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About Aristotle Capital Management

Aristotle Capital Management, LLC is a privately owned, registered investment advisor that specializes in equity portfolio management for institutional and individual clients worldwide. We are one of four independent investment teams which collectively operate under a unified platform known as Aristotle. Our mission is to add value with active portfolio management to help our clients reach their long-term financial goals.

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

Markets Review

Europe and the U.S. reached an agreement under which the EU said it would eliminate tariffs on all U.S. industrial goods and expand access to its agricultural market, while the U.S. set a 15% tariff on most EU imports, a rate that was much lower than initially proposed. The EU also pledged $600 billion of investment in the U.S. and committed to purchase $750 billion in U.S. energy products through 2028. Although the scale of these commitments has been met with skepticism, the deal eased near-term pressure on the European Central Bank, which left interest rates unchanged amid volatile trade policy conditions. Similarly, the Bank of England kept rates steady at its September meeting, despite a weakening labor market and slowing economic growth, as U.K. CPI rose 3.8% year-over-year in August. Separately, the U.K. struck a technology agreement with the U.S. under which major U.S. firms will invest in U.K. data centers and AI infrastructure.

In Asia, trade developments were mixed. Japan’s July agreement with the U.S. faces potential renegotiation following Prime Minister Shigeru Ishiba’s resignation after electoral losses. U.S. negotiations with South Korea also remain unresolved, particularly around investment commitments and visa policies. Furthermore, U.S.-India trade relations deteriorated as the Trump administration imposed an additional 25% tariff on Indian imports over continued Russian oil purchases, along with a $100,000 H-1B visa fee disproportionately affecting Indian professionals, who represent more than 70% of recipients. Meanwhile, relations with China steadied as President Trump extended the China tariff deadline by another 90 days and U.S. lawmakers visited Beijing for the first time since 2019. Across Asia, monetary policy generally remained stable, with major central banks keeping interest rates unchanged.

While much of the market’s attention has been fixated on trade policy, geopolitics also garnered headlines as President Putin visited the U.S. for the first time since 2015. While prospects of a ceasefire were tempered, President Trump expressed hopes for a second summit to include Ukrainian President Volodymyr Zelensky. Nevertheless, major hurdles remain, as President Zelensky has rejected any proposal involving territorial concessions in the Donbas region, and Russian media has downplayed the likelihood of a meeting.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Capital’s International Equity ADR WM Composite posted a total return of 2.48% pure gross of fees (1.98% net of fees), underperforming the MSCI EAFE Index, which returned 4.77%, and the MSCI ACWI ex USA Index, which returned 6.89%. Please refer to the table below for detailed performance.

Performance (%)	3Q25	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
International Equity ADR WM Composite (pure gross)	2.48	17.75	9.02	19.36	11.14	8.68	8.53
International Equity ADR WM Composite (net)	1.98	16.04	6.89	17.03	8.94	6.52	6.18
MSCI EAFE Index (net)	4.77	25.14	14.99	21.70	11.15	8.17	7.97
MSCI ACWI ex USA Index (net)	6.89	26.02	16.45	20.67	10.26	8.23	7.28

MonotaRO, the Japanese business-to-business (B2B) e-commerce platform, was the largest detractor during the quarter. The company—which enables customers to source millions of maintenance, repair and operations (MRO) products through a centralized digital interface—reported a deceleration in sales growth, prompting downward revisions to full-year targets. Results were impacted by weaker-than-expected demand from industrial end markets, and we believe some of the share price weakness also reflected profit-taking following strong performance in prior periods. From our perspective, these short-term dynamics do not alter the structural advantages of MonotaRO’s business model. The company continues to gain traction with large enterprise customers, who now represent over 30% of sales. These clients typically have higher lifetime value and are more likely to adopt MonotaRO’s value-added services, such as purchase management systems, which enhance customer retention and deepen relationships. Importantly, we believe MonotaRO’s value proposition lies in convenience, execution and product curation—qualities that are difficult to replicate in Japan’s fragmented MRO market. With a high-margin, asset-light model, a scalable platform and a long runway to expand share across businesses of all sizes, we continue to view MonotaRO as a high-quality, competitively advantaged business.

Accenture, the global IT consultancy, was one of the largest detractors. The company’s operations are split roughly evenly between Consulting and Managed Services (outsourcing). While Accenture’s strategic pivot to AI in 2023 has driven a rapid increase in AI-related revenue and bookings (nearly doubling to $5.9 billion in fiscal 2025), investors have grown increasingly concerned about the longer-term impact of AI on its outsourcing business—revenue heavily reliant on billable hours. Moreover, the U.S. government’s DOGE initiative created a headwind, as federal contracts have historically represented about 8% of Accenture’s revenue. Despite these challenges, Accenture continues to grow, albeit at a below-normal rate in the recent period, while simultaneously investing in its workforce—now employing roughly 77,000 AI and data specialists, about 10% of its global staff—and returning billions of dollars to shareholders through double-digit increases in both dividends (+10% year-over-year) and share buybacks (+15%). While we acknowledge that market concerns about AI’s disruptive potential warrant consideration, we believe Accenture shares have been excessively punished (valuations are at 10-year lows). The stock has retreated to mid-2020 levels, even though earnings per share and FREE cash flow are more than 50% and 40% higher, respectively, than they were at that time.

Credicorp, the largest bank in Peru, was a leading contributor during the quarter. Results exceeded expectations, supported by robust loan growth—particularly in microfinance and retail segments—stable asset quality and disciplined cost management, even as Peru’s central bank cut rates. From our perspective, these outcomes represent the strength of a well-executed long-term strategy. Credicorp’s multi-pronged platform—anchored in banking, insurance and wealth management—offers durable advantages in an underpenetrated financial system. Its leading positions in microfinance (via Mibanco), pension fund management and investment advisory foster lasting customer relationships and recurring revenue through multi-product engagement. The company is also prudently expanding its digital ecosystem, enhancing efficiency and broadening access across income levels. Importantly, even amid macroeconomic uncertainty, management has consistently prioritized long-term value over volume, allocating capital conservatively and maintaining disciplined underwriting. We believe this enduring combination of diversification, market leadership and risk-aware culture supports our conviction in Credicorp as a resilient business with the ability to compound value over time.

Erste Group Bank, a leading retail and commercial bank in Central and Eastern Europe, was a primary contributor during the quarter. Shares rose following strong results, supported by healthy loan growth, stable deposits and solid fee income. Looking beyond near-term performance, Erste announced its intent to acquire a significant stake in Santander Bank Polska, one of Poland’s largest banks. This transaction would expand Erste’s geographic footprint into a structurally attractive market, adding scale and diversification while providing exposure to one of the fastest-growing economies in the region. As a retail-oriented bank with meaningful exposure to underbanked populations across Central and Eastern Europe, we believe Erste is well positioned to benefit as Central and Eastern economies grow, cross key income thresholds, and drive increasing demand for financial services. In addition, we believe ongoing cost efficiencies—particularly through increased use of technology—should further improve profitability. 

Recent Portfolio Activity

Buys	Sells
Wal-Mart de Mexico	None

During the quarter, we invested in Wal-Mart de Mexico.

Wal-Mart de Mexico SAB de CV

Founded in 1952 and headquartered in Mexico City, Wal-Mart de Mexico (Walmex) is the largest retailer in Mexico and Central America and a key subsidiary of Walmart Inc., which retains a majority ownership stake. Walmex operates more than 3,800 stores across multiple formats—Bodega Aurrerá (discount stores and the company’s fastest-growing format), Walmart Supercenter (big-box retail), Sam’s Club (membership warehouse), Walmart Express (small supermarkets) and other discount outlets—giving it a uniquely diversified presence across the consumer landscape.

This multi-format approach serves a wide spectrum of customers and shopping occasions—from everyday essentials and large family baskets to convenience and premium purchases. Bodega Aurrerá, for example, has become a household name across Mexico and now represents roughly half of the company’s stores, while Sam’s Club caters to membership customers seeking bulk purchases and higher-ticket items. Together, these formats provide Walmex broad market coverage, geographic reach and strong brand loyalty across urban centers, suburban communities and regional towns.

In recent years, the company has significantly expanded its omnichannel ecosystem, investing in e-commerce, logistics and digital services to enhance convenience and deepen customer engagement. E-commerce is ~8% of total sales, supported by strong growth in online grocery and third-party marketplace offerings. Complementary platforms, such as Cashi (digital payments), BAIT (mobile telecom) and Walmart Connect (digital advertising), extend Walmex’s reach into financial and digital services, strengthening customer ties and building new revenue streams.

High-Quality Business

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

• Dominant scale advantages with over 3,000 stores in Mexico, making it the clear market leader in food and general merchandise retail;
• Diversified and resilient revenue base, with a meaningful percentage of sales from grocery—providing recurring traffic and stable cash flow—complemented by general merchandise, fuel, pharmacy and membership-based services;
• Strong returns on invested capital (~18%) supported by consistent execution and capital discipline; and
• Support from Walmart Inc., which provides access to global best practices, digital tools and procurement efficiencies.

Attractive Valuation

We believe Walmex shares are attractively valued relative to its long-term normalized earnings power. In our view, the market underappreciates the company’s ability to grow revenue through ongoing store expansion and strengthen margins and FREE cash flow generation through efficiency gains, scale benefits and continued growth in higher-margin channels, such as private label and e-commerce.

Compelling Catalysts

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

• Expansion of private label penetration (from mid-teens to mid-20s), which should improve profitability and customer loyalty;
• Further development of the e-commerce platform, with Walmex aiming to become a one-stop shop by combining online grocery and a third-party marketplace, supported by digital tools adapted from Walmart U.S.;
• Disciplined store expansion, with current plans to add approximately 1,500 new stores across Mexico and Central America over the next five years, extending reach and scale advantages; and
• Leadership continuity, as newly appointed interim CEO Cristian Barrientos, a veteran Walmart executive with more than 25 years of experience, provides operational stability and maintains focus on profitable growth during the leadership transition.

Conclusion

A core tenet of our investment philosophy is the commitment to understanding businesses with a long-term perspective. This discipline is especially critical during periods of heightened uncertainty, when macroeconomic events can dominate headlines. At Aristotle Capital, we believe one of the distinguishing strengths of our investment process is that we do not reactively reposition portfolios based on near-term developments. Instead, we maintain our focus on business fundamentals. We are convinced that it is fundamentals that ultimately drive long-term shareholder value. As such, we continue to attentively study what we believe are high quality companies with sustainable competitive advantages poised to unlock value over full market cycles.

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

Markets Review

Europe and the U.S. reached an agreement under which the EU said it would eliminate tariffs on all U.S. industrial goods and expand access to its agricultural market, while the U.S. set a 15% tariff on most EU imports, a rate that was much lower than initially proposed. The EU also pledged $600 billion of investment in the U.S. and committed to purchase $750 billion in U.S. energy products through 2028. Although the scale of these commitments has been met with skepticism, the deal eased near-term pressure on the European Central Bank, which left interest rates unchanged amid volatile trade policy conditions. Similarly, the Bank of England kept rates steady at its September meeting, despite a weakening labor market and slowing economic growth, as U.K. CPI rose 3.8% year-over-year in August. Separately, the U.K. struck a technology agreement with the U.S. under which major U.S. firms will invest in U.K. data centers and AI infrastructure.

In Asia, trade developments were mixed. Japan’s July agreement with the U.S. faces potential renegotiation following Prime Minister Shigeru Ishiba’s resignation after electoral losses. U.S. negotiations with South Korea also remain unresolved, particularly around investment commitments and visa policies. Furthermore, U.S.-India trade relations deteriorated as the Trump administration imposed an additional 25% tariff on Indian imports over continued Russian oil purchases, along with a $100,000 H-1B visa fee disproportionately affecting Indian professionals, who represent more than 70% of recipients. Meanwhile, relations with China steadied as President Trump extended the China tariff deadline by another 90 days and U.S. lawmakers visited Beijing for the first time since 2019. Across Asia, monetary policy generally remained stable, with major central banks keeping interest rates unchanged.

While much of the market’s attention has been fixated on trade policy, geopolitics also garnered headlines as President Putin visited the U.S. for the first time since 2015. While prospects of a ceasefire were tempered, President Trump expressed hopes for a second summit to include Ukrainian President Volodymyr Zelensky. Nevertheless, major hurdles remain, as President Zelensky has rejected any proposal involving territorial concessions in the Donbas region, and Russian media has downplayed the likelihood of a meeting.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Capital’s International Equity ADR Composite posted a total return of 2.22% gross of fees (2.09% net of fees), underperforming the MSCI EAFE Index, which returned 4.77%, and the MSCI ACWI ex USA Index, which returned 6.89%. Please refer to the table below for detailed performance.

Performance (%)	3Q25	YTD	1 Years	3 Years	5 Years	10 Years	Since Inception*
International Equity ADR Composite (gross)	2.22	17.18	8.68	19.37	11.18	8.65	7.26
International Equity ADR Composite (net)	2.09	16.75	8.14	18.79	10.63	8.11	6.73
MSCI EAFE Index (net)	4.77	25.14	14.99	21.70	11.15	8.17	6.78
MSCI ACWI ex USA Index (net)	6.89	26.02	16.45	20.67	10.26	8.23	6.35

MonotaRO, the Japanese business-to-business (B2B) e-commerce platform, was the largest detractor during the quarter. The company—which enables customers to source millions of maintenance, repair and operations (MRO) products through a centralized digital interface—reported a deceleration in sales growth, prompting downward revisions to full-year targets. Results were impacted by weaker-than-expected demand from industrial end markets, and we believe some of the share price weakness also reflected profit-taking following strong performance in prior periods. From our perspective, these short-term dynamics do not alter the structural advantages of MonotaRO’s business model. The company continues to gain traction with large enterprise customers, who now represent over 30% of sales. These clients typically have higher lifetime value and are more likely to adopt MonotaRO’s value-added services, such as purchase management systems, which enhance customer retention and deepen relationships. Importantly, we believe MonotaRO’s value proposition lies in convenience, execution and product curation—qualities that are difficult to replicate in Japan’s fragmented MRO market. With a high-margin, asset-light model, a scalable platform and a long runway to expand share across businesses of all sizes, we continue to view MonotaRO as a high-quality, competitively advantaged business.

Accenture, the global IT consultancy, was one of the largest detractors. The company’s operations are split roughly evenly between Consulting and Managed Services (outsourcing). While Accenture’s strategic pivot to AI in 2023 has driven a rapid increase in AI-related revenue and bookings (nearly doubling to $5.9 billion in fiscal 2025), investors have grown increasingly concerned about the longer-term impact of AI on its outsourcing business—revenue heavily reliant on billable hours. Moreover, the U.S. government’s DOGE initiative created a headwind, as federal contracts have historically represented about 8% of Accenture’s revenue. Despite these challenges, Accenture continues to grow, albeit at a below-normal rate in the recent period, while simultaneously investing in its workforce—now employing roughly 77,000 AI and data specialists, about 10% of its global staff—and returning billions of dollars to shareholders through double-digit increases in both dividends (+10% year-over-year) and share buybacks (+15%). While we acknowledge that market concerns about AI’s disruptive potential warrant consideration, we believe Accenture shares have been excessively punished (valuations are at 10-year lows). The stock has retreated to mid-2020 levels, even though earnings per share and FREE cash flow are more than 50% and 40% higher, respectively, than they were at that time.

Credicorp, the largest bank in Peru, was a leading contributor during the quarter. Results exceeded expectations, supported by robust loan growth—particularly in microfinance and retail segments—stable asset quality and disciplined cost management, even as Peru’s central bank cut rates. From our perspective, these outcomes represent the strength of a well-executed long-term strategy. Credicorp’s multi-pronged platform—anchored in banking, insurance and wealth management—offers durable advantages in an underpenetrated financial system. Its leading positions in microfinance (via Mibanco), pension fund management and investment advisory foster lasting customer relationships and recurring revenue through multi-product engagement. The company is also prudently expanding its digital ecosystem, enhancing efficiency and broadening access across income levels. Importantly, even amid macroeconomic uncertainty, management has consistently prioritized long-term value over volume, allocating capital conservatively and maintaining disciplined underwriting. We believe this enduring combination of diversification, market leadership and risk-aware culture supports our conviction in Credicorp as a resilient business with the ability to compound value over time.

Erste Group Bank, a leading retail and commercial bank in Central and Eastern Europe, was a primary contributor during the quarter. Shares rose following strong results, supported by healthy loan growth, stable deposits and solid fee income. Looking beyond near-term performance, Erste announced its intent to acquire a significant stake in Santander Bank Polska, one of Poland’s largest banks. This transaction would expand Erste’s geographic footprint into a structurally attractive market, adding scale and diversification while providing exposure to one of the fastest-growing economies in the region. As a retail-oriented bank with meaningful exposure to underbanked populations across Central and Eastern Europe, we believe Erste is well positioned to benefit as Central and Eastern economies grow, cross key income thresholds, and drive increasing demand for financial services. In addition, we believe ongoing cost efficiencies—particularly through increased use of technology—should further improve profitability. 

Recent Portfolio Activity

Buys	Sells
Wal-Mart de Mexico	None

During the quarter, we invested in Wal-Mart de Mexico.

Wal-Mart de Mexico SAB de CV

Founded in 1952 and headquartered in Mexico City, Wal-Mart de Mexico (Walmex) is the largest retailer in Mexico and Central America and a key subsidiary of Walmart Inc., which retains a majority ownership stake. Walmex operates more than 3,800 stores across multiple formats—Bodega Aurrerá (discount stores and the company’s fastest-growing format), Walmart Supercenter (big-box retail), Sam’s Club (membership warehouse), Walmart Express (small supermarkets) and other discount outlets—giving it a uniquely diversified presence across the consumer landscape.

This multi-format approach serves a wide spectrum of customers and shopping occasions—from everyday essentials and large family baskets to convenience and premium purchases. Bodega Aurrerá, for example, has become a household name across Mexico and now represents roughly half of the company’s stores, while Sam’s Club caters to membership customers seeking bulk purchases and higher-ticket items. Together, these formats provide Walmex broad market coverage, geographic reach and strong brand loyalty across urban centers, suburban communities and regional towns.

In recent years, the company has significantly expanded its omnichannel ecosystem, investing in e-commerce, logistics and digital services to enhance convenience and deepen customer engagement. E-commerce is ~8% of total sales, supported by strong growth in online grocery and third-party marketplace offerings. Complementary platforms, such as Cashi (digital payments), BAIT (mobile telecom) and Walmart Connect (digital advertising), extend Walmex’s reach into financial and digital services, strengthening customer ties and building new revenue streams.

High-Quality Business

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

• Dominant scale advantages with over 3,000 stores in Mexico, making it the clear market leader in food and general merchandise retail;
• Diversified and resilient revenue base, with a meaningful percentage of sales from grocery—providing recurring traffic and stable cash flow—complemented by general merchandise, fuel, pharmacy and membership-based services;
• Strong returns on invested capital (~18%) supported by consistent execution and capital discipline; and 
• Support from Walmart Inc., which provides access to global best practices, digital tools and procurement efficiencies. 

Attractive Valuation

We believe Walmex shares are attractively valued relative to its long-term normalized earnings power. In our view, the market underappreciates the company’s ability to grow revenue through ongoing store expansion and strengthen margins and FREE cash flow generation through efficiency gains, scale benefits and continued growth in higher-margin channels, such as private label and e-commerce.

Compelling Catalysts

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

• Expansion of private label penetration (from mid-teens to mid-20s), which should improve profitability and customer loyalty;
• Further development of the e-commerce platform, with Walmex aiming to become a one-stop shop by combining online grocery and a third-party marketplace, supported by digital tools adapted from Walmart U.S.;
• Disciplined store expansion, with current plans to add approximately 1,500 new stores across Mexico and Central America over the next five years, extending reach and scale advantages; and
• Leadership continuity, as newly appointed interim CEO Cristian Barrientos, a veteran Walmart executive with more than 25 years of experience, provides operational stability and maintains focus on profitable growth during the leadership transition.

Conclusion

A core tenet of our investment philosophy is the commitment to understanding businesses with a long-term perspective. This discipline is especially critical during periods of heightened uncertainty, when macroeconomic events can dominate headlines. At Aristotle Capital, we believe one of the distinguishing strengths of our investment process is that we do not reactively reposition portfolios based on near-term developments. Instead, we maintain our focus on business fundamentals. We are convinced that it is fundamentals that ultimately drive long-term shareholder value. As such, we continue to attentively study what we believe are high quality companies with sustainable competitive advantages poised to unlock value over full market cycles.

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

Markets Review

Beyond trade distortions, domestic demand remained steady, supported by consumer spending. However, the labor market showed signs of cooling: job gains slowed in August, and the unemployment rate—while remaining historically low—increased slightly to 4.3%. Consumer confidence weakened sequentially and year-over-year, yet spending resilience suggests households continue to lean on wage growth and accumulated savings.

Inflation data added to the complexity. The Consumer Price Index (CPI) edged higher, keeping inflation above the Federal Reserve’s 2% target. With a combination of still-elevated inflation, softer employment data and rising macroeconomic uncertainty, the FOMC reduced the federal funds rate by 0.25%, bringing the range to 4.00%-4.25%. Policymakers emphasized flexibility, underscoring their “data-dependent” approach amid competing signals.

While uncertainty remained a theme in the Fed’s recent statements, trade-related concerns eased somewhat as the White House announced progress on multiple agreements. In Europe, the U.S. and EU reached a deal under which the EU agreed to pay the U.S. a 15% tariff rate, committed to purchase $750 billion in U.S. energy and pledged $600 billion in new U.S. investments by 2028. Japan also agreed to a baseline 15% tariff on nearly all Japanese imports and committed to purchasing $8 billion annually in U.S. agricultural goods. Even relations with China steadied as President Trump extended the suspension of higher tariffs until November, while U.S. lawmakers visited the country for the first time since 2019.

However, some trade tensions persisted. The Trump Administration announced an additional 25% tariff on Indian imports in response to continued Russian oil purchases, a move that brought Russia, China and India into closer alignment. President Trump also imposed an additional 40% tariff on Brazil as he accused the country of coercing U.S companies to censor speech and turn over sensitive U.S. user data. Meanwhile, in a divided ruling, a U.S. appeals court raised questions about the legal basis for certain tariffs but stayed its order, keeping the measures in effect through mid-October while appeals proceed. The Supreme Court will hear the case on November 5, with the outcome potentially clarifying the scope of executive authority on trade policy.

Corporate America, however, showed resilience. S&P 500 companies reported earnings growth of 11.7% year-over-year, marking the third straight quarter of double-digit expansion. Importantly, over 80% of companies exceeded EPS estimates, despite more than 340 firms citing tariff-related headwinds in their commentary. Earnings strength was broad-based, led by Communication Services, Information Technology and Financials, highlighting the adaptability of U.S. firms even in a volatile trade and policy environment.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Capital’s Global Equity WM Composite posted a total return of 4.81% pure gross of fees (4.30% net of fees), underperforming the MSCI ACWI Index, which returned 7.62%, and the MSCI World Index, which returned 7.27%. Please refer to the table below for detailed performance.

Performance (%)	3Q25	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
Global Equity WM Composite (pure gross)	4.81	16.77	8.17	18.13	11.43	11.77	10.35
Global Equity WM Composite (net)	4.30	15.07	6.06	15.82	9.23	9.56	8.16
MSCI ACWI Index (net)	7.62	18.44	17.27	23.12	13.54	11.91	10.21
MSCI World Index (net)	7.21	17.43	17.25	23.72	14.41	12.43	11.05

MonotaRO, the Japanese business-to-business (B2B) e-commerce platform, was the largest detractor during the quarter. The company—which enables customers to source millions of maintenance, repair and operations (MRO) products through a centralized digital interface—reported a deceleration in sales growth, prompting downward revisions to full-year targets. Results were impacted by weaker-than-expected demand from industrial end markets, and we believe some of the share price weakness also reflected profit-taking following strong performance in prior periods. From our perspective, these short-term dynamics do not alter the structural advantages of MonotaRO’s business model. The company continues to gain traction with large enterprise customers, who now represent over 30% of sales. These clients typically have higher lifetime value and are more likely to adopt MonotaRO’s value-added services, such as purchase management systems, which enhance customer retention and deepen relationships. Importantly, we believe MonotaRO’s value proposition lies in convenience, execution and product curation—qualities that are difficult to replicate in Japan’s fragmented MRO market. With a high-margin, asset-light model, a scalable platform and a long runway to expand share across businesses of all sizes, we continue to view MonotaRO as a high-quality, competitively advantaged business.

Nemetschek, a leading global provider of software solutions for the architecture, engineering, construction (AEC) and building operations industry, was a detractor during the period. The company continues to span the entire project lifecycle, with about 66% recurring revenue and a dominant 50% market share in Europe. Its competitive advantage is underpinned by approximately 23% of sales reinvested in R&D and a loyal user base. Third quarter underperformance reflected what we view as temporary headwinds: an accounting-driven revenue pull-forward from multi-year contracts, soft demand in German-speaking markets for design software, and a one-off charge related to an insolvent payment provider. Encouragingly, underlying fundamentals and drivers remain strong. Second quarter revenue grew 30.5% year-over-year, with annual recurring revenue up 39% and subscription/Software as a Service (SaaS) sales jumping about 67%, while the Build segment (Bluebeam, GoCanvas) also delivered standout growth. We remain confident in long-term catalysts, including Nemetschek’s transition from perpetual licenses to subscription/SaaS, accelerating Building Information Modeling adoption in construction (i.e., creating a digital twin for architects, engineers, contractors and owners to collaborate in real time), expansion into the U.S. and Asia, and bundling of its 15 brands. These drivers, combined with strong execution and market leadership, support our conviction in Nemetschek’s long-term FREE cash flow trajectory.

Pawn shop operator FirstCash was the top contributor during the quarter. FirstCash holds a dominant position in the pawn lending industry (operating about 3,300 stores, about 2.5x the footprint of its nearest competitor) and benefits from a customer base where about 75% are recurring, which together underpin a high-quality, defensive business model. Pawn loans are small, fully collateralized and non-recourse, operating under stable regulations, resulting in low credit losses and minimal regulatory risk. This model has proven resilient through economic cycles—for example, U.S. pawn loan balances grew roughly 50% during the last cyclical downturn (2007-2012). Key catalysts are also playing out: FirstCash continues to expand in Latin America amid favorable demographic tailwinds, and in August it entered the U.K. by acquiring H&T Group (286 stores), adding significant scale and geographic diversification. These strategic moves contributed to strong results, with earnings up 31% year-over-year, adjusted EBITDA up 19% and same-store pawn receivables up 13% in local currency. The company remains highly cash generative with a conservative, underleveraged balance sheet and low regulatory headwinds, reinforcing its ability to grow through cycles while delivering steady shareholder returns.

Aggregates producer Martin Marietta Materials was a top contributor for the period. Strong results were driven by continued pricing strength in aggregates—reflected in a 7.4% year-over-year increase in average selling price—and management’s decision to raise full-year guidance. The company continued its transition toward a higher-margin, aggregate-led model, exemplified by its decision to exit Texas cement operations through a recent asset exchange with Quikrete Holdings. With operations concentrated in structurally advantaged markets such as Texas and the Carolinas—regions benefiting from population growth, data center expansion, energy projects and semiconductor investment—Martin Marietta remains well-positioned for long-term demand. As the largest shipper of crushed stone by rail, the company has a scale-driven cost and distribution advantage that is difficult to replicate. In our view, consistent price increases, conservative capital allocation and focus on critical infrastructure end markets make Martin Marietta a resilient, long-duration holding.

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

A core tenet of our investment philosophy is the commitment to understanding businesses with a long-term perspective. This discipline is especially critical during periods of heightened uncertainty, when macroeconomic events can dominate headlines. At Aristotle Capital, we believe one of the distinguishing strengths of our investment process is that we do not reactively reposition portfolios based on near-term developments. Instead, we maintain our focus on business fundamentals. We are convinced that it is fundamentals that ultimately drive long-term shareholder value. As such, we continue to attentively study what we believe are high-quality companies with sustainable competitive advantages poised to unlock value over full market cycles.

Markets Review

The U.S. equity market continued to climb in the third quarter, with the S&P 500 Index rising 8.12% during the period. Concurrently, bonds also finished higher, as the Bloomberg U.S. Aggregate Bond Index increased 2.03%.

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.

On a sector basis, positive returns were led by seven of the eleven sectors within the Russell 1000 Growth Index in the third quarter of 2025. The strongest sectors were Information Technology and Communication Services. The weakest sectors were Real Estate and Consumer Staples.

The U.S. economy rebounded, as real GDP increased by an annual rate of 3.8% in the second quarter, reversing the contraction in the prior quarter—the first in three years. While the headline growth was encouraging, economists caution that the underlying picture may be less robust than it appears. Much of the rebound stemmed from a decline in imports, which the U.S. Bureau of Economic Analysis attributes to the unwinding of a tariff-driven import surge earlier in the year. In effect, lower imports mechanically boosted net exports, temporarily inflating growth figures.

Beyond trade distortions, domestic demand remained steady, supported by consumer spending. However, the labor market showed signs of cooling: job gains slowed in August, and the unemployment rate—while remaining historically low—increased slightly to 4.3%. Consumer confidence weakened sequentially and year-over-year, yet spending resilience suggests households continue to lean on wage growth and accumulated savings.

Inflation data added to the complexity. The Consumer Price Index (CPI) edged higher, keeping inflation above the Federal Reserve’s 2% target. With a combination of still-elevated inflation, softer employment data and rising macroeconomic uncertainty, the FOMC reduced the federal funds rate by 0.25%, bringing the range to 4.00%-4.25%. Policymakers emphasized flexibility, underscoring their “data-dependent” approach amid competing signals.

While uncertainty remained a theme in the Fed’s recent statements, trade-related concerns eased somewhat as the White House announced progress on multiple agreements. In Europe, the U.S. and EU reached a deal under which the EU agreed to pay the U.S. a 15% tariff rate, committed to purchase $750 billion in U.S. energy and pledged $600 billion in new U.S. investments by 2028. Japan also agreed to a baseline 15% tariff on nearly all Japanese imports and committed to purchasing $8 billion annually in U.S. agricultural goods. Even relations with China steadied as President Trump extended the suspension of higher tariffs until November, while U.S. lawmakers visited the country for the first time since 2019.

However, some trade tensions persisted. The Trump Administration announced an additional 25% tariff on Indian imports in response to continued Russian oil purchases, a move that brought Russia, China and India into closer alignment. President Trump also imposed an additional 40% tariff on Brazil as he accused the country of coercing U.S companies to censor speech and turn over sensitive U.S. user data. Meanwhile, in a divided ruling, a U.S. appeals court raised questions about the legal basis for certain tariffs but stayed its order, keeping the measures in effect through mid-October while appeals proceed. The Supreme Court will hear the case on November 5, with the outcome potentially clarifying the scope of executive authority on trade policy.e 2019.

Corporate America, however, showed resilience. S&P 500 companies reported earnings growth of 11.7% year-over-year, marking the third straight quarter of double-digit expansion. Importantly, over 80% of companies exceeded EPS estimates, despite more than 340 firms citing tariff-related headwinds in their commentary. Earnings strength was broad-based, led by Communication Services, Information Technology and Financials, highlighting the adaptability of U.S. firms even in a volatile trade and policy environment.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Atlantic’s Focus Growth Composite posted a total return of 8.75% gross of fees (8.73% net of fees), underperforming the 10.51% total return of the Russell 1000 Growth Index.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	Since Inception*
Focus Growth Composite (gross)	8.75	17.16	23.08	28.88	13.48	15.71
Focus Growth Composite (net)	8.73	17.08	22.96	28.76	13.37	15.49
Russell 1000 Growth Index	10.51	17.24	25.53	31.61	17.58	18.40

Sources: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees. Please see important disclosures at the end of this document.

During the third quarter, the portfolio’s underperformance relative to the Russell 1000 Growth Index was due to a mix of security selection and allocation effects. Security selection in Information Technology and Financials detracted the most from relative returns. Conversely, security selection in Health Care and Real Estate contributed the most.

Contributors and Detractors for 3Q 2025

Relative Contributors	Relative Detractors
Oracle	S&P Global
Adaptive Biotechnologies	Visa
Broadcom	Trane Technologies
Guardant Health	Netflix
Alphabet	Costco Wholesale

Detractors

S&P Global

S&P Global detracted from performance in the third quarter as mixed trends highlighted in the company’s second quarter earnings report tempered an otherwise solid outlook. Ratings transaction revenue declined amid softer demand for bank-loan and structured-finance issuance, while ongoing caution around market volatility weighed on sentiment. Although strength in Indices, Market Intelligence, and Global Trading Services supported growth, uneven segment performance created near-term headwinds for the shares.

Visa

Visa detracted from performance in the third quarter as concerns about slowing growth overshadowed solid second quarter operating results. Despite revenue and EPS exceeding consensus expectations, management maintained only modest full-year guidance and signaled softer fourth quarter trends, reinforcing worries of decelerating momentum.

Contributors

Oracle

Oracle contributed to performance in the third quarter due to its transformative growth in cloud infrastructure, with management announcing that Oracle Cloud Infrastructure (OCI) revenue would grow this fiscal year and then increase through fiscal 2030. The stock surged following the closure of multiple multi-billion-dollar deals, including the $30 billion Stargate contract with OpenAI. Additionally, remaining performance obligation (RPO) growth reached 359%, providing investors with greater visibility into future revenue streams.

Adaptive Biotechnologies

Adaptive Biotechnologies contributed to performance in the third quarter as momentum continued in its minimal residual disease (MRD) testing business, anchored by its flagship clonoSEQ test for MRD in several hematological cancers. During the quarter, the company reported better-than-expected earnings and raised full-year guidance. Average selling price (ASP) increases are complementing accelerating volume growth.

Recent Portfolio Activity

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

Buys	Sells
Shopify	Adobe

Buys

Shopify

Shopify is a global commerce technology company that empowers businesses of all sizes to start, scale, market, and operate efficiently through a comprehensive, multi-channel platform. The company’s focus is to make commerce better for everyone by providing simple, reliable tools and services that enhance the shopping experience for consumers and streamline operations for merchants. Shopify’s business model includes recurring subscription solutions and merchant success-based solutions, supporting millions of merchants across more than 175 countries. The platform enables seamless management of products, sales, and customer relationships across online, physical, and social channels, with a focus on continuous innovation and robust infrastructure to help merchants thrive in a competitive market.

We see Shopify as the dominant force in e-commerce enablement, benefiting from the secular shift toward online retail and the growing ecosystem of merchants seeking direct-to-consumer channels, consistently gaining market share as competitors lose ground. We think the company’s financial momentum is robust, with revenue growth accelerating and record gross merchandise volume, while structural profitability and strong free cash flow illustrate its scalable model. Shopify’s expanding suite of merchant solutions deepens customer engagement and increases revenue per merchant over time. International expansion is a key driver, with global revenue and gross merchandise value (GMV) outpacing North America and local competitors. We also see high customer retention fueled by integrated merchant services that create significant switching costs, supporting long-term platform stickiness. Shopify’s aggressive investment in AI—through features like Shopify Magic, Sidekick, and strategic partnerships—powers innovation and personalized shopping experiences. The platform’s extensive merchant base and thriving app ecosystem reinforce its competitive moat, making Shopify a flexible and difficult-to-replicate “commerce OS (Operating System)” for millions of businesses worldwide. We recognize that the stock trades at a premium to SaaS peers but view the company’s acceleration in revenue growth from increasing market share in both North America and international markets, a widening competitive moat, and increasing profitability through higher revenue per customer as supportive of the premium valuation.

Sells

Adobe

We sold Adobe and believe that competition relative to the company’s creative product suite offerings from AI startups and hyperscalers continues to increase. We believe these competitive threats will continue to pressure seats and pricing initiatives and don’t believe that Adobe’s own AI product offerings will be able to increase monetization fast enough, creating a risk to the company’s Digital Media Annualized Recurring Revenue (ARR) growth rates.

Outlook

The equity markets in the third quarter rose to new highs on the back of multiple expansion and higher earnings. Interest rates declined slightly in the quarter, with the prospect of further easing as the Fed lowers rates. There is still uncertainty around the impact of tariffs as inventories are worked off and price hikes filter through the inflation data. The markets are trading at the upper end of historical valuation levels and will need a combination of lower rates and higher corporate profits to achieve new highs. The economic data was mixed in the quarter, with inflation data largely in line with expectations but employment showing signs of weakening. A strong technology investment cycle, lower interest rates and growing corporate profits should continue to support higher equity prices. 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.

Markets Review

The U.S. equity market continued to climb in the third quarter, with the S&P 500 Index rising 8.12% during the period. Concurrently, bonds also finished higher, as the Bloomberg U.S. Aggregate Bond Index increased 2.03%.

On a sector basis, positive returns were led by seven of the eleven sectors within the Russell 1000 Growth Index in the third quarter of 2025. The strongest sectors were Information Technology and Communication Services. The weakest sectors were Real Estate and Consumer Staples.

The U.S. economy rebounded, as real GDP increased by an annual rate of 3.8% in the second quarter, reversing the contraction in the prior quarter—the first in three years. While the headline growth was encouraging, economists caution that the underlying picture may be less robust than it appears. Much of the rebound stemmed from a decline in imports, which the U.S. Bureau of Economic Analysis attributes to the unwinding of a tariff-driven import surge earlier in the year. In effect, lower imports mechanically boosted net exports, temporarily inflating growth figures.

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.

Beyond trade distortions, domestic demand remained steady, supported by consumer spending. However, the labor market showed signs of cooling: job gains slowed in August, and the unemployment rate—while remaining historically low—increased slightly to 4.3%. Consumer confidence weakened sequentially and year-over-year, yet spending resilience suggests households continue to lean on wage growth and accumulated savings.

Inflation data added to the complexity. The Consumer Price Index (CPI) edged higher, keeping inflation above the Federal Reserve’s 2% target. With a combination of still-elevated inflation, softer employment data and rising macroeconomic uncertainty, the FOMC reduced the federal funds rate by 0.25%, bringing the range to 4.00%-4.25%. Policymakers emphasized flexibility, underscoring their “data-dependent” approach amid competing signals.

While uncertainty remained a theme in the Fed’s recent statements, trade-related concerns eased somewhat as the White House announced progress on multiple agreements. In Europe, the U.S. and EU reached a deal under which the EU agreed to pay the U.S. a 15% tariff rate, committed to purchase $750 billion in U.S. energy and pledged $600 billion in new U.S. investments by 2028. Japan also agreed to a baseline 15% tariff on nearly all Japanese imports and committed to purchasing $8 billion annually in U.S. agricultural goods. Even relations with China steadied as President Trump extended the suspension of higher tariffs until November, while U.S. lawmakers visited the country for the first time since 2019.

However, some trade tensions persisted. The Trump Administration announced an additional 25% tariff on Indian imports in response to continued Russian oil purchases, a move that brought Russia, China and India into closer alignment. President Trump also imposed an additional 40% tariff on Brazil as he accused the country of coercing U.S companies to censor speech and turn over sensitive U.S. user data. Meanwhile, in a divided ruling, a U.S. appeals court raised questions about the legal basis for certain tariffs but stayed its order, keeping the measures in effect through mid-October while appeals proceed. The Supreme Court will hear the case on November 5, with the outcome potentially clarifying the scope of executive authority on trade policy.

Corporate America, however, showed resilience. S&P 500 companies reported earnings growth of 11.7% year-over-year, marking the third straight quarter of double-digit expansion. Importantly, over 80% of companies exceeded EPS estimates, despite more than 340 firms citing tariff-related headwinds in their commentary. Earnings strength was broad-based, led by Communication Services, Information Technology and Financials, highlighting the adaptability of U.S. firms even in a volatile trade and policy environment.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Atlantic’s Large Cap Growth Composite posted a total return of 9.76% gross of fees (9.61% net of fees), underperforming the 10.51% return of the Russell 1000 Growth Index.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	Since Inception*
Large Cap Growth Composite (gross)	9.76	17.77	25.18	28.45	14.25	18.44
Large Cap Growth Composite (net)	9.61	17.26	24.48	27.81	13.74	17.94
Russell 1000 Growth Index	10.51	17.24	25.53	31.61	17.58	19.93

Sources: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees. Please see important disclosures at the end of this document.

During the third quarter, the portfolio’s underperformance relative to the Russell 1000 Growth Index was due to security selection. Security selection in Information Technology and Consumer Discretionary detracted the most from relative performance. Conversely, security selection in Health Care and Industrials contributed to relative performance.

Contributors and Detractors for 3Q 2025

Relative Contributors	Relative Detractors
Adaptive Biotechnologies	Tesla
Oracle	Visa
KLA Corporation	Amazon
Guardant Health	Darling Ingredients
O’Reilly Automotive	Apple

Detractors

Tesla

Tesla detracted from performance in the third quarter. The strategy’s underweight relative to the benchmark was the reason for the negative impact on relative return, as the stock performed well in third quarter. In late July Tesla reported a 23% decline in earnings for the second quarter of 2025 which was worse than consensus estimates. While the CEO had previously forecasted difficult future quarters, third quarter sales of electric vehicles were better than expected as consumers took advantage of tax credits that expired on September 30th. Despite three years of deteriorating fundamentals in the auto business, the narrative on the investment in Tesla has shifted to the expected widespread adoption of robotaxis and the launch of a humanoid robotics company in the future.

Visa

Visa detracted from performance in the third quarter as concerns about slowing growth overshadowed solid second quarter operating results. Despite revenue and EPS exceeding consensus expectations, management maintained only modest full-year guidance and signaled softer fourth-quarter trends, reinforcing worries of decelerating momentum.

Contributors

Adaptive Biotechnologies

Adaptive Biotechnologies contributed to performance in the third quarter as momentum continued in its minimal residual disease (MRD) testing business, anchored by its flagship clonoSEQ test for MRD in several hematological cancers. During the quarter, the company reported better-than-expected earnings and raised full-year guidance. Average selling price (ASP) increases are complementing accelerating volume growth.

Oracle

Oracle contributed to performance in the third quarter due to its transformative growth in cloud infrastructure, with management announcing that Oracle Cloud Infrastructure (OCI) revenue would grow this fiscal year and then increase through fiscal 2030. The stock surged following the closure of multiple multi-billion-dollar deals, including the $30 billion Stargate contract with OpenAI. Additionally, remaining performance obligation (RPO) growth reached 359%, providing investors with greater visibility into future revenue streams.

Recent Portfolio Activity

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

Buys	Sells
Coinbase Global	Adobe
Shopify

Buys

Coinbase Global

Coinbase Global was founded in 2012 and is the leading U.S. cryptocurrency exchange and infrastructure provider. With over $425 billion in assets across its platform, the company supports trading in more than 250 cryptocurrencies, catering to retail investors, institutions and fintech developers through a diversified cryptocurrency product and service platform. Coinbase operates as a remote-first (no physical headquarters) entity with a focus on regulatory compliance, strong cybersecurity and proactive regulatory engagement, differentiating it within the cryptocurrency ecosystem.

We see Coinbase as the dominant player in the U.S. cryptocurrency market, holding over 65% of the trading volume share due to its strong commitment to compliance, security, and customer trust. The company’s expansion into derivatives and international markets, including the acquisition of Deribit, positions it as a leading global crypto derivatives provider. Coinbase’s diversified business model, which includes transaction-based activities and subscription-based offerings, is shifting towards more predictable revenue streams. The recent passage of the GENIUS Act and the anticipated CLARITY Act are expected to provide regulatory clarity, boosting institutional adoption and trading volumes. Additionally, Coinbase’s unique infrastructure and partnerships with traditional finance institutions enable it to monetize the comprehensive cryptocurrency value chain. The company trades at a modest premium to traditional exchange peers. We view this premium as justified by the company’s dominant U.S. market position, scalable crypto infrastructure and ongoing shift toward recurring revenue streams, supported by strong secular tailwinds and upcoming catalysts, while reflecting competitive and regulatory risks.

Shopify

Shopify is a global commerce technology company that empowers businesses of all sizes to start, scale, market, and operate efficiently through a comprehensive, multi-channel platform. The company’s focus is to make commerce better for everyone by providing simple, reliable tools and services that enhance the shopping experience for consumers and streamline operations for merchants. Shopify’s business model includes recurring subscription solutions and merchant success-based solutions, supporting millions of merchants across more than 175 countries. The platform enables seamless management of products, sales, and customer relationships across online, physical, and social channels, with a focus on continuous innovation and robust infrastructure to help merchants thrive in a competitive market.

We see Shopify as the dominant force in e-commerce enablement, benefiting from the secular shift toward online retail and the growing ecosystem of merchants seeking direct-to-consumer channels, consistently gaining market share as competitors lose ground. We think the company’s financial momentum is robust, with revenue growth accelerating and record gross merchandise volume, while structural profitability and strong free cash flow illustrate its scalable model. Shopify’s expanding suite of merchant solutions deepens customer engagement and increases revenue per merchant over time. International expansion is a key driver, with global revenue and gross merchandise value (GMV) outpacing North America and local competitors. We also see high customer retention fueled by integrated merchant services that create significant switching costs, supporting long-term platform stickiness. Shopify’s aggressive investment in AI—through features like Shopify Magic, Sidekick, and strategic partnerships—powers innovation and personalized shopping experiences. The platform’s extensive merchant base and thriving app ecosystem reinforce its competitive moat, making Shopify a flexible and difficult-to-replicate “commerce OS (Operating System)” for millions of businesses worldwide. We recognize that the stock trades at a premium to SaaS peers but view the company’s acceleration in revenue growth from increasing market share in both North America and international markets, a widening competitive moat, and increasing profitability through higher revenue per customer as supportive of the premium valuation.

Sells

Adobe

We sold Adobe and believe that competition relative to the company’s creative product suite offerings from AI startups and hyperscalers continues to increase. We believe these competitive threats will continue to pressure seats and pricing initiatives and don’t believe that Adobe’s own AI product offerings will be able to increase monetization fast enough, creating a risk to the company’s Digital Media Annualized Recurring Revenue (ARR) growth rates.

Outlook

The equity markets in the third quarter rose to new highs on the back of multiple expansion and higher earnings. Interest rates declined slightly in the quarter, with the prospect of further easing as the Fed lowers rates. There is still uncertainty around the impact of tariffs as inventories are worked off and price hikes filter through the inflation data. The markets are trading at the upper end of historical valuation levels and will need a combination of lower rates and higher corporate profits to achieve new highs. The economic data was mixed in the quarter, with inflation data largely in line with expectations but employment showing signs of weakening. A strong technology investment cycle, lower interest rates and growing corporate profits should continue to support higher equity prices. 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.

Markets Review

The U.S. equity market continued to climb in the third quarter, with the S&P 500 Index rising 8.12% during the period. Concurrently, bonds also finished higher, as the Bloomberg U.S. Aggregate Bond Index increased 2.03%.

On a sector basis, positive returns were led by ten of the eleven sectors within the S&P 500 Index in the third quarter of 2025. The best-performing sectors were Information Technology and Communication Services. The weakest sectors were Consumer Staples and Real Estate.

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.

The U.S. economy rebounded, as real GDP increased by an annual rate of 3.8% in the second quarter, reversing the contraction in the prior quarter—the first in three years. While the headline growth was encouraging, economists caution that the underlying picture may be less robust than it appears. Much of the rebound stemmed from a decline in imports, which the U.S. Bureau of Economic Analysis attributes to the unwinding of a tariff-driven import surge earlier in the year. In effect, lower imports mechanically boosted net exports, temporarily inflating growth figures.

Beyond trade distortions, domestic demand remained steady, supported by consumer spending. However, the labor market showed signs of cooling: job gains slowed in August, and the unemployment rate—while remaining historically low—increased slightly to 4.3%. Consumer confidence weakened sequentially and year-over-year, yet spending resilience suggests households continue to lean on wage growth and accumulated savings.

Inflation data added to the complexity. The Consumer Price Index (CPI) edged higher, keeping inflation above the Federal Reserve’s 2% target. With a combination of still-elevated inflation, softer employment data and rising macroeconomic uncertainty, the FOMC reduced the federal funds rate by 0.25%, bringing the range to 4.00%-4.25%. Policymakers emphasized flexibility, underscoring their “data-dependent” approach amid competing signals.

While uncertainty remained a theme in the Fed’s recent statements, trade-related concerns eased somewhat as the White House announced progress on multiple agreements. In Europe, the U.S. and EU reached a deal under which the EU agreed to pay the U.S. a 15% tariff rate, committed to purchase $750 billion in U.S. energy and pledged $600 billion in new U.S. investments by 2028. Japan also agreed to a baseline 15% tariff on nearly all Japanese imports and committed to purchasing $8 billion annually in U.S. agricultural goods. Even relations with China steadied as President Trump extended the suspension of higher tariffs until November, while U.S. lawmakers visited the country for the first time since 2019.

However, some trade tensions persisted. The Trump Administration announced an additional 25% tariff on Indian imports in response to continued Russian oil purchases, a move that brought Russia, China and India into closer alignment. President Trump also imposed an additional 40% tariff on Brazil as he accused the country of coercing U.S companies to censor speech and turn over sensitive U.S. user data. Meanwhile, in a divided ruling, a U.S. appeals court raised questions about the legal basis for certain tariffs but stayed its order, keeping the measures in effect through mid-October while appeals proceed. The Supreme Court will hear the case on November 5, with the outcome potentially clarifying the scope of executive authority on trade policy.

Corporate America, however, showed resilience. S&P 500 companies reported earnings growth of 11.7% year-over-year, marking the third straight quarter of double-digit expansion. Importantly, over 80% of companies exceeded EPS estimates, despite more than 340 firms citing tariff-related headwinds in their commentary. Earnings strength was broad-based, led by Communication Services, Information Technology and Financials, highlighting the adaptability of U.S. firms even in a volatile trade and policy environment.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Atlantic’s Core Equity Composite posted a total return of 7.22% gross of fees (7.10% net of fees), underperforming the S&P 500 Index, which recorded a total return of 8.12%.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
Core Equity Composite (gross)	7.22	15.45	20.20	24.82	15.30	15.53	14.74
Core Equity Composite (net)	7.10	15.08	19.69	24.31	14.82	15.05	14.22
S&P 500 Index	8.12	14.83	17.60	24.94	16.47	15.30	14.05

Source: FactSet
Past performance is not indicative of future results. Sector attribution shows how much of a portfolio’s overall return is directly attributable to stock selection and asset allocation decisions within the portfolio, highlighting which sectors contributed or detracted to the total return. Attribution includes the reinvestment of income. Attribution is presented gross of fees and does not include the deduction of all fees and expenses that a client or investor has paid or would have paid. Please refer to the gross and net composite returns included within to understand the overall impact of fees. Please see important disclosures at the end of this document.

During the third quarter, the portfolio’s underperformance relative to the S&P 500 was due to security selection. Security selection in Financials and Consumer Staples detracted the most from relative performance. Conversely, security selection in Information Technology and Real Estate contributed to relative performance.

Contributors and Detractors for 3Q 2025

Relative Contributors	Relative Detractors
Oracle	Darling’s Ingredients
Adaptive Biotechnologies	Antero Resources
Broadcom	Dexcom
Guardant health	Ameriprise Financial
Alphabet	Intercontinental Exchange

Detractors

Darling Ingredients

Darling Ingredients detracted from performance in the third quarter as uncertainty around the timelines for the U.S. Environmental Protection Agency (EPA) finalizing the proposed Renewable Volume Obligations (RVOs) weighed on sentiment. In September, there was favorable news that the EPA was proposing to reallocate some of the credits forgiven under the Small Refinery Exemption (SRE), which could raise the ultimate RVOs into next year and thus enable a more favorable backdrop for margins on renewable diesel. We believe that 2025 has played out with positive catalysts for Darling; however, the lack of finalization of the proposals led to investors being in more of a wait-and-see mode.

Antero Resources

Antero Resources detracted from performance in the third quarter due to lower natural gas prices causing earnings volatility as a result of the company’s unhedged production profile. In addition, pipeline constraints and seasonal infrastructure limitations caused Antero’s gas realizations to trade at steep discounts to NYMEX benchmarks despite strong operational execution. The long-term outlook for natural gas demand continues to skew positively due to increasing demand for natural gas for AI data center power generation, as well as growing U.S. LNG export infrastructure.

Contributors

Oracle

Oracle contributed to performance in the third quarter due to its transformative growth in cloud infrastructure, with management announcing that Oracle Cloud Infrastructure (OCI) revenue would grow this fiscal year and then increase through fiscal 2030. The stock surged following the closure of multiple multi-billion-dollar deals, including the $30 billion Stargate contract with OpenAI. Additionally, remaining performance obligation (RPO) growth reached 359%, providing investors with greater visibility into future revenue streams.

Adaptive Biotechnologies

Adaptive Biotechnologies contributed to performance in the third quarter as momentum continued in its minimal residual disease (MRD) testing business, anchored by its flagship clonoSEQ test for MRD in several hematological cancers. During the quarter, the company reported better-than-expected earnings and raised full-year guidance. Average selling price (ASP) increases are complementing accelerating volume growth.

Recent Portfolio Activity

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

Buys	Sells
Dexcom	Becton, Dickinson and Company
Constellation Energy	ServiceNow
Baker Hughes	Halliburton

Buys

Dexcom

Dexcom is a medical device company specializing in continuous glucose monitoring (CGM) systems for diabetes management. Founded in 1999, the company has developed innovative technology, including a small implantable device that measures glucose levels in subcutaneous tissue and transmits data to an external receiver. The company’s products, such as the Dexcom G7 CGM system and the Stelo Glucose Biosensor, cater to both adults and children with type 1 or type 2 diabetes, as well as adults with prediabetes and type 2 diabetes who do not use insulin. Its products are marketed to healthcare professionals in the U.S. and select international markets, with the U.S. being its largest market.

Our investment case for Dexcom is compelling due to its strong financial health, including a clean balance sheet and robust free cash flow generation. The company is experiencing significant growth, with organic revenue increasing in fiscal 2025 and earnings growth projected to continue over the next several years. The company is expanding its market reach with the successful launch of Stelo, a CGM for non-diabetics, and the transition to the G7 system, which offers a longer sensor life. Additionally, Dexcom is targeting the large and growing non-intensive type 2 diabetes market and continues to benefit from positive reimbursement trends. Overall, we believe this medical device company is well-positioned to capitalize on the increasing prevalence of diabetes and the growing adoption of CGM technology.

Constellation Energy

Constellation Energy is the largest producer of carbon-free energy in the United States, operating the nation’s largest nuclear fleet alongside natural gas, geothermal, wind, solar and hydro assets. The company was spun off from Exelon in 2022 and serves over 2.5 million customers, generating revenue through a diversified mix of power generation and energy sales across regulated and deregulated power markets. The pending acquisition of Calpine will significantly expand its generation portfolio, combining 24/7 nuclear power with additional dispatchable gas capacity. Constellation is central to the U.S. energy transition and provides reliable, affordable and sustainable power critical to electrification, decarbonization and AI-driven data center growth.

We see Constellation well-positioned as a leading player in the energy sector, with excellent operational performance, strong cash flow generation and significant financial flexibility. The company benefits from favorable legislation like the One Big Beautiful Bill Act, which provides tax credits for nuclear energy and support for clean hydrogen. Additionally, the company is expanding its nuclear fleet at low cost, securing long-term power purchase agreements (PPAs) with major tech companies and enhancing its asset mix through strategic acquisitions. These factors collectively validate nuclear energy as a preferred clean power source for large-scale operations and data centers. The shares of Constellation trade at a modest premium to their historical average. We view this premium as justified by the company’s clean energy profile, long-duration PPAs with hyperscalers, strong cash flow generation and leverage to the ongoing structural shift in U.S. energy demand largely driven by electrification, decarbonization and digital infrastructure investment.

Baker Hughes

Baker Hughes is an energy technology firm with a diverse portfolio of technologies and services spanning the energy and industrial value chain. The company operates through two main segments: Industrial & Energy Technology (IET) and Oilfield Services & Equipment (OFSE). The IET segment offers a wide range of domain expertise, technologies, software and services for energy and industrial customers, including solutions for clean power, geothermal, hydrogen and emissions abatement. The OFSE segment designs and manufactures products and provides services for onshore and offshore oilfield operations, while also expanding its capabilities to address the energy transition.

We believe Baker Hughes is well-positioned to capitalize on the rising global demand for natural gas and LNG projects, benefiting from its LNG franchise and critical turbomachinery. The company is also improving its margins and cash flow conversion, with EBITDA margins projected to be high teens in 2025 and targeting ~20%+ over the next few years. Additionally, Baker Hughes is accelerating its AI data center power infrastructure buildout, leveraging its NovaLT series gas turbines. The company’s diversified business model, including its industrial technology arm, provides stable revenue streams. The acquisition of Chart Industries enhances its IET strategy, creating a comprehensive offering in high-growth areas. Lastly, Baker Hughes’ backlog provides multi-year revenue visibility. We believe that the current valuation is attractive based on accelerating growth opportunities from the company’s IET segment and the associated higher-margin aftermarket services business.

Sells

Becton, Dickinson and Company

We sold Becton Dickinson following weakness related to its recent fiscal earnings quarter, where results showed impact from cuts to certain programs funded by the National Institutes of Health (NIH). The company cut forward earnings and revenue guidance to reflect weakness in funding for biosciences research and development (R&D) and the expected impacts of tariffs. While Becton is attempting to divest its Biosciences and Diagnostic Solutions divisions, we are not confident that it will attain the best value given the cyclical downturn affecting these businesses. We believe it will take time for Becton to regain investor confidence and expand the company’s valuation.

ServiceNow

We sold ServiceNow and reduced our subsector overweight to Software, as we continue to see areas of risk from macroeconomic headwinds and seat-based spending pressure due to budgetary shifts within software spend to agentic AI and LLM-leveraged software.

Halliburton

We sold Halliburton to fund the investment in Baker Hughes. We believe that the company’s U.S. completion and pumping business will face longer-than-expected headwinds from declining U.S. onshore activity and pricing weakness.

Outlook

The equity markets in the third quarter rose to new highs on the back of multiple expansion and higher earnings. Interest rates declined slightly in the quarter, with the prospect of further easing as the Fed lowers rates. There is still uncertainty around the impact of tariffs as inventories are worked off and price hikes filter through the inflation data. The markets are trading at the upper end of historical valuation levels and will need a combination of lower rates and higher corporate profits to achieve new highs. The economic data was mixed in the quarter, with inflation data largely in line with expectations but employment showing signs of weakening. A strong technology investment cycle, lower interest rates and growing corporate profits should continue to support higher equity prices. 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.

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

Markets Review

Beyond trade distortions, domestic demand remained steady, supported by consumer spending. However, the labor market showed signs of cooling: job gains slowed in August, and the unemployment rate—while remaining historically low—increased slightly to 4.3%. Consumer confidence weakened sequentially and year-over-year, yet spending resilience suggests households continue to lean on wage growth and accumulated savings.

Inflation data added to the complexity. The Consumer Price Index (CPI) edged higher, keeping inflation above the Federal Reserve’s 2% target. With a combination of still-elevated inflation, softer employment data and rising macroeconomic uncertainty, the FOMC reduced the federal funds rate by 0.25%, bringing the range to 4.00%-4.25%. Policymakers emphasized flexibility, underscoring their “data-dependent” approach amid competing signals.

While uncertainty remained a theme in the Fed’s recent statements, trade-related concerns eased somewhat as the White House announced progress on multiple agreements. In Europe, the U.S. and EU reached a deal under which the EU agreed to pay the U.S. a 15% tariff rate, committed to purchase $750 billion in U.S. energy and pledged $600 billion in new U.S. investments by 2028. Japan also agreed to a baseline 15% tariff on nearly all Japanese imports and committed to purchasing $8 billion annually in U.S. agricultural goods. Even relations with China steadied as President Trump extended the suspension of higher tariffs until November, while U.S. lawmakers visited the country for the first time since 2019.

However, some trade tensions persisted. The Trump Administration announced an additional 25% tariff on Indian imports in response to continued Russian oil purchases, a move that brought Russia, China and India into closer alignment. President Trump also imposed an additional 40% tariff on Brazil as he accused the country of coercing U.S companies to censor speech and turn over sensitive U.S. user data. Meanwhile, in a divided ruling, a U.S. appeals court raised questions about the legal basis for certain tariffs but stayed its order, keeping the measures in effect through mid-October while appeals proceed. The Supreme Court will hear the case on November 5, with the outcome potentially clarifying the scope of executive authority on trade policy.

Corporate America, however, showed resilience. S&P 500 companies reported earnings growth of 11.7% year-over-year, marking the third straight quarter of double-digit expansion. Importantly, over 80% of companies exceeded EPS estimates, despite more than 340 firms citing tariff-related headwinds in their commentary. Earnings strength was broad-based, led by Communication Services, Information Technology and Financials, highlighting the adaptability of U.S. firms even in a volatile trade and policy environment.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Capital’s Global Equity Composite posted a total return of 5.68% gross of fees (5.55% net of fees), underperforming the MSCI ACWI Index, which returned 7.62%, and the MSCI World Index, which returned 7.27%. Please refer to the table below for detailed performance.

Performance (%)	3Q25	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
Global Equity Composite (gross)	5.68	17.10	8.06	18.05	11.23	11.77	10.22
Global Equity Composite (net)	5.55	16.67	7.53	17.47	10.68	11.22	9.67
MSCI ACWI Index (net)	7.62	18.44	17.27	23.12	13.54	11.91	9.99
MSCI World Index (net)	7.27	17.43	17.25	23.72	14.41	12.43	10.82

MonotaRO, the Japanese business-to-business (B2B) e-commerce platform, was the largest detractor during the quarter. The company—which enables customers to source millions of maintenance, repair and operations (MRO) products through a centralized digital interface—reported a deceleration in sales growth, prompting downward revisions to full-year targets. Results were impacted by weaker-than-expected demand from industrial end markets, and we believe some of the share price weakness also reflected profit-taking following strong performance in prior periods. From our perspective, these short-term dynamics do not alter the structural advantages of MonotaRO’s business model. The company continues to gain traction with large enterprise customers, who now represent over 30% of sales. These clients typically have higher lifetime value and are more likely to adopt MonotaRO’s value-added services, such as purchase management systems, which enhance customer retention and deepen relationships. Importantly, we believe MonotaRO’s value proposition lies in convenience, execution and product curation—qualities that are difficult to replicate in Japan’s fragmented MRO market. With a high-margin, asset-light model, a scalable platform and a long runway to expand share across businesses of all sizes, we continue to view MonotaRO as a high-quality, competitively advantaged business.

Nemetschek, a leading global provider of software solutions for the architecture, engineering, construction (AEC) and building operations industry, was a detractor during the period. The company continues to span the entire project lifecycle, with about 66% recurring revenue and a dominant 50% market share in Europe. Its competitive advantage is underpinned by approximately 23% of sales reinvested in R&D and a loyal user base. Third quarter underperformance reflected what we view as temporary headwinds: an accounting-driven revenue pull-forward from multi-year contracts, soft demand in German-speaking markets for design software, and a one-off charge related to an insolvent payment provider. Encouragingly, underlying fundamentals and drivers remain strong. Second quarter revenue grew 30.5% year-over-year, with annual recurring revenue up 39% and subscription/Software as a Service (SaaS) sales jumping about 67%, while the Build segment (Bluebeam, GoCanvas) also delivered standout growth. We remain confident in long-term catalysts, including Nemetschek’s transition from perpetual licenses to subscription/SaaS, accelerating Building Information Modeling adoption in construction (i.e., creating a digital twin for architects, engineers, contractors and owners to collaborate in real time), expansion into the U.S. and Asia, and bundling of its 15 brands. These drivers, combined with strong execution and market leadership, support our conviction in Nemetschek’s long-term FREE cash flow trajectory.

Samsung Electronics, the South Korean technology conglomerate, was the largest contributor. Over the past year and a half, the company—which generates roughly half of its profits from its memory business—faced delays in qualifying its high-bandwidth memory product (HBM3E) with Nvidia, temporarily limiting its participation in the early stages of the AI chip cycle. Following significant management changes and continued investment, Samsung secured Nvidia’s approval during the quarter. While shipment volumes are likely to remain modest near term, as Samsung is now the third supplier to receive qualification, this milestone positions the company to compete in the next generation of high-bandwidth memory (HBM4). Early performance indicators have been encouraging, with Samsung demonstrating industry-leading data transfer speeds and engaging in supply discussions with major AI chipmakers. Within memory, the company also announced a strategic partnership with OpenAI—potentially generating demand of up to 900,000 DRAM wafers per month—and implemented aggressive price increases to DRAM and NAND products. We believe these initiatives, combined with progress in high-bandwidth memory, position Samsung to rebound meaningfully from the bottom of its profit cycle. Additionally, the foundry division secured a major win through a $16.5 billion deal with Tesla to manufacture its next-generation chips. As a vertically integrated business, Samsung’s ability to remain at the forefront of innovation continues to drive strategic partnerships and reinforce its leadership across multiple segments.

Pawn shop operator FirstCash was a top contributor during the quarter. FirstCash holds a dominant position in the pawn lending industry (operating about 3,300 stores, about 2.5x the footprint of its nearest competitor) and benefits from a customer base where about 75% are recurring, which together underpin a high-quality, defensive business model. Pawn loans are small, fully collateralized and non-recourse, operating under stable regulations, resulting in low credit losses and minimal regulatory risk. This model has proven resilient through economic cycles—for example, U.S. pawn loan balances grew roughly 50% during the last cyclical downturn (2007–2012). Key catalysts are also playing out: FirstCash continues to expand in Latin America amid favorable demographic tailwinds, and in August it entered the U.K. by acquiring H&T Group (286 stores), adding significant scale and geographic diversification. These strategic moves contributed to strong results, with earnings up 31% year-over-year, adjusted EBITDA up 19% and same-store pawn receivables up 13% in local currency. The company remains highly cash generative with a conservative, underleveraged balance sheet and low regulatory headwinds, reinforcing its ability to grow through cycles while delivering steady shareholder returns.

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

A core tenet of our investment philosophy is the commitment to understanding businesses with a long-term perspective. This discipline is especially critical during periods of heightened uncertainty, when macroeconomic events can dominate headlines. At Aristotle Capital, we believe one of the distinguishing strengths of our investment process is that we do not reactively reposition portfolios based on near-term developments. Instead, we maintain our focus on business fundamentals. We are convinced that it is fundamentals that ultimately drive long-term shareholder value. As such, we continue to attentively study what we believe are high-quality companies with sustainable competitive advantages poised to unlock value over full market cycles.

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

Markets Review

Europe and the U.S. reached an agreement under which the EU said it would eliminate tariffs on all U.S. industrial goods and expand access to its agricultural market, while the U.S. set a 15% tariff on most EU imports, a rate that was much lower than initially proposed. The EU also pledged $600 billion of investment in the U.S. and committed to purchase $750 billion in U.S. energy products through 2028. Although the scale of these commitments has been met with skepticism, the deal eased near-term pressure on the European Central Bank, which left interest rates unchanged amid volatile trade policy conditions. Similarly, the Bank of England kept rates steady at its September meeting, despite a weakening labor market and slowing economic growth, as U.K. CPI rose 3.8% year-over-year in August. Separately, the U.K. struck a technology agreement with the U.S. under which major U.S. firms will invest in U.K. data centers and AI infrastructure.

In Asia, trade developments were mixed. Japan’s July agreement with the U.S. faces potential renegotiation following Prime Minister Shigeru Ishiba’s resignation after electoral losses. U.S. negotiations with South Korea also remain unresolved, particularly around investment commitments and visa policies. Furthermore, U.S.-India trade relations deteriorated as the Trump administration imposed an additional 25% tariff on Indian imports over continued Russian oil purchases, along with a $100,000 H-1B visa fee disproportionately affecting Indian professionals, who represent more than 70% of recipients. Meanwhile, relations with China steadied as President Trump extended the China tariff deadline by another 90 days and U.S. lawmakers visited Beijing for the first time since 2019. Across Asia, monetary policy generally remained stable, with major central banks keeping interest rates unchanged.

While much of the market’s attention has been fixated on trade policy, geopolitics also garnered headlines as President Putin visited the U.S. for the first time since 2015. While prospects of a ceasefire were tempered, President Trump expressed hopes for a second summit to include Ukrainian President Volodymyr Zelensky. Nevertheless, major hurdles remain, as President Zelensky has rejected any proposal involving territorial concessions in the Donbas region, and Russian media has downplayed the likelihood of a meeting.

Performance and Attribution Summary

For the third quarter of 2025, Aristotle Capital’s International Equity Composite posted a total return of 1.65% gross of fees (1.52% net of fees), underperforming the MSCI EAFE Index, which returned 4.77%, and the MSCI ACWI ex USA Index, which returned 6.89%. Please refer to the table below for detailed performance.

Performance (%)	3Q25	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
International Equity Composite (gross)	1.65	16.77	8.71	18.79	10.36	8.34	6.35
International Equity Composite (net)	1.52	16.34	8.17	18.21	9.81	7.81	5.82
MSCI EAFE Index (net)	4.77	25.14	14.99	21.70	11.15	8.17	4.01
MSCI ACWI ex USA Index (net)	6.89	26.02	16.45	20.67	10.26	8.23	3.77

MonotaRO, the Japanese business-to-business (B2B) e-commerce platform, was the largest detractor during the quarter. The company—which enables customers to source millions of maintenance, repair and operations (MRO) products through a centralized digital interface—reported a deceleration in sales growth, prompting downward revisions to full-year targets. Results were impacted by weaker-than-expected demand from industrial end markets, and we believe some of the share price weakness also reflected profit-taking following strong performance in prior periods. From our perspective, these short-term dynamics do not alter the structural advantages of MonotaRO’s business model. The company continues to gain traction with large enterprise customers, who now represent over 30% of sales. These clients typically have higher lifetime value and are more likely to adopt MonotaRO’s value-added services, such as purchase management systems, which enhance customer retention and deepen relationships. Importantly, we believe MonotaRO’s value proposition lies in convenience, execution and product curation—qualities that are difficult to replicate in Japan’s fragmented MRO market. With a high-margin, asset-light model, a scalable platform and a long runway to expand share across businesses of all sizes, we continue to view MonotaRO as a high-quality, competitively advantaged business.

Accenture, the global IT consultancy, was one of the largest detractors. The company’s operations are split roughly evenly between Consulting and Managed Services (outsourcing). While Accenture’s strategic pivot to AI in 2023 has driven a rapid increase in AI-related revenue and bookings (nearly doubling to $5.9 billion in fiscal 2025), investors have grown increasingly concerned about the longer-term impact of AI on its outsourcing business—revenue heavily reliant on billable hours. Moreover, the U.S. government’s DOGE initiative created a headwind, as federal contracts have historically represented about 8% of Accenture’s revenue. Despite these challenges, Accenture continues to grow, albeit at a below-normal rate in the recent period, while simultaneously investing in its workforce—now employing roughly 77,000 AI and data specialists, about 10% of its global staff—and returning billions of dollars to shareholders through double-digit increases in both dividends (+10% year-over-year) and share buybacks (+15%). While we acknowledge that market concerns about AI’s disruptive potential warrant consideration, we believe Accenture shares have been excessively punished (valuations are at 10-year lows). The stock has retreated to mid-2020 levels, even though earnings per share and FREE cash flow are more than 50% and 40% higher, respectively, than they were at that time.

Samsung Electronics, the South Korean technology conglomerate, was one of the largest contributors. Over the past year and a half, the company—which generates roughly half of its profits from its memory business—faced delays in qualifying its high-bandwidth memory product (HBM3E) with Nvidia, temporarily limiting its participation in the early stages of the AI chip cycle. Following significant management changes and continued investment, Samsung secured Nvidia’s approval during the quarter. While shipment volumes are likely to remain modest near term, as Samsung is now the third supplier to receive qualification, this milestone positions the company to compete in the next generation of high-bandwidth memory (HBM4). Early performance indicators have been encouraging, with Samsung demonstrating industry-leading data transfer speeds and engaging in supply discussions with major AI chipmakers. Within memory, the company also announced a strategic partnership with OpenAI—potentially generating demand of up to 900,000 DRAM wafers per month—and implemented aggressive price increases to DRAM and NAND products. We believe these initiatives, combined with progress in high-bandwidth memory, position Samsung to rebound meaningfully from the bottom of its profit cycle. Additionally, the foundry division secured a major win through a $16.5 billion deal with Tesla to manufacture its next-generation chips. As a vertically integrated business, Samsung’s ability to remain at the forefront of innovation continues to drive strategic partnerships and reinforce its leadership across multiple segments.

Credicorp, the largest bank in Peru, was a leading contributor during the quarter. Results exceeded expectations, supported by robust loan growth—particularly in microfinance and retail segments—stable asset quality and disciplined cost management, even as Peru’s central bank cut rates. From our perspective, these outcomes represent the strength of a well-executed long-term strategy. Credicorp’s multi-pronged platform—anchored in banking, insurance and wealth management—offers durable advantages in an underpenetrated financial system. Its leading positions in microfinance (via Mibanco), pension fund management and investment advisory foster lasting customer relationships and recurring revenue through multi-product engagement. The company is also prudently expanding its digital ecosystem, enhancing efficiency and broadening access across income levels. Importantly, even amid macroeconomic uncertainty, management has consistently prioritized long-term value over volume, allocating capital conservatively and maintaining disciplined underwriting. We believe this enduring combination of diversification, market leadership and risk-aware culture supports our conviction in Credicorp as a resilient business with the ability to compound value over time.

Recent Portfolio Activity

Buys	Sells
Wal-Mart de Mexico	None

During the quarter, we invested in Wal-Mart de Mexico.

Wal-Mart de Mexico SAB de CV

Founded in 1952 and headquartered in Mexico City, Wal-Mart de Mexico (Walmex) is the largest retailer in Mexico and Central America and a key subsidiary of Walmart Inc., which retains a majority ownership stake. Walmex operates more than 3,800 stores across multiple formats—Bodega Aurrerá (discount stores and the company’s fastest-growing format), Walmart Supercenter (big-box retail), Sam’s Club (membership warehouse), Walmart Express (small supermarkets) and other discount outlets—giving it a uniquely diversified presence across the consumer landscape.

This multi-format approach serves a wide spectrum of customers and shopping occasions—from everyday essentials and large family baskets to convenience and premium purchases. Bodega Aurrerá, for example, has become a household name across Mexico and now represents roughly half of the company’s stores, while Sam’s Club caters to membership customers seeking bulk purchases and higher-ticket items. Together, these formats provide Walmex broad market coverage, geographic reach and strong brand loyalty across urban centers, suburban communities and regional towns.

In recent years, the company has significantly expanded its omnichannel ecosystem, investing in e-commerce, logistics and digital services to enhance convenience and deepen customer engagement. E-commerce is ~8% of total sales, supported by strong growth in online grocery and third-party marketplace offerings. Complementary platforms, such as Cashi (digital payments), BAIT (mobile telecom) and Walmart Connect (digital advertising), extend Walmex’s reach into financial and digital services, strengthening customer ties and building new revenue streams.

High-Quality Business

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

• Dominant scale advantages with over 3,000 stores in Mexico, making it the clear market leader in food and general merchandise retail;
• Diversified and resilient revenue base, with a meaningful percentage of sales from grocery—providing recurring traffic and stable cash flow—complemented by general merchandise, fuel, pharmacy and membership-based services;
• Strong returns on invested capital (~18%) supported by consistent execution and capital discipline; and 
• Support from Walmart Inc., which provides access to global best practices, digital tools and procurement efficiencies. 

Attractive Valuation

We believe Walmex shares are attractively valued relative to its long-term normalized earnings power. In our view, the market underappreciates the company’s ability to grow revenue through ongoing store expansion and strengthen margins and FREE cash flow generation through efficiency gains, scale benefits and continued growth in higher-margin channels, such as private label and e-commerce.

Compelling Catalysts

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

• Expansion of private label penetration (from mid-teens to mid-20s), which should improve profitability and customer loyalty;
• Further development of the e-commerce platform, with Walmex aiming to become a one-stop shop by combining online grocery and a third-party marketplace, supported by digital tools adapted from Walmart U.S.;
• Disciplined store expansion, with current plans to add approximately 1,500 new stores across Mexico and Central America over the next five years, extending reach and scale advantages; and
• Leadership continuity, as newly appointed interim CEO Cristian Barrientos, a veteran Walmart executive with more than 25 years of experience, provides operational stability and maintains focus on profitable growth during the leadership transition.

Conclusion

A core tenet of our investment philosophy is the commitment to understanding businesses with a long-term perspective. This discipline is especially critical during periods of heightened uncertainty, when macroeconomic events can dominate headlines. At Aristotle Capital, we believe one of the distinguishing strengths of our investment process is that we do not reactively reposition portfolios based on near-term developments. Instead, we maintain our focus on business fundamentals. We are convinced that it is fundamentals that ultimately drive long-term shareholder value. As such, we continue to attentively study what we believe are high quality companies with sustainable competitive advantages poised to unlock value over full market cycles.