower, with the 10-year U.S. Treasury yield falling over 70 basis points during the quarter to finish at 3.88%.

As a result of easing inflation, combined with potentially slowing economic activity and a strong but moderating job market, the Federal Reserve (Fed) held the benchmark federal funds rate steady during the quarter. Chair Jerome Powell stated that the central bank’s policy rate is likely at or near its peak for the current tightening cycle, while the Federal Open Market Committee members’ median estimates indicate three quarter-point cuts in 2024.

On the corporate earnings front, results were strong, as 82% of S&P 500 companies exceeded EPS estimates, leading to 4.7% growth in earnings for the Index. Looking forward, analysts expect earnings to accelerate in 2024, with growth of 11.5% year-over-year.

Lastly, in U.S. politics, after backing a bipartisan stopgap funding bill to stave off a partial government shutdown, Congressman Kevin McCarthy was removed as speaker of the United States House of Representatives. This marked the first time in American history that a speaker of the House was ousted through a motion to vacate. Subsequently, Congressman Mike Johnson was elected as McCarthy’s replacement.

Annual Markets Review

After a tumultuous year in 2022, the U.S. equity market rallied in 2023, as the S&P 500 Index posted a full-year return of 26.29%. The increase was primarily driven by the performance of the seven largest companies in the Index, which were responsible for 62% of the S&P 500’s gains. Additionally, after underperforming value last year by the largest amount since 2000, growth recovered, as the Russell 1000 Growth Index outperformed the Russell 1000 Value Index by 31.22% for the year. Meanwhile, the fixed income market also rebounded, as the Bloomberg U.S. Aggregate Bond Index rose 5.53% in 2023.

Macroeconomic news was dominated by inflation, central bank policies, regional bank failures and geopolitical conflicts, while other topics, such as artificial intelligence and congressional politics, made headlines as well. Economic data points were mixed throughout the year, and corporate earnings were just as unpredictable.

Performance and Attribution Summary

For the fourth quarter of 2023, Aristotle Atlantic’s Large Cap Growth Composite posted a total return of 13.61% gross of fees
(13.43% net of fees), underperforming the 14.16% return of the Russell 1000 Growth Index.

Performance (%)	4Q23	1 Year	3 Years	5 Years	Since Inception*
Large Cap Growth Composite (gross)	13.61	36.83	4.68	17.62	16.51
Large Cap Growth Composite (net)	13.43	36.14	4.24	17.14	16.04
Russell 1000 Growth Index	14.16	42.68	8.86	19.49	17.78

*The Large Cap Growth Composite has an inception date of November 1, 2016. Past performance is not indicative of future results. Aristotle Atlantic Large Cap Growth Equity 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 fourth quarter, the portfolio’s underperformance relative to the Russell 1000 Growth Index was due to both security selection and allocation effects. Security selection in Information Technology, Consumer Staples and Industrials detracted the most from relative performance. Conversely, security selection in Consumer Discretionary, Financials and Health Care contributed to relative returns.

Contributors and Detractors for 4Q 2023

Relative Contributors	Relative Detractors
Expedia	Chart Industries
Tesla	Darling Ingredients
DexCom	ON Semiconductors
ServiceNow	Adaptive Biotechnologies
KLA	Tenable Holdings

Contributors

Expedia

Expedia contributed to portfolio performance in the fourth quarter. The company reported strong third quarter earnings in early November. The company has also completed its multi-year technology platform migrations, which have been a drag on growth and profit margin. The company also announced a $5 billion share buyback program.

Tesla

Tesla contributed to portfolio performance in the fourth quarter due to our underweight position relative to the growth index. Tesla reported disappointing third quarter earnings in mid-October in part, due to downtime at some factories that were being upgraded. The CEO expressed concern that higher interest rates were impacting demand for automobiles and would not comment on growth expectations for 2024. However, the expected scale production of the Cybertruck is 12 to 18 months in the future which we believe will negatively impact short-term growth.

Detractors

Chart Industries

Chart Industries detracted from portfolio performance in the fourth quarter. The company reported disappointing third quarter earnings and revenue in late October. According to company management, the shortfall was due to the timing of the deliveries of some projects that were delayed into the fourth quarter of 2023 and into 2024. On a positive note, initial earnings and revenue guidance for 2024 EPS were disclosed on the October earnings call, which was significantly above analyst consensus. This guidance was reaffirmed at the company’s investor day in December.

Darling Ingredients

Darling Ingredients detracted from portfolio performance in the quarter, as shares were weak following a lower-than-expected earnings report and a reduction in annual guidance. The reduction was largely driven by lower margins in their Diamond Green Diesel renewable diesel joint venture due to lower renewable identification numbers (RINs) and lower soybean oil prices. We believe these issues should prove to be short-term headwinds, as margins normalize in the coming quarters.

Recent Portfolio Activity

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

Buys	Sells
Datadog	Enphase Energy
	Tenable Holdings

Buys

Datadog

Datadog is the observability and security platform for cloud applications. The company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, real-user monitoring, and many other capabilities to provide unified, real-time observability and security for its customers’ entire technology stack. The platform is used by organizations of all sizes and across a wide range of industries to enable digital transformation and cloud migration, drive collaboration among development, operations, security and business teams, accelerate time to market for applications, reduce time to problem resolution, secure applications and infrastructure, understand user behavior, and track key business metrics.

We believe headwinds from cloud spend optimizations are moderating, and the company should benefit from improved cloud spend dynamics in 2024-2025. We consider Datadog to be a key part of the Information Technology stack, as businesses expand on their digital transformation initiatives and continue to transition operations to the cloud. The company has been successful in customer acquisition growth and a strong financial profile with increased free cash flow margins.

Sells

Enphase Energy

We sold our position in Enphase due to slowing demand for residential solar energy, primarily driven by rising interest rates and potentially increasing competition. During the second quarter earnings report in July, the company lowered its guidance for the third quarter microinverter, and we believed there was a heightened risk that Enphase would lower guidance again. We remain optimistic about Enphase’s competitive advantages over the long term in the residential solar energy market, but we prefer to wait for more apparent evidence of a rebound before considering a reinvestment in the company.

Tenable Holdings

We sold Tenable, as we believe the company could see increasing pressure from larger cybersecurity providers with more extensive product platforms and more competitive pricing dynamics.

Outlook

Major equity markets in the fourth quarter were positively impacted by a sharp decline in interest rates. The move in interest rates reflects the view that the tightening cycle implemented by the Fed to curb inflation may have run its course. Expectations for 2024 include rate reductions by the Fed and a high single-digit increase in S&P 500 earnings. Along with this positive view, we also expect a broadening of performance relative to the AI-focused returns in 2023. The sizable move in equity markets in the fourth quarter has left equity valuations at the upper end of historical levels, which could limit the upside, absent positive earnings revisions. The increased geopolitical tensions and a pending U.S. Presidential election may also weigh on markets in 2024. 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 securities listed in this report. The portfolio characteristics shown relate to the Aristotle Atlantic Large Cap 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 Large Cap 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-2401-34

Performance Disclosure

Sources: CAPS CompositeHub^TM, Russell Investments

Composite returns for all periods ended December 31, 2023 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 Disclosure

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 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 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 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.

Related Resources

Commentary

Large Cap Growth 3Q 2023

Commentary

Large Cap Growth 2Q 2023

Commentary

Large Cap Growth 1Q 2023

For more on Large Cap Growth, access the latest resources.

View Strategy

Learn More About Aristotle Atlantic

Sign Up for Additional Resources

Markets Review

The U.S. equity market rebounded, as the S&P 500 Index rose 11.69% during the period. Concurrently, the Bloomberg U.S. Aggregate Bond Index rallied, increasing 6.82% for the quarter. In terms of style, the Russell 1000 Value Index underperformed its growth counterpart by 4.66%.

Sources: CAPS CompositeHub^TM, 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 out of the eleven sectors within the Russell 1000 Growth Index finished higher. Real Estate, Utilities and Information Technology were the best-performing sectors. Meanwhile, Energy was the only sector to finish in the red, while Consumer Staples and Health Care gained the least.

Data released during the period showed that the U.S. economy had accelerated in the third quarter, with real GDP rising at an annual rate of 4.9%—the fastest pace of growth in nearly two years. The robust results were driven by increases in consumer spending and inventory investment. Additionally, single-family housing starts rose 18% month-over-month in November, and the labor market remained tight with 3.7% unemployment. Meanwhile, inflation continued its downward trend, as the annual CPI fell from 3.7% in September to 3.1% in November. The drop was primarily driven by softening energy prices, as both WTI and Brent fell below $80 a barrel. These developments combined to send longer-term interest rates lower, with the 10-year U.S. Treasury yield falling over 70 basis points during the quarter to finish at 3.88%.

As a result of easing inflation, combined with potentially slowing economic activity and a strong but moderating job market, the Federal Reserve (Fed) held the benchmark federal funds rate steady during the quarter. Chair Jerome Powell stated that the central bank’s policy rate is likely at or near its peak for the current tightening cycle, while the Federal Open Market Committee members’ median estimates indicate three quarter-point cuts in 2024.

On the corporate earnings front, results were strong, as 82% of S&P 500 companies exceeded EPS estimates, leading to 4.7% growth in earnings for the Index. Looking forward, analysts expect earnings to accelerate in 2024, with growth of 11.5% year-over-year.

Lastly, in U.S. politics, after backing a bipartisan stopgap funding bill to stave off a partial government shutdown, Congressman Kevin McCarthy was removed as speaker of the United States House of Representatives. This marked the first time in American history that a speaker of the House was ousted through a motion to vacate. Subsequently, Congressman Mike Johnson was elected as McCarthy’s replacement.

Annual Markets Review

After a tumultuous year in 2022, the U.S. equity market rallied in 2023, as the S&P 500 Index posted a full-year return of 26.29%. The increase was primarily driven by the performance of the seven largest companies in the Index, which were responsible for 62% of the S&P 500’s gains. Additionally, after underperforming value last year by the largest amount since 2000, growth recovered, as the Russell 1000 Growth Index outperformed the Russell 1000 Value Index by 31.22% for the year. Meanwhile, the fixed income market also rebounded, as the Bloomberg U.S. Aggregate Bond Index rose 5.53% in 2023.

Macroeconomic news was dominated by inflation, central bank policies, regional bank failures and geopolitical conflicts, while other topics, such as artificial intelligence and congressional politics, made headlines as well. Economic data points were mixed throughout the year, and corporate earnings were just as unpredictable.

Performance and Attribution Summary

For the fourth quarter of 2023, Aristotle Atlantic’s Focus Growth Composite posted a total return of 15.02% gross of fees (14.99% net of fees), outperforming the 14.16% total return of the Russell 1000 Growth Index.

Performance (%)	4Q23	1 Year	3 Years	5 Years	Since Inception*
Focus Growth Composite (gross)	15.02	37.21	3.87	16.93	12.52
Focus Growth Composite (net)	14.99	37.08	3.77	16.74	12.27
Russell 1000 Growth Index	14.16	42.68	8.86	19.49	15.34

*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 fourth quarter, the portfolio’s outperformance relative to the Russell 1000 Growth Index was due to both allocation effects and security selection. Security selection in Financials, Health Care and Consumer Discretionary contributed the most to performance. Conversely, security selection in Information Technology and Real Estate, as well as an overweight in Financials, detracted from relative results.

Contributors and Detractors for 4Q 2023

Relative Contributors	Relative Detractors
DexCom	Darling Ingredients
ServiceNow	Adaptive Biotechnologies
KLA	ON Semiconductor
S&P Global	Guardant Health
Netflix	Thermo Fisher Scientific

Contributors

DexCom

Dexcom contributed to portfolio performance during the quarter, following a better-than-expected earnings report and an increase in full-year guidance. The company is benefiting from a new product introduction with the G-7 series and new Medicare reimbursement for basal insulin users. Additionally, Dexcom has been under pressure most of 2023 on the success of GLP-1 companies and the fear that these novel weight loss therapies could hurt the prospects for companies operating in obesity-related comorbidities such as Diabetes. The shares had a broad reversal of this trend in the fourth quarter and many of the affected names rebounded, including Dexcom.

ServiceNow

ServiceNow contributed to portfolio performance during the fourth quarter, as investors focused on improving momentum across the NOW platform following strong third quarter results at the end of October. In addition, ServiceNow continues to announce new product enhancements to the platform to support artificial intelligence (AI) capabilities with early signs of customer adoption.

Detractors

Adaptive Biotechnologies

Adaptive Biotechnologies detracted from portfolio performance, following a lower-than-expected earnings report and a reduction in guidance. The company also announced the initiation of a strategic review to evaluate the separation of the diagnostics and drug-discovery parts of their business. Adaptive Biotechnologies clinical testing volume was strong in the fourth quarter, and average selling prices began to improve. We believe the strategic review has the potential to unlock value in the name.

Darling Ingredients

Darling Ingredients detracted from portfolio performance in the quarter, as shares were weak following a lower-than-expected earnings report and a reduction in annual guidance. The reduction was largely driven by lower margins in their Diamond Green Diesel renewable diesel joint venture due to lower renewable identification numbers (RINs) and lower soybean oil prices. We believe these issues should prove to be short-term headwinds, as margins normalize in the coming quarters.

Recent Portfolio Activity

There were no new buys or sells during the quarter.

Outlook

Major equity markets in the fourth quarter were positively impacted by a sharp decline in interest rates. The move in interest rates reflects the view that the tightening cycle implemented by the Fed to curb inflation may have run its course. Expectations for 2024 include rate reductions by the Fed and a high single-digit increase in S&P 500 earnings. Along with this positive view, we also expect a broadening of performance relative to the AI-focused returns in 2023. The sizable move in equity markets in the fourth quarter has left equity valuations at the upper end of historical levels, which could limit the upside, absent positive earnings revisions. The increased geopolitical tensions and a pending U.S. Presidential election may also weigh on markets in 2024. 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-2401-37

Performance Disclosures

Sources: CAPS CompositeHub^TM, Russell Investments

Composite returns for all periods ended December 31, 2023 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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A young boy was holding two apples with both hands.
His mother came in and softly asked with a smile:

“Sweetie, could you please give your mom one of your two apples?”

The boy looked up at his mom for some seconds, then he suddenly
took a quick bite on one apple, and then quickly on the other.

The mom tried very hard not to show her disappointment.
Then the boy handed one of the bitten apples to his mom and said:

“Mommy, here you are, this is the sweeter one.”

The moral being to delay judgement until one has all the facts. That’s how jury trials work. That’s why a baseball season has 162 games. That’s why one waits to see the literal paint dry before purchasing enough to finish the wall. And that’s why, in most cities, weathermen wait for the first raindrop before making their predictions.

It is no different in investing.

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