ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

The volatility observed throughout 2024, continued into the fourth quarter. SMID caps posted mild gains in the fourth quarter with the Russell 2500 index delivering a total return of 0.62%, bringing its year-to-date total return to 11.99%. After a sluggish start to the quarter, November was a standout month for SMID cap stocks following the U.S. elections, as the Russell 2500 Index rallied 9.84% driven by expectations of pro-business policies under the incoming Trump administration. However, these gains were largely erased in December, as the Index declined -7.54%, reflecting renewed concerns over geopolitical tensions and uncertainty around the incoming administration’s policies, such as tariffs and immigration, as well as the impact of sharply higher U.S. yields. Furthermore, continued strong economic growth, a stable labor market and firmer inflation data all pushed the Federal Reserve (Fed) in a more hawkish direction in December. After consecutive 25 basis point rate cuts at the November and December meetings, Chairman Powell indicated the Fed is likely to take a more measured approach going forward and the committee updated their projections to forecast only two rate cuts in 2025.

Stylistically, value stocks underperformed their growth counterparts during the quarter as evidenced by the Russell 2500 Value Index returning -0.26% compared to 2.43% for the Russell 2500 Growth Index. This widened the gap between value and growth for the year, as the Russell 2500 Growth Index gained 13.90% in 2024 versus the 10.98% return for the Russell 2500 Value Index.

From a factor performance perspective, the quarter saw continued market preference for higher-growth companies, supported by declining interest rates and improving sentiment. Non-earners outperformed profitable companies by 325bps and the factors that led the way were highest forward sales growth, lowest share price, highest short interest, highest momentum, and lowest ROIC.

At the sector level, six of the eleven sectors in the Russell 2500 Index recorded positive returns during the fourth quarter, led by the Information Technology (+6.85%), Financials (+6.57%), and Energy (+4.92%) sectors. Conversely, Health Care (-6.34%), Materials (-6.01%), and Real Estate (-5.65%) all underperformed. For the full year, all eleven sectors ended in positive territory. Utilities (+29.48), Financials (+20.98), and Information Technology (+16.21) led performance, while Materials (+1.29), Health Care (+2.55), and Energy (+5.55) lagged.

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. 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 Small/Mid Cap Equity Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the fourth quarter, the Aristotle Small/Mid Cap Equity Composite generated a total return of -0.45% net of fees (-0.37% gross of fees), underperforming the 0.62% total return of the Russell 2500 Index. Underperformance was primarily driven by security selection. Overall, security selection in the Financials, Information Technology and Industrials sectors detracted the most. This was partially offset by an overweight in Information Technology, an underweight in Real Estate coupled with strong security selection in Materials.  

Relative Contributors	Relative Detractors
Chart Industries	Acadia Healthcare
Summit Materials	Catalent
MACOM Technology Solutions	Carlisle Cos
Ciena	KB Home
Wolverine World Wide	HA Sustainable Infrastructure Capital

CONTRIBUTORS

Chart Industries (GTLS), a company specializing in the design and manufacturing of highly engineered equipment for the industrial gas, energy, and biomedical industries, reported record high orders, a substantial increase in sales, and a strong backlog, driven by surging demand for its cryogenic equipment used in the clean energy sector, coupled with a changing positive sentiment around LNG by the new administration.

Summit Materials (SUM), a North American supplier of aggregates, cement, and ready-mix concrete for the construction industry, announced in November a definitive agreement to be acquired by Quikrete Holdings, Inc. totaling approximately $11.5 billion, including debt at a 30% premium with an expected close date within the first quarter of 2025.

DETRACTORS

Acadia Healthcare (ACHC), a behavioral healthcare and substance abuse treatment services company, continues to be impacted by the negative sentiment surrounding the news headlines related to patient care and questions about billing practices. While we take these developments seriously, we believe investors’ reaction to the news has been more severe than warranted. Industry peers have faced similar levels of scrutiny in the past with limited fundamental impact, and unless additional information is uncovered, we believe the current scrutiny will be resolved without much of an impact on their business. We continue to believe the company is well positioned to be an important part of the solution to an unfortunately growing need for behavioral health services.

Catalent (CTLT), is a global contract development and manufacturing organization that provides advanced delivery technologies and development solutions for drugs, biologics, and consumer health products. Novo Holdings completed its $16.5 billion all-cash acquisition of Catalent, converting it into a private company and delisting it from the New York Stock Exchange.

Recent Portfolio Activity

Buys/Acquisitions	Sells/Liquidations
Americold Realty Trust	Aspen Technology
Axalta Coating System	Catalent
Columbus McKinnon	Infinera
Healthpeak Properties
Hexcel
Insight Enterprises

BUYS/ACQUISITIONS

Americold Realty Trust (COLD), a global leader in temperature-controlled logistics, offering innovative technology-oriented supply chain and cold storage solutions to food producers, processors, distributors, and retailers was added to the portfolio. We believe that company-specific productivity initiatives coupled with strong industry dynamics are underappreciated by the market and not reflected in our estimate of the current valuation.

Axalta Coating System (AXTA), is a global manufacturer, marketer and distributor of high-performance liquid and powder coating solutions for commercial and light vehicle, industrial and aftermarket refinishing. In addition to an expected cyclical rebound in demand for the company’s products, self-help initiatives implemented by a new management team will likely drive stronger revenue and earnings growth over the next several years.

Columbus McKinnon (CMCO), isa designer and manufacturer of a variety of material handling products and industrial lifts. The company is expected to benefit from a cyclical rebound in demand following a period of subdued performance as well as the harvesting of investments they’ve made over the past several years in faster growing, higher margin intelligent motion solutions (conveyance and automation).

Healthpeak Properties (DOC), is a healthcare-focused real estate investment trust (REIT) that develops, owns and manages medical office buildings, senior housing assets and life science facilities. Following an industry-wide life sciences building boom that created a supply/demand imbalance, DOC is poised to benefit from improved lease rates with its properties as excess industry capacity is absorbed. A solid fundamental backdrop for the demographically driven senior housing portfolio and stability within its medical office building portfolio should allow the company to produce improved financial performance over the next several years.

Hexcel (HXL), develops and manufactures structural materials for use in commercial aerospace, space and defense, and industrial applications. As a leading supplier of carbon fiber, honeycomb and other composite materials for the aerospace industry the company’s financial performance has been negatively impacted by Covid-era disruptions and Boeing’s company-specific manufacturing problems. We believe the combination of company-specific self-help initiatives and an improving outlook for commercial aircraft build rates bodes well for improved financial performance from HXL.

Insights Enterprises (NSIT), is a global technology “solutions integrator” specializing in designing, building and managing complex IT solutions for businesses of various size and scale. Areas of expertise include data center, cloud, security, and AI. Over the next several years, NSIT is poised to benefit from increased demand from an increasing complex technology landscape, the continued transition of enterprise business to the cloud and the emergence of AI as a must have IT tool. They are also expected to realize improved financial performance over the next several years as the benefits of strategic investments that have expanded the company’s portfolio of IT solutions are realized as well as from the integration/cross-selling of acquisitions completed over the past couple of years.

SELLS/LIQUIDATIONS

Aspen Technology (AZPN), is an industrial software company that provides software solutions that optimize asset performance and operational efficiency for industries such as energy, chemicals, and manufacturing. The company was sold as the stock price appreciated after Emerson Electric proposed to buy the 42.6% of Aspen’s outstanding shares it currently does not own, causing the reward/risk ratio to compress. 

Catalent (CTLT), is a global contract development and manufacturing organization that provides advanced delivery technologies and development solutions for drugs, biologics, and consumer health products. Novo Holdings completed its $16.5 billion all-cash acquisition of Catalent, converting it into a private company and delisting it from the New York Stock Exchange.

Infinera (INFN), a global provider of advanced optical networking solutions for service providers, cloud operators, and enterprises, was acquired by Nokia at a 28% premium for both stock and cash. The position was sold as Nokia’s market cap is too large for the small/mid cap strategy.

Outlook

We remain optimistic about the long-term potential for the SMID-cap segment of the U.S. market. Valuations in SMID-caps continue to be attractive relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range. Potential tailwinds, including deregulation, increased M&A activity, the continued decline in interest rates, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for SMID-cap stocks. Nonetheless, we remain mindful of risks such as a potential reacceleration in inflation, geopolitical tensions, and ongoing pressures in commercial real estate and regional banking.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweights in Industrials and Information Technology are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. We also continue to be underweight in Real Estate as a result of structural challenges for various end markets within the sector. Given our focus on long-term business fundamentals, patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

The volatility observed throughout 2024, continued into the fourth quarter. The Russell 2000 Index posted a modest gain of 0.33% for the quarter, bringing its year-to-date total return to 11.54%. After a sluggish start to the quarter, November was a standout month for small cap stocks following the U.S. elections, as the Russell 2000 Index rallied 10.97% driven by expectations of pro-business policies under the incoming Trump administration. However, these gains were largely erased in December, as the Index declined -8.26%, reflecting renewed concerns over geopolitical tensions and uncertainty around the incoming administration’s policies, such as tariffs and immigration, as well as the impact of sharply higher U.S. yields. Furthermore, continued strong economic growth, a stable labor market and firmer inflation data all pushed the Federal Reserve (Fed) in a more hawkish direction in December. After consecutive 25 basis point rate cuts at the November and December meetings, Chairman Powell indicated the Fed is likely to take a more measured approach going forward and the committee updated their projections to forecast only two rate cuts in 2025.

Stylistically, value stocks underperformed their growth counterparts during the quarter as the Russell 2000 Value Index returned -1.06% compared to the 1.70% return of the Russell 2000 Growth index. This widened the gap between value and growth for the year, as the Russell 2000 Growth Index gained 15.15% versus the 8.06% return for the Russell 2000 Value Index.

From a factor performance perspective, the quarter saw continued market preference for higher-growth companies, supported by declining interest rates and improving sentiment. Non-earners outperformed profitable companies by 325bps and the factors that led the way were highest forward sales growth, lowest share price, highest short interest, highest momentum, and lowest ROIC.

At the sector level, five of the eleven sectors in the Russell 2000 Index recorded positive returns during the quarter, led by Information Technology (+9.69%), Consumer Staples (+5.62%) and Industrials (+4.05%). Conversely, Health Care (-7.58%), Real Estate (-5.97%) and Materials (-4.69%) all underperformed. For the full year, ten of the eleven sectors contributed to performance, led by Information Technology (+25.20), Consumer Staples (+24.56), and Industrials (+17.69). Energy (-3.07) was the lone sector to finish in negative territory, while Health Care (+1.65) and Materials (+2.50) lagged in positive territory.

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. 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 Small Cap Equity Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the fourth quarter of 2024, the Aristotle Small Cap Equity Composite posted a total return of -0.46% net of fees (-0.31% gross of fees), trailing the 0.33% total return of the Russell 2000 Index. Underperformance was driven by security selection. Overall, security selection in the Information Technology, Energy and Financials sectors detracted. This was partially offset by strong selection in the Health Care, Materials and Communication Services sectors coupled with an overweight allocation to the Information Technology sector and an underweight allocation to the Health Care sector.

Relative Contributors	Relative Detractors
Chart Industries	Acadia Healthcare
Summit Materials	Ardmore Shipping
MACOM Technology Solutions	KB Home
Huron Consulting Group	HA Sustainable Infrastructure Capital
Liquidity Services	Dycom Industries

CONTRIBUTORS

Chart Industries (GTLS), a company specializing in the design and manufacturing of highly engineered equipment for the industrial gas, energy, and biomedical industries, reported record high orders, a substantial increase in sales, and a strong backlog, driven by surging demand for its cryogenic equipment used in the clean energy sector, coupled with a changing positive sentiment around LNG by the new administration.

Summit Materials (SUM), a North American supplier of aggregates, cement, and ready-mix concrete for the construction industry, announced in November a definitive agreement to be acquired by Quikrete Holdings, Inc. totaling approximately $11.5 billion, including debt at a 30% premium with an expected close date within the first quarter of 2025.

DETRACTORS

Acadia Healthcare (ACHC), a behavioral healthcare and substance abuse treatment services company, continues to be impacted by the negative sentiment surrounding the news headlines related to patient care and questions about billing practices. While we take these developments seriously, we believe investors’ reaction to the news has been more severe than warranted. Industry peers have faced similar levels of scrutiny in the past with limited fundamental impact, and unless additional information is uncovered, we believe the current scrutiny will be resolved without much of an impact on their business. We continue to believe the company is well positioned to be an important part of the solution to an unfortunately growing need for behavioral health services.

Ardmore Shipping (ASC), a product and chemical transportation company focused on modern mid-sized vessels, experienced headwinds due to a combination of factors including a weakening tanker market with lower spot rates, potential concerns about geopolitical instability impacting shipping routes, and a general market downturn affecting the shipping industry. We maintain a position, as we believe the company continues to operate from a position of strength, driven by recent shareholder-friendly capital allocation decisions, strong operating performance, and a favorable industry supply-demand backdrop.

Recent Portfolio Activity

Buys/Acquisitions	Sells/Liquidations
Amentum Holdings	Aspen Technology
Americold Realty Trust	Infinera
Axalta Coating Systems
Hexcel
Tronox

BUYS/ACQUISITIONS

Amentum Holdings (AMTM), is a global engineering and technology solutions provider serving the US government agencies as well as international government agencies from allied nations.  The company was formed by spin-off and merger of Jacobs Solutions’ (J) Critical Mission Solutions (CMS) and Cyber & Intelligence (CI) businesses with Amentum Holdings (private).  As a result, existing J shareholders received shares of the newly formed combined company (AMTM).  We maintained our position in AMTM as we believe the company is well positioned to benefit from government spending on digital modernization, cybersecurity and next generation technologies.  The combination of the two companies exposes AMTM to new end market and geographic opportunities as well as operating scale efficiencies to drive incremental shareholder value.

Americold Realty Trust (COLD), a global leader in temperature-controlled logistics, offering innovative technology-oriented supply chain and cold storage solutions to food producers, processors, distributors, and retailers was added to the portfolio. We believe that company-specific productivity initiatives coupled with strong industry dynamics are underappreciated by the market and not reflected in our estimate of the current valuation.

Axalta Coating System (AXTA), a global manufacturer, marketer and distributor of high-performance liquid and powder coating solutions for commercial and light vehicle, industrial and aftermarket refinishing. In addition to an expected cyclical rebound in demand for the company’s products, self-help initiatives implemented by a new management team will likely drive stronger revenue and earnings growth over the next several years.

Hexcel (HXL), develops and manufactures structural materials for use in commercial aerospace, space and defense, and industrial applications. As a leading supplier of carbon fiber, honeycomb and other composite materials for the aerospace industry the company’s financial performance has been negatively impacted by Covid-era disruptions and Boeing’s company-specific manufacturing problems. We believe the combination of company-specific self-help initiatives and an improving outlook for commercial aircraft build rates bodes well for improved financial performance from HXL.

Tronox (TROX), a leading global manufacturer of titanium dioxide pigment, a key ingredient in paint, plastics and a variety of other industrial applications, was added to the portfolio. Expectations for a cyclical recovery in demand combined with a changing competitive backdrop plus the benefit of cost savings initiatives should allow TROX to produce improved financial performance over the next several years.

SELLS/LIQUIDATIONS

Aspen Technology (AZPN), is an industrial software company that provides software solutions that optimize asset performance and operational efficiency for industries such as energy, chemicals, and manufacturing. The company was sold as the stock price appreciated after Emerson Electric proposed to buy the 42.6% of Aspen’s outstanding shares it currently does not own, causing the reward/risk ratio to compress.  

Infinera (INFN), a global provider of advanced optical networking solutions for service providers, cloud operators, and enterprises, was acquired by Nokia at a 28% premium for both stock and cash. The position was sold as Nokia’s market cap is too large for the small cap strategy.

Outlook

We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market. Valuations within the small-cap segment remain compelling relative to large caps, with the Russell 2000 Index trading near multi-decade lows on a relative basis. Potential tailwinds, including deregulation, increased M&A activity, the continued decline in interest rates, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for small-cap stocks. Nonetheless, we remain mindful of risks such as a potential reacceleration in inflation, geopolitical tensions, and ongoing pressures in commercial real estate and regional banking.

Positioning

Our current positioning is a function of our bottom-up security selection process and our ability to identify what we view as attractive investment candidates, regardless of economic sector definitions. Overweights in Industrials and Information Technology are mostly a function of our underlying company specific views rather than any top-down predictions for each sector. Conversely, we continue to be underweight in Consumer Discretionary, as we have been unable to identify what we consider to be compelling long-term opportunities that fit our discipline given the rising risk profiles of many retail businesses and a potential deceleration in goods spending following a period of strength. While the portfolio’s allocation to Health Care is modestly below that of the benchmark, we continue to remain underweight the Biotechnology industry as many companies within that group do not fit our discipline due to their elevated levels of binary risk. Given our focus on long-term business fundamentals, patient investment approach and low portfolio turnover, the strategy’s sector positioning generally does not change significantly from quarter to quarter. However, we may take advantage of periods of volatility by adding selectively to certain companies when appropriate.

Perhaps it was because the penning of this edition of The Essence began on “The Most Dreaded Day” of crafting its subject (refer to our January 2013 edition); perhaps it was because we just came through a U.S. election season whereby nary a positive word was spoken; perhaps because most financial journalists always see the “glass as half empty” (shouldn’t pay attention to them anyway!); perhaps because there’s extensive focus on the U.S. Federal Reserve’s (Fed’s) actions on short-term interest rates; or, just because many of the very best holiday movies start out with a depressing tale:

> “It’s a Wonderful Life” – George Bailey (played by actor Jimmy Stewart) runs a Savings & Loan.  Then there was a run on the bank caused by a misunderstanding of George’s uncle. “I wish I’d never been born!”  exclaims George. Poof!, an angel (Henry Travers) is sent to earth to make George’s wish come true. One sad tale after another is told about how the world (or at least Bedford Falls) would have evolved for the worse without George Bailey. It was heartbreaking.

> “The Wizard of Oz” – “Somewhere Over the Rainbow” is sung by Dorothy (played by Judy Garland – the mother of Liza Minnelli, in case you didn’t know) about a place much better than her home in Kansas. Poof! and Dorothy gets transported (via her flying house) to the land of Oz. “Now I know we’re not in Kansas anymore, Toto,” she exclaimed as one bad adventure follows another. Some scarier than others, “oh, my!”

> As defined by the Cambridge Dictionary, “Bah Humbug” is “…an expression used when someone does not approve of or enjoy something that other people enjoy …The expression was used [extensively] by the character Ebenezer Scrooge in the story ‘A Christmas Carol’ by Charles Dickens.” 

Mr. Scrooge epitomizes how we felt. Even with the joy-filled holiday season upon us, with all the above, it was hard not to be in a Bah Humbug mood at the time of this writing.

To read the full article, please use the link below. 

NEWPORT BEACH, CALIF., December 19, 2024 — Aristotle Pacific Capital, a registered investment adviser specializing in credit, has strengthened its deep investment team with the recent additions of Ivor Schucking and Jeff Klingelhofer.

Ivor Schucking, a 32-year veteran in the asset-management industry, has been brought on as managing director and head of credit research. Schucking most recently spent 14 years as a senior research analyst and global head of financials credit research at Western Asset Management. Prior to Western Asset, Schucking spent over 12 years at PIMCO as a credit analyst and head of Global Credit Research and four years at Strong Capital Management as director of Credit Research. He holds a bachelor’s degree from New York University and an MBA from New York University Stern School of Business.

“It is exciting to join a highly respected credit manager with a pristine track record, great people and a bright future,” Schucking said.

Jeff Klingelhofer has also joined Aristotle Pacific as a managing director and portfolio manager. Prior to joining Aristotle Pacific, he was co-head of Investments and a portfolio manager at Thornburg Investment Management, where he oversaw all fixed-income strategies and led the firm’s securitized investment initiatives. He played a key role in shaping the firm’s investment processes and represented the team in various external business channels. Prior to Thornburg, Klingelhofer was with PIMCO in its Newport Beach, Tokyo, and London offices. With over 20 years of experience in the investment industry, he holds a bachelor’s degree from UC Irvine and an MBA from the University of Chicago Booth School of Business.

“I am excited to join the team at Aristotle Pacific and contribute to the firm’s continued excellence in fixed income,” Klingelhofer said.

As part of his role, Klingelhofer has been named a portfolio manager on Aristotle Pacific’s newly launched Credit Opportunities strategy alongside three firm veteran portfolio managers. The Credit Opportunities strategy is a multi-sector strategy focused on higher-spread credit and securitized investments, including bank loans, high-yield bonds, CLO tranches, and securitized assets.

“We feel very fortunate to add these talented, experienced and respected financial professionals to our team,” said Aristotle Pacific CEO Dominic Nolan.  “These additions provide increased depth, leadership, and enhance our potential investment alpha while adding broader familiarity to the organization.”

Since the start of 2024, Aristotle Pacific’s assets under management have increased over 21% and stand at a company-record $29.86 billion (as of Nov. 30, 2024). Founded in 2010, Aristotle, with equity and fixed income capabilities, currently manages approximately $104 billion firmwide.

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About Aristotle Pacific
Aristotle Pacific Capital is a Newport Beach, Calif.-based registered investment adviser that actively invests in credit securities on the basis of fundamental credit analysis with the objective of identifying and realizing relative value. The firm manages credit strategies across floating-rate loans, CLOs, multi-sector, high-yield, investment-grade, and short-duration bonds.

About Aristotle
Aristotle Capital Management, LLC and its affiliates, collectively known as “Aristotle,” represent a group of independent investment advisers that provide equity and fixed-income management solutions across a unified platform. Aristotle’s clients include corporate and public pension plans, supranational organizations, financial institutions, insurance companies, endowments and foundations, as well as financial advisors and high-net-worth individuals. Aristotle has a global client base spanning North America, EMEA, and APAC. Each Aristotle affiliate is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. For market commentary, news and insights from all Aristotle affiliates, please visit www.aristotlecap.com.

Contacts
Tricia Ross
c/o Aristotle
Phone: 310.622.8226
[email protected]

Markets Review

The U.S. equity market continued its ascent to new record highs, with the S&P 500 Index increasing 5.89% during the period. However, unlike last quarter, the market showed broader gains, with the S&P 500 Equal Weight Index outperforming the cap-weighted S&P 500 Index by 3.71%. Concurrently, the Bloomberg U.S. Aggregate Bond Index rose 5.20% for the quarter as interest rates declined. In terms of style, the Russell 1000 Value Index outperformed its growth counterpart by 6.24%.

On a sector basis, gains were made from ten of the eleven sectors within the S&P 500 Index, led by Utilities and Real Estate. The worst-performing sectors were Energy and Information Technology.

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.

After slowing down for two consecutive quarters, U.S. economic growth accelerated to an annualized rate of 3.0%, as consumer spending and private inventory investments increased. Additionally, inflation inched closer to the Federal Reserve’s 2.0% target, with the CPI increasing at an annualized rate of 2.5% in August and 2.9% in July. Meanwhile, the U.S. labor market cooled slightly, with unemployment at 4.2% and nominal wage growth moderating during the period.

Given the ongoing progress toward target inflation and a softening labor market, the Federal Reserve lowered the target range of the federal funds rate by 50 basis points to 4.75% to 5.00%. Fed Chair Powell acknowledged that loosening policy restraint too quickly could undo progress on inflation, whereas moving too slowly could undermine economic activity and weaken employment. Therefore, Powell stressed the importance of monitoring economic data before making further adjustments to monetary policy.

Corporate earnings remained strong, with S&P 500 companies reporting earnings growth of 11.3%, the highest year-over-year improvement since 2021. Furthermore, only 67 S&P 500 companies issued negative EPS guidance, and about 80% exceeded estimates. Reflecting the general trend of disinflation and a resilient domestic economy, fewer companies mentioned topics like “inflation” and “recession” during earnings calls.

In political news, President Biden announced he would not seek re-election. Vice President Kamala Harris was subsequently named the official Democratic presidential nominee for the 2024 election. In geopolitics, tensions in the Middle East escalated as clashes between Israeli forces and Hezbollah fighters intensified. In response, the U.S. announced the urgent deployment of additional troops to the region in case of a wider regional conflict, while simultaneously mediating a potential ceasefire between the groups.

Performance and Attribution Summary

For the third quarter of 2024, Aristotle Atlantic’s Core Equity Composite posted a total return of 3.19% gross of fees (3.09% net of fees), underperforming the S&P 500 Index, which recorded a total return of 5.89%.

Performance (%)	3Q24	1 Year	3 Years	5 Years	10 Years	Since Inception*
Core Equity Composite (gross)	3.19	37.86	9.30	15.37	13.71	14.26
Core Equity Composite (net)	3.09	37.37	8.86	14.90	13.22	13.75
S&P 500 Index	5.89	36.35	11.91	15.98	13.38	13.73

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

During the third quarter, the portfolio’s underperformance relative to the S&P 500 Index was due to security selection. Security selection in Industrials and Consumer Discretionary detracted the most from relative performance. Conversely, security selection in Utilities and Health Care detracted the least from relative performance.

Contributors and Detractors for 3Q 2024

Relative Contributors	Relative Detractors
Trane Technologies	Applied Materials
Intercontinental Exchange	Halliburton
Norfolk Southern	Alphabet
NextEra Energy	Antero Resources
Home Depot	Guardant Health

Contributors

Trane Technologies

Trane Technologies contributed to performance in the third quarter. After reporting second quarter earnings and revenue that exceeded consensus estimates in early August, the company’s management appeared at multiple investor events in September where they spoke about opportunities for the HVAC market. There is strength in the commercial business related to improving energy efficiency demand broadly and additional cooling opportunities in data centers. The residential business is beginning to recover after a period of weakness.

Intercontinental Exchange

Intercontinental Exchange contributed to portfolio performance in the third quarter, driven by continued strength in the company’s Exchanges segment and expectations that the Mortgage Technology segment’s revenues have troughed ahead of an eventual recovery in U.S. housing market activity. Exchanges’ revenues continue to be driven by growth in energy and interest rate futures trading volumes, with energy trading activity expected to remain elevated, primarily bolstered by increasing data center-driven electricity demand.

Detractors

Applied Materials

Applied Materials detracted from performance in the third quarter as the stock was part of the general investor pullback in AI-related semiconductor names due to concerns about overall AI market growth in the near-term and profitability of the massive capex investments being made in AI infrastructure. The company delivered an inline quarter with solid execution and it continues to benefit from a secular shift to highly complex semiconductors design and manufacturing, but there continue to be pockets of weakness and concerns that include weaker NAND manufacturing and potential for further trade restrictions on Chinese equipment purchases.

Halliburton

Halliburton detracted from performance in the third quarter, as oil prices pulled back on increasing concerns about a slowdown in the U.S. and the global economy and continued headwinds from lower-than-expected growth in the Chinese economy. Halliburton reported second quarter earnings that indicated a weakening North American market for its services, and this was reflected in the company’s guide for the second half of the year, which showed the slower North American market continuing through the end of the year. We believe that 2024 will mark the trough for Halliburton’s North American market and that it should benefit from improving demand from a strengthening natural gas price and newly consolidated customers seeking to use the company’s high-quality product offerings. We are also anticipating better-than-expected growth from its international markets, including offshore. We believe that the current valuation continues to reflect a significantly more negative outlook for the North American market than we view for 2025.

Recent Portfolio Activity

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

Buys	Sells
None	Estée Lauder

Buys

None

Sells

Estée Lauder Inc.

We sold Estée Lauder, as Chinese consumer headwinds continue to present an unpredictable pace of recovery. And while Estée has taken action to reduce costs and drive a profit recovery plan, it is apparent that a certain level of volume will be necessary to make that plan successful, and that is difficult to predict with a high degree of certainty. China-driven travel retail business continues to be slower than anticipated, pushing out the expected timing of a recovery. Despite the weakness in share price, Estée continues to trade at a premium multiple, and consensus estimates may prove aggressive should Chinese consumer weakness linger. Lastly, with a pending transition in both the CFO and CEO roles, we see the potential for another reset as the new management team takes over.

Outlook

The equity markets in the third quarter posted positive returns, led by the interest rate sensitive sectors of Utilities and Real Estate. The sector performance reflected a sizable decline in interest rates with the 10-year U.S. Treasury yield down by about 70 basis points for the quarter. Economic activity continued to show signs of moderating with the ISM Manufacturing Index remaining in contraction territory and employment statistics slowing. Equity valuation levels remain elevated compared to historical levels, leaving little room for a sizable multiple expansion. There has been no improvement in the geopolitical situation and the US Presidential election remains a toss-up. The market has become more sensitive to a potential recession and declining earnings and less focused on inflation. Although the upside is more muted given the elevated valuation levels, the backdrop of lower interest rates and moderate earnings growth should support equity markets. 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 its ascent to new record highs, with the S&P 500 Index increasing 5.89% during the period. However, unlike last quarter, the market showed broader gains, with the S&P 500 Equal Weight Index outperforming the cap-weighted S&P 500 Index by 3.71%. Concurrently, the Bloomberg U.S. Aggregate Bond Index rose 5.20% for the quarter as interest rates declined. In terms of style, the Russell 1000 Value Index outperformed its growth counterpart by 6.24%.

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, gains were made from all eleven sectors within the Russell 1000 Growth Index, led by Utilities and Real Estate. The worst-performing sectors were Communication Services and Health Care.

After slowing down for two consecutive quarters, U.S. economic growth accelerated to an annualized rate of 3.0%, as consumer spending and private inventory investments increased. Additionally, inflation inched closer to the Federal Reserve’s 2.0% target, with the CPI increasing at an annualized rate of 2.5% in August and 2.9% in July. Meanwhile, the U.S. labor market cooled slightly, with unemployment at 4.2% and nominal wage growth moderating during the period.

Given the ongoing progress toward target inflation and a softening labor market, the Federal Reserve lowered the target range of the federal funds rate by 50 basis points to 4.75% to 5.00%. Fed Chair Powell acknowledged that loosening policy restraint too quickly could undo progress on inflation, whereas moving too slowly could undermine economic activity and weaken employment. Therefore, Powell stressed the importance of monitoring economic data before making further adjustments to monetary policy.

Corporate earnings remained strong, with S&P 500 companies reporting earnings growth of 11.3%, the highest year-over-year improvement since 2021. Furthermore, only 67 S&P 500 companies issued negative EPS guidance, and about 80% exceeded estimates. Reflecting the general trend of disinflation and a resilient domestic economy, fewer companies mentioned topics like “inflation” and “recession” during earnings calls.

In political news, President Biden announced he would not seek re-election. Vice President Kamala Harris was subsequently named the official Democratic presidential nominee for the 2024 election. In geopolitics, tensions in the Middle East escalated as clashes between Israeli forces and Hezbollah fighters intensified. In response, the U.S. announced the urgent deployment of additional troops to the region in case of a wider regional conflict, while simultaneously mediating a potential ceasefire between the groups.

Performance and Attribution Summary

For the third quarter of 2024, Aristotle Atlantic’s Focus Growth Composite posted a total return of 2.84% gross of fees (2.82% net of fees), underperforming the 3.19% total return of the Russell 1000 Growth Index.

Performance (%)	3Q24	1 Year	3 Years	5 Years	Since Inception*
Focus Growth Composite (gross)	2.84	42.00	6.78	16.04	14.63
Focus Growth Composite (net)	2.82	41.86	6.67	15.91	14.39
Russell 1000 Growth Index	3.19	42.19	12.02	19.74	17.35

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

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

Contributors and Detractors for 3Q 2024

Relative Contributors	Relative Detractors
Trane Technologies	Dexcom
S&P Global	Synopsys
Expedia Group	Guardant Health
Home Depot	KLA Corporation
ServiceNow	Datadog

Contributors

Trane Technologies

Trane Technologies contributed to performance in the third quarter. After reporting second quarter earnings and revenue that exceeded consensus estimates in early August, the company’s management appeared at multiple investor events in September where they spoke about opportunities for the HVAC market. There is strength in the commercial business related to improving energy efficiency demand broadly and additional cooling opportunities in data centers. The residential business is beginning to recover after a period of weakness.

S&P Global

S&P Global contributed to portfolio performance in the third quarter, driven by growth in corporate bond issuance and refinancing activity, with expectations for further acceleration if interest rates decline. The company has also achieved better-than-expected expense and revenue synergies from its acquisition of IHS Markit.

Detractors

Dexcom

Dexcom detracted from performance in the third quarter following an uncharacteristic earnings miss, which manifested late in the quarter. The miss was attributed to share loss in the durable medical equipment (DME) channel, reaching a full rebate threshold with insurance companies sooner than expected and a recent salesforce realignment that resulted in slower new patient starts. Management was clear that these are Dexcom specific issues around execution and that they were taking action to remediate those effects. The company stood by their long-range plan which calls for 15%-plus topline growth. We believe Dexcom now trades at a relatively attractive valuation given the strong long-term growth profile.

Synopsys

Synopsys detracted from performance in the third quarter as the stock was part of the general investor pullback in AI-related semiconductor names due to concerns about overall AI market growth in the near-term and profitability of the massive capex investments being made in AI infrastructure. The company continues to execute well on its AI-enhanced product suite and Synopsys IP and Tools continue to be an integral part of the semiconductor design and manufacturing supply chain. As semiconductor companies and enterprises continue to rely on increasingly complex semiconductors in their technology stack, we see Synopsys as a key beneficiary of the increased design and manufacturing spend.

Recent Portfolio Activity

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

Buys	Sells
Linde	IDEXX Laboratories
	Thermo Fisher Scientific

Buys

Linde

Linde is the largest industrial gas company worldwide and a major technological innovator in the industry. The company produces atmospheric gases like oxygen, nitrogen, argon, and rare gases through air separation processes, with cryogenic air separation being the most prevalent. They also have technologies to produce blue and green hydrogen, which are considered clean energy. Linde uses three basic distribution methods for industrial gases: on-site or tonnage, merchant or bulk liquid, and packaged or cylinder gases. These methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is determined by the lowest cost means of meeting the customer’s needs.

Linde holds a leading market share in a consolidated industry, with expected revenues of approximately $34 billion in 2024. The company has consistently grown its earnings throughout economic cycles due to its exposure to both cyclical end markets and is secured by long-term supply agreements of at least three years, providing defensive characteristics to its operating model. We see a robust backlog and pipeline driven by attractive growth end markets and significant decarbonization opportunities with operational discipline from management.

Sells

IDEXX Laboratories, Inc.

We sold IDEXX Laboratories on concerns that the cumulative effects of past pricing power and subdued volume growth will begin to impact sales growth as pricing power subsides. Furthermore, signs point to a slowing consumer, which could soften demand for vet services and thus adversely affect testing volumes. IDEXX trades at a premium multiple, and we have seen signs of slowing growth having outsized impacts on stock prices in the most recent earnings period.

Thermo Fisher Scientific Inc.

We sold Thermo Fisher Scientific due to the reduction in the Health Care weighting in the Russell 1000 Growth benchmark as a result of the annual rebalance. Furthermore, we believe that Thermo is trading at a full valuation based on its expected earnings growth and the softness in some life science-related end markets.

Outlook

The equity markets in the third quarter posted positive returns, led by the interest rate sensitive sectors of Utilities and Real Estate. The sector performance reflected a sizable decline in interest rates with the 10-year U.S. Treasury yield down by about 70 basis points for the quarter. Economic activity continued to show signs of moderating with the ISM Manufacturing Index remaining in contraction territory and employment statistics slowing. Equity valuation levels remain elevated compared to historical levels, leaving little room for a sizable multiple expansion. There has been no improvement in the geopolitical situation and the US Presidential election remains a toss-up. The market has become more sensitive to a potential recession and declining earnings and less focused on inflation. Although the upside is more muted given the elevated valuation levels, the backdrop of lower interest rates and moderate earnings growth should support equity markets. 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 its ascent to new record highs, with the S&P 500 Index increasing 5.89% during the period. However, unlike last quarter, the market showed broader gains, with the S&P 500 Equal Weight Index outperforming the cap-weighted S&P 500 Index by 3.71%. Concurrently, the Bloomberg U.S. Aggregate Bond Index rose 5.20% for the quarter as interest rates declined. In terms of style, the Russell 1000 Value Index outperformed its growth counterpart by 6.24%.

On a sector basis, gains were made from all eleven sectors within the Russell 1000 Growth Index, led by Utilities and Real Estate. The worst-performing sectors were Communication Services and Health Care.

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.

After slowing down for two consecutive quarters, U.S. economic growth accelerated to an annualized rate of 3.0%, as consumer spending and private inventory investments increased. Additionally, inflation inched closer to the Federal Reserve’s 2.0% target, with the CPI increasing at an annualized rate of 2.5% in August and 2.9% in July. Meanwhile, the U.S. labor market cooled slightly, with unemployment at 4.2% and nominal wage growth moderating during the period.

Given the ongoing progress toward target inflation and a softening labor market, the Federal Reserve lowered the target range of the federal funds rate by 50 basis points to 4.75% to 5.00%. Fed Chair Powell acknowledged that loosening policy restraint too quickly could undo progress on inflation, whereas moving too slowly could undermine economic activity and weaken employment. Therefore, Powell stressed the importance of monitoring economic data before making further adjustments to monetary policy.

Corporate earnings remained strong, with S&P 500 companies reporting earnings growth of 11.3%, the highest year-over-year improvement since 2021. Furthermore, only 67 S&P 500 companies issued negative EPS guidance, and about 80% exceeded estimates. Reflecting the general trend of disinflation and a resilient domestic economy, fewer companies mentioned topics like “inflation” and “recession” during earnings calls.

In political news, President Biden announced he would not seek re-election. Vice President Kamala Harris was subsequently named the official Democratic presidential nominee for the 2024 election. In geopolitics, tensions in the Middle East escalated as clashes between Israeli forces and Hezbollah fighters intensified. In response, the U.S. announced the urgent deployment of additional troops to the region in case of a wider regional conflict, while simultaneously mediating a potential ceasefire between the groups.

Performance and Attribution Summary

For the third quarter of 2024, Aristotle Atlantic’s Large Cap Growth Composite posted a total return of 1.26% gross of fees (1.11% net of fees), underperforming the 3.19% return of the Russell 1000 Growth Index.

Performance (%)	3Q24	1 Year	3 Years	5 Years	Since Inception*
Large Cap Growth Composite (gross)	1.26	37.33	7.13	16.40	17.62
Large Cap Growth Composite (net)	1.11	36.65	6.67	15.92	17.14
Russell 1000 Growth Index	3.19	42.19	12.02	19.74	19.24

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

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

Contributors and Detractors for 3Q 2024

Relative Contributors	Relative Detractors
Expedia Group	Dexcom
ServiceNow	Synopsys
Home Depot	Tesla
Adaptive Biotechnologies	Guardant Health
UnitedHealth Group	KLA Corporation

Detractors

Dexcom

Dexcom detracted from performance in the third quarter following an uncharacteristic earnings miss, which manifested late in the quarter. The miss was attributed to share loss in the durable medical equipment (DME) channel, reaching a full rebate threshold with insurance companies sooner than expected, and a recent salesforce realignment that resulted in slower new patient starts. Management was clear that these are Dexcom-specific issues around execution and that they were taking action to remediate those effects. The company stood by its long-range plan, which calls for 15%-plus top-line growth. We believe Dexcom now trades at a relatively attractive valuation given the strong long-term growth profile.

Synopsys

Synopsys detracted from performance in the third quarter. The stock was part of the general investor pullback in AI-related semiconductor names due to concerns about overall AI market growth in the near term and profitability of the massive capex investments being made in AI infrastructure. The company continues to execute well on its AI-enhanced product suite, and Synopsys IP and tools continue to be an integral part of the semiconductor design and manufacturing supply chain. As semiconductor companies and enterprises continue to rely on increasingly complex semiconductors in their technology stack, we see Synopsys as a key beneficiary of the increased design and manufacturing spend.

Contributors

Expedia Group

Expedia contributed to performance in the third quarter. The company reported better-than-expected second quarter earnings in August. The outlook for the year was reduced; however, the stock was trading at under 10x earnings at the time of the outlook reduction. The vacation home rental business Vrbo returned to growth. The significant return of capital continues with the share count having been reduced over the past year.

ServiceNow

ServiceNow contributed to performance in the third quarter, as the company reported what we consider to be solid second quarter earnings results that continue to highlight ongoing traction of its company’s product platform and improving momentum for the GenAI product lines. The company’s guidance for third quarter current remaining performance obligations (cRPO) was also ahead of consensus, which supports the strength of the company’s product platform in a software spending environment that continues to see headwinds from macroeconomic factors and budgets shifting to GenAI products.

Recent Portfolio Activity

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

Buys	Sells
Eli Lilly	BioMarin Pharmaceutical
Linde	Estée Lauder
	IDEXX Laboratories
	Thermo Fisher Scientific

Buys

Eli Lilly and Company

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

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

Linde

Linde is the largest industrial gas company worldwide and a major technological innovator in the industry. The company produces atmospheric gases like oxygen, nitrogen, argon and rare gases through air separation processes, with cryogenic air separation being the most prevalent. It also has technologies to produce blue and green hydrogen, which are considered clean energy. Linde uses three basic distribution methods for industrial gases: on-site or tonnage, merchant or bulk liquid, and packaged or cylinder gases. These methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is determined by the lowest cost means of meeting the customer’s needs.

Linde holds a leading market share in a consolidated industry, with expected revenues of approximately $34 billion in 2024. The company has consistently grown its earnings throughout economic cycles due to its exposure to both cyclical and defensive end markets. The operating model also benefits from defensive characteristics that include long-term supply agreements signed with customers, with over 70% of the business has contracts of at least 3 years, providing defensive characteristics to its operating model. We see a robust backlog and pipeline driven by attractive growth end markets and significant decarbonization opportunities with operational discipline from management.

Sells

BioMarin Pharmaceutical Inc.

We sold BioMarin Pharmaceutical following better-than-expected competitive data from Ascendis Pharma for the treatment of achondroplasia. Given that BioMarin has anchored future growth expectations around its achondroplasia drug Voxzogo, this competitive threat adds a new dimension to the story. While there were nuances between the study design of the two drugs, we believe this will be an overhang on BioMarin shares for the foreseeable future.

Estée Lauder Inc.

We sold Estée Lauder, as Chinese consumer headwinds continue to present an unpredictable pace of recovery. And while Estée has taken action to reduce costs and drive a profit recovery plan, it is apparent that a certain level of volume will be necessary to make that plan successful, and that is difficult to predict with a high degree of certainty. China-driven travel retail business continues to be slower than anticipated, pushing out the expected timing of a recovery. Despite the weakness in share price, Estée continues to trade at a premium multiple, and consensus estimates may prove aggressive should Chinese consumer weakness linger. Lastly, with a pending transition in both the CFO and CEO roles, we see the potential for another reset as the new management team takes over.

IDEXX Laboratories, Inc.

We sold IDEXX Laboratories on concerns that the cumulative effects of past pricing power and subdued volume growth will begin to impact sales growth as pricing power subsides. Furthermore, signs point to a slowing consumer, which could soften demand for vet services and thus adversely affect testing volumes. IDEXX trades at a premium multiple, and we have seen signs of slowing growth having outsized impacts on stock prices in the most recent earnings period.

Thermo Fisher Scientific Inc.

We sold Thermo Fisher Scientific due to the reduction in the Health Care weighting in the Russell 1000 Growth benchmark due to the annual rebalance. Furthermore, we believe that Thermo is trading at a full valuation based on its expected earnings growth and the softness in some life science-related end markets.

Outlook

The equity markets in the third quarter posted positive returns, led by the interest rate sensitive Utilities and Real Estate sectors. The sector performance reflected a sizable decline in interest rates, with the 10-year U.S. Treasury yield down about 70 basis points for the quarter. Economic activity continued to show signs of moderating, with the ISM Manufacturing Index remaining in contraction territory and employment statistics slowing. Equity valuation levels remain elevated compared to historical levels, leaving little room for sizable multiple expansion. There has been no improvement in the geopolitical situation, and the U.S. presidential election remains a toss-up. The market has become more sensitive to a potential recession and declining earnings and less focused on inflation. Although the upside is more muted given the elevated valuation levels, the backdrop of lower interest rates and moderate earnings growth should support equity markets. 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.