Markets Review

U.S. equity markets reached new all-time highs in the fourth quarter of 2025. The S&P 500 Index rose 2.66%, while fixed income markets also finished higher, with the Bloomberg U.S. Aggregate Bond Index up 1.10% for the quarter.

Within the S&P 500 Index, nine out of the eleven sectors posted positive returns. The best-performing sectors were Health Care, Communication Services and Financials, whereas Real Estate, Utilities and Consumer Staples were the weakest segments.

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 continued to demonstrate resilience. Data released during the period showed that real GDP surged at a 4.3% annualized rate in the third quarter—the fastest quarterly growth in two years—driven primarily by robust consumer spending, with additional contributions from rising exports and increased government outlays. Despite this strength, consumer confidence deteriorated toward year-end; economists projected a moderation in spending, and concerns about the labor market persisted. The unemployment rate ticked up to 4.6% in November (a four-year high), though this level remains low by historical standards and is still consistent with an economy operating near full employment. Meanwhile, inflation moderated—the Consumer Price Index was up just 2.7% year-over-year in November, reaching its lowest level since July. Economists cautioned that recent unemployment and inflation figures were likely skewed by technical factors related to the 43-day government shutdown, which disrupted data reporting. This shutdown—the longest in U.S. history—forced approximately 1.4 million federal employees to go without pay and even led to temporary layoffs at some agencies before Congress passed a continuing resolution to reopen on November 12.

Given the mixed economic signals and uncertainty around the data, the Federal Reserve took a cautious stance. The Fed implemented two 0.25% interest rate cuts during the quarter, lowering the federal funds target range to 3.50%-3.75%. Fed Chair Powell emphasized a data-dependent approach, acknowledging risks to both sides of the Fed’s dual mandate. He noted the need to carefully assess incoming information, highlighting that policy would remain cautious and measured going into 2026.

Trade relations between the U.S. and China remained a key focus for markets. Early in the fourth quarter, tensions flared with tariff escalations and export controls. (China had dramatically expanded export controls on rare earth minerals, and the U.S. threatened 100% tariffs in retaliation.) Ultimately, President Trump and President Xi met at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea and reached a one-year trade truce.

Corporate earnings remained robust. S&P 500 companies reported earnings growth of 13.6%, marking the fourth consecutive quarter of double-digit expansion. Of the 11 sectors within the S&P 500 Index, Information Technology recorded the strongest earnings growth of 29%. Artificial intelligence continued to be a major theme—more than 300 S&P 500 companies mentioned “AI” on their earnings calls during the fall. This enthusiasm helped propel mega-cap tech stocks higher and drive the market’s gains. However, as the quarter progressed, scrutiny increased around AI-related revenue circularity (companies buying AI services from each other to boost sales), the massive scale of AI-related capital spending, and the durability of longer-term returns on investment.

Performance and Attribution Summary

For the fourth quarter of 2025, Aristotle Atlantic’s Core Equity Composite posted a total return of 3.32% gross of fees (3.21% net of fees), outperforming the S&P 500 Index, which recorded a total return of 2.66%.

Performance (%)	QTD	YTD	1 Year	3 Years	5 Years	10 Years	Since Inception*
Core Equity Composite (gross)	3.32	19.29	19.29	23.36	12.98	15.08	14.72
Core Equity Composite (net)	3.21	18.78	18.78	22.86	12.51	14.60	14.21
S&P 500 Index	2.66	17.88	17.88	23.01	14.42	14.82	13.99

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 fourth quarter, the portfolio’s outperformance relative to the S&P 500 was due to both allocation effects and security selection. Security selection in Health Care and Consumer Discretionary contributed the most to relative performance. Conversely, security selection in Information Technology and Communication Services detracted from relative performance.

Contributors and Detractors for 4Q 2025

Relative Contributors	Relative Detractors
Guardant Health	Oracle
General Motors	O’Reilly Automotive
Marriott International	Meta Platforms
Thermo Fisher Scientific	Netflix
Alphabet	Trane Technologies

Contributors

Guardant Health

Guardant contributed to performance in the fourth quarter after better-than-expected third-quarter earnings results driven by volume growth and news of an acquisition of a competitor. General market sentiment in the industry has been improving throughout the year as business momentum grows. 

General Motors

General Motors contributed to performance in the fourth quarter of 2025. Estimates for the year 2026 have been increasing following GM’s third quarter earnings report at the end of October. The company has been more effective in mitigating tariff expenses than originally planned earlier in 2025. The elimination of tax credits for electric vehicles may increase relative demand for internal combustion engine vehicles, which are more profitable sales for General Motors than the sales of electric vehicles.

Detractors

Oracle

Oracle detracted from performance in the fourth quarter as investors focused on the OpenAI backlog concentration risk and the significant amount of debt required to fund the company’s datacenter commitments over the next 3-4 years.  Negative concerns about overinvestment and funding needs for AI infrastructure were key debates in the quarter and Oracle remains more leveraged to OpenAI than its peers with an approximately ~55% backlog exposure.

O’Reilly Automotive

O’Reilly Automotive detracted from performance in the fourth quarter of 2025. Although the company exceeded consensus expectations when the company reported its third quarter results at the end of October, comments on the weakening do-it-yourself (DIY) business were a concern. Inflation, which has largely been driven by tariffs, is weighing on the DIY portion of the business. The professional business, which is much larger than the DIY business, remains strong. The company is increasing the pace of new store openings in 2026.

Recent Portfolio Activity

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

Buys	Sells
APi Group	Alexandria Real Estate Equities
Coinbase Global	Chart Industries
Performance Food Group

Buys

APi Group

APi Group is a global business services provider specializing in fire and life safety, security, elevator and escalator services, as well as specialty infrastructure solutions. The company operates through two main segments: Safety Services, which accounts for the majority of revenue and profit and focuses on fire protection and building systems across North America, Europe, and Asia-Pacific; and Specialty Services, which delivers critical infrastructure and industrial plant services, including maintenance and repair for utilities and energy sectors. With 29,000 employees in over 500 locations across 20 countries, APi Group serves a diverse range of end markets such as commercial, health care, industrial, utilities, and government agencies, generating substantial recurring revenue through statutory and contracted services.

APi Group’s investment case centers on its strong position in industries driven by regulatory compliance and recurring service requirements, notably fire safety inspections and elevator maintenance. The company benefits from government incentives, such as those provided by the Infrastructure Investment and Jobs Act and the CHIPS Act, which contribute to increased infrastructure spending and growth opportunities in the U.S. APi’s strategy of acquiring service-focused companies with stable, non-discretionary revenue streams has supported its expansion, including its recent entry into the elevator market. The company funds acquisitions through free cash flow and has set ambitious three-year financial goals targeting revenue growth, margin improvement, and robust free cash flow conversion, positioning APi for sustained profitability and operational efficiency. Although APi stock is trading above the five-year average multiple, we believe the higher valuation is justified by the anticipated mid-teen annual earnings growth over the next three years.

Coinbase Global

Coinbase Global was founded in 2012 and is a leading United States cryptocurrency exchange and infrastructure provider. With over $425 billion in assets across its platform, the company supports trading in more than 250 crypto currencies, 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 United States 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. Shares trade at 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.

Performance Food Group

Performance Food Group is a leading North American distributor of food and related products, serving over 300,000 customer locations through about 155 distribution centers. The company offers a vast range of items, including food, beverages, disposables, and cleaning supplies, to various customers such as restaurants, retailers, schools, and health care facilities. Performance Food Group operates through three main segments: Foodservice, Convenience, and Specialty, each catering to different markets with a comprehensive selection of products and value-added services.

We believe Performance Food Group presents a compelling investment case due to its diversified operations, defensiveness during uncertain consumer periods, and insulation from inflation through cost-plus contracts. The company’s presence in less cyclical markets such as schools, government, and health care, combined with steady industry growth and opportunities for market consolidation, supports ongoing top-line and margin expansion. Performance Food Group’s success in the independent restaurant channel and focus on private label products further enhance profitability. Recent strategic actions, including cooperation agreements with activist investors and potential merger discussions, could also provide additional catalysts for future growth. Shares trade in-line with their historical averages. Consensus estimates call for topline growth of mid- to high-single digits, with leverage to mid-teens EPS growth. 

Sells

Alexandria Real Estate

We sold the position in Alexandria Real Estate Equities because the weak market in laboratory real estate is expected to persist for longer than our previous expectations. There is an oversupply of vacant lab space and demand for the space is weak due to weak capital markets for biotech fund raising, slow approvals on new medications by the FDA and less funding for the National Institutes of Health (NIH). ARE has developments under construction that will be delivered into a weak leasing environment. The company is selling assets to fund these developments, which will reduce future earnings power.    

Chart Industries

We sold Chart Industries as the company is being acquired by Baker Hughes Co. for $210 per share. The acquisition is expected to close in the middle of 2026. There was only a 3% spread between the agreed upon deal price and the share price so we sold the position.

Outlook

The equity markets in the fourth quarter rose modestly with all but two sectors posting positive returns. Interest rates were close to flat in December and have been in a tight range since the summer. Investors started to question the ability to fund the large commitments associated with the buildout of AI data centers which resulted in a change in market leadership. Equity valuations remain elevated and continue to be supported by the prospects for lower interest rates and higher corporate profits. The economic data continues to point toward a moderately growing economy, a softening job market and moderate but sticky inflation. A broadening out of economic activity beyond just AI focused capital should help push corporate profit growth over 10% for 2026. 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

Global inflation rates were mixed across regions but generally showed signs of easing. In the U.K., inflation unexpectedly eased to an eight-month low of 3.2%, but the unemployment rate rose to a four-year high and private-sector wage growth fell to a five-year low. As U.K. macro indicators weakened, the Bank of England cut its policy rate by 0.25% to 3.75%. In contrast, the European Central Bank left policy rates unchanged for the fourth consecutive meeting, as inflation remained near its 2% target and underlying growth proved resilient. Specifically, Germany finally showed signs of stabilization, with industrial production rising for two consecutive months (September and October), following GDP growth of 0.3% year-over-year in the third quarter. Even politically embattled France, whose Prime Minister Lecornu briefly resigned during the quarter, exceeded expectations and reported 0.9% annual growth.

In Asia, the quarter’s news cycle was dominated by the U.S.-China trade saga and evolving security postures. While tensions escalated early in the quarter, the two countries reached a one-year trade truce following a meeting between Presidents Trump and Xi at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea. Under the agreement, China’s effective tariff rate declined to 47%, and export controls on critical rare earth materials were deferred. The timing may prove important, as China continues to contend with persistent deflationary pressures, declining fixed-asset investment and weak retail sales ahead of the implementation of its next Five-Year Plan in 2026. However, while relations with the U.S. improved, China’s relationship with Japan became strained after Japan’s first female prime minister, Sanae Takaichi, stated that Japan would militarily intervene if Beijing used force against Taiwan. Chinese officials warned that the comments had “severely damaged” trade cooperation, raising the risk of economic repercussions. These tensions emerged just as Japan reported its first economic contraction in six quarters. In response, Japan finalized a ¥21.3 trillion stimulus package; meanwhile, the Bank of Japan raised its policy rate to 0.75%, the highest level in three decades.

Beyond U.S.-China and Japan-China tensions, other geopolitical issues were in focus. In Europe, hopes rose for a resolution in Ukraine as diplomatic efforts intensified (with direct U.S. involvement in talks). In the Middle East, the Israel-Hamas ceasefire brokered by the U.S. in October largely held, allowing the release of all surviving Israeli hostages, an increase in humanitarian aid into Gaza and a lull in hostilities. Yet new flashpoints emerged in the Western Hemisphere: the U.S.-Venezuela confrontation escalated when the U.S. conducted a drone strike on a Venezuelan port used by cartels. While this action raised concerns about a broader conflict, analysts noted it could also embolden China in its territorial posturing (citing that U.S. actions set precedents, even though an analog in Taiwan is still seen as unlikely in the near term). In summary, by the end of 2025, many geopolitical conflicts that had unsettled markets earlier in the year showed tentative progress or containment, while new uncertainties arose that will carry into 2026.

Annual Markets Review

Global equity markets continued their upward trajectory in 2025, with the MSCI ACWI delivering a full-year return of 22.34%. Growth stocks outperformed value during the year, as the MSCI ACWI Growth Index exceeded the MSCI ACWI Value Index by 0.46%. Meanwhile, fixed income markets rallied, as the Bloomberg Global Aggregate Bond Index advanced 8.17%.

As markets digested new trade agreements, economic data and policy decisions by central banks, 2025 proved to be a resilient year for risk assets. However, even strong markets presented their own set of challenges. Factors such as momentum and volatility outperformed quality, and while economic indicators and corporate earnings were broadly supportive, central banks and corporate management teams struck a more cautious tone heading into 2026.

Given the risks and uncertainties surrounding macroeconomic conditions and market narratives, we believe it remains prudent to focus on individual businesses and their long-term fundamentals. By concentrating on what is analyzable, we believe our approach is well suited to navigating a range of market environments while remaining disciplined through full market cycles.

Performance and Attribution Summary

For the fourth quarter of 2025, Aristotle Capital’s International Equity Composite posted a total return of 5.60% gross of fees (5.47% net of fees), outperforming the MSCI EAFE Index, which returned 4.86%, and the MSCI ACWI ex USA Index, which returned 5.05%. Please refer to the table below for detailed performance.

Performance (%)	4Q25	1 Year	3 Years	5 Years	10 Years	Since Inception*
International Equity Composite (gross)	5.60	23.31	15.80	7.64	8.48	6.58
International Equity Composite (net)	5.47	22.71	15.23	7.11	7.94	6.05
MSCI EAFE Index (net)	4.86	31.22	17.22	8.92	8.18	4.23
MSCI ACWI ex USA Index (net)	5.05	32.39	17.33	7.91	8.41	4.00

Erste Group Bank, a leading retail and commercial bank in Central and Eastern Europe, was the top contributor during the quarter. The company reported strong operating performance, driven by healthy loan growth across core markets, resilient net interest income and solid fee income, with contributions from securities, asset management and payments. Its diversified, retail-oriented banking model, leading market positions across core geographies and strong deposit franchise anchored in household customers continue to support the business. During the quarter, Erste cleared key milestones related to its previously announced acquisition of a 49% stake in Santander Bank Polska. With regulatory conditions satisfied late in the quarter, the transaction is expected to close in early 2026. We view this transaction as strategically attractive, expanding Erste’s footprint into Poland, one of the region’s largest and most dynamic banking markets, while enhancing scale and diversification. More broadly, Erste’s exposure to underbanked Central and Eastern European economies positions the company to benefit as incomes rise and demand for credit, savings and financial services continues to grow. Ongoing investment in technology and digital capabilities supports efficiency, customer engagement and long-term profitability.

FANUC, the Japanese leader in factory automation and industrial robotics, was a top contributor during the quarter. The company operates across factory automation systems, industrial robots and precision machining centers, serving automotive, electronics and general industrial end markets. Results through the first half of fiscal year 2025 marked a clear inflection, with operating margin expanding to 21% as factory utilization and pricing discipline held firm. Performance was further supported by a sharp rebound in China, where robot sales grew over 80% year-over-year, more than offsetting softer demand in Europe and Japan. Beyond the cyclical recovery, FANUC continues to deepen its competitive advantages. Its dominant position in computer numerical control (CNC) systems, the “brains” of machine tools, underpins a large and highly sticky installed base. During the quarter, the company highlighted an increasingly open software strategy that allows third parties to develop applications directly on FANUC’s platform while maintaining safety and reliability at the controller level. This approach is reinforced by FANUC’s collaboration with NVIDIA, announced during the quarter and linking FANUC’s robot simulation tools with NVIDIA’s Omniverse software to enable highly accurate digital twins and accelerate deployment of AI-driven robotics. This leadership extends across its Robot and Robomachine segments, supported by an integrated hardware, software and service ecosystem that is difficult to replicate and highly valued in mission-critical applications. As global automation adoption accelerates amid labor shortages, rising wages and increasing manufacturing complexity, we believe FANUC is well-positioned to grow alongside its customers while sustaining attractive margins, supported by disciplined capital allocation and a growing mix of higher-margin service and software revenues.

Sony, the global leader in video games, image sensors, music and movies, was a primary detractor for the period. Shares declined following the recognition of a one-time, non-cash charge of approximately ¥50 billion in the Game & Network Services segment related to an impairment and accounting correction of previously capitalized development costs. Importantly, this charge was not recurring and did not reflect a deterioration in underlying operating performance. Excluding this item, operating income would have increased approximately 23% year-over-year, supported by healthy gaming engagement, continued growth in network services and software sales, and strong results in the Music segment driven by streaming growth and recent theatrical releases. The company’s image sensor business also benefited from a favorable product mix and steady end-market demand. Looking ahead, we continue to see opportunity for Sony to capitalize on its unique position as both a content creator and platform owner. The company’s ability to integrate gaming, music, anime and film—and to leverage IP across its ecosystem—supports sustained engagement and recurring revenue. In addition, the recent spinoff of Sony’s Financial Services segment further sharpens management’s focus on its core content, technology and entertainment operations. We believe Sony’s industry leadership and continued focus on operational execution position the company well for long-term value creation.

Experian, one of the world’s largest credit bureau companies, was a primary detractor during the quarter. Shares declined despite continued solid execution in the core business. Results in North America remained strong, with broad-based growth across financial services, consumer, automotive and health verticals, but performance in certain international markets, particularly Latin America, was constrained by high interest rates and elevated consumer indebtedness, which tempered near-term revenue growth expectations. We continue to view Experian as a uniquely advantaged big data and analytics business with a durable competitive position. The company maintains credit and identity data on approximately 1.5 billion consumers and about 200 million businesses globally, a depth and breadth that would be extremely difficult to replicate. This scale underpins powerful network effects, high switching costs and limited competition in its core markets. Importantly, the cost of Experian’s data is negligible relative to the financial risk it helps clients manage, supporting strong pricing power and resilient margins across credit cycles. Over our more than 15-year ownership period, Experian has consistently expanded beyond its traditional bureau roots by monetizing its proprietary datasets through software, analytics, fraud prevention and direct-to-consumer offerings. We believe the company will continue to benefit from rising penetration of its higher-value decisioning and analytics platforms, expanding consumer engagement, new monetization of “positive” data in markets such as Brazil, and the continued rollout of data-driven solutions into adjacent verticals, including healthcare, automotive and marketing services.

Recent Portfolio Activity

Buys	Sells
Aristocrat Leisure	Kubota
	Nidec
	Sony Financial

During the quarter, we sold our positions in Kubota, Nidec and Sony Financial and invested in Aristocrat Leisure.

We first invested in Kubota, the maker of tractors and construction machinery, during the second quarter of 2015. During our holding period, the company gained share in small tractors and construction machinery in North America, expanded in Southeast Asia, and restructured its water and environment segment. While Kubota maintains strong market positions in Japan, the U.S. and Thailand, share gains in these markets appear to be maturing. More recently, the industry has become increasingly promotional, requiring greater use of customer financing, which has raised capital intensity and pressured margins as interest rates have increased. Meanwhile, India remains an attractive long-term tractor market, but Kubota has yet to demonstrate an ability to take meaningful share. We exited the position in favor of what we considered to be a more compelling opportunity but continue to view Kubota as a high-quality company.

We invested in Nidec more than a decade ago, initially attracted by the company’s position as a global leader in precision motors, its strong market share across hard disk drive, its growing presence in industrial and automotive applications, and its ability to consolidate a fragmented industry while generating attractive margins and returns on invested capital. Over our holding period, Nidec maintained leadership in several core motor categories and benefited from long-term demand for energy-efficient solutions across industrial, appliance and data center markets. However, several anticipated catalysts were slower to materialize. The company’s expansion into electric vehicle traction motors proved more competitive and less profitable than expected, while frequent leadership changes, strategic shifts and, more recently, manufacturing and accounting issues introduced persistent uncertainty. Despite efforts to improve discipline and profitability, ongoing investigations and questions around business quality and controls reduced the clarity and predictability of the business. Given these unresolved issues, we concluded that Nidec no longer offered an attractive risk-adjusted return and exited the position.

We received shares of Sony Financial Group following its spin-off from our long-term holding, Sony Group, in October 2025. Sony Financial is a Japan-based financial services company with operations in life insurance, banking and digital payments. While we view Sony Financial as an attractive, well-managed business, we already have meaningful exposure to the global insurance industry through holdings such as AIA Group and Munich Re. Given our existing positioning, we elected to sell the shares received in the spinoff.

Aristocrat Leisure Limited

Founded in 1953 and headquartered in Sydney, Australia, Aristocrat Leisure is a global gaming company that designs and manufactures slot machines and casino systems alongside digital and mobile gaming content. While Australian-domiciled, North America accounts for more than half of total revenue, where Aristocrat holds strong positions across both commercial and tribal gaming markets.

The company operates through three distinct segments: Gaming (~63% of revenue), which includes physical slot machines and gaming systems installed in casinos; Product Madness (~29%), which consists of free-to-play social casino games distributed on mobile platforms; and Interactive (~9%), which houses the company’s regulated real-money digital gaming activities, including iGaming and iLottery. Aristocrat’s 2024 acquisition of NeoGames materially expanded this digital footprint, adding capabilities across the value chain such as player account management platforms and enhanced content distribution.

High-Quality Business

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

• A leading position in the global gaming machine market, supported by a large installed base of machines and a business model in which more than 70% of revenue is now recurring in nature, significantly reducing cyclicality and reliance on casino capital spending relative to the past;
• An oligopolistic industry structure, with the three leading gaming machine manufacturers controlling more than 75% of total industry volume, creating high barriers to entry, rational competition and attractive long-term economics for incumbents;
• A meaningful design and development advantage, underpinned by sustained investment well above industry peers, which supports a differentiated content pipeline, reinforces long-lived franchises such as Lightning Link, Dragon Link, and Buffalo, and contributes to strong returns on invested capital; and
• Deep, long-standing relationships with casino operators—particularly tribal customers—supported by proprietary content, long-lived installations and high switching costs. 

Attractive Valuation

We believe shares of Aristocrat are attractively valued relative to our estimate of intrinsic value. Despite strong market positions, a growing mix of recurring revenue and improving margins, the stock appears to be priced as a more cyclical and less-durable business than is warranted, in our view. Therefore, we believe the current valuation does not fully reflect Aristocrat’s underlying earnings power or its ability to compound FREE cash flow over time.

Compelling Catalysts

Catalysts we have identified for Aristocrat, which we believe will drive stock price appreciation over our three- to five-year investment horizon, include:

• Continued share gains in the North American gaming machine market, particularly within the premium-leased segment, which should support higher margins over time;
• A continued shift toward recurring revenue sources across gaming operations and digital platforms, resulting in greater earnings predictability and stronger FREE cash flow generation; and
• The integration of NeoGames, which enables a more end-to-end iGaming and iLottery offering, improves content distribution, and positions Aristocrat to benefit from ongoing consolidation in highly regulated, annuity-like digital lottery and gaming markets.

Conclusion

Markets and economic conditions will continue to evolve, often in ways that are difficult to anticipate. While we remain attentive to these developments, our work is ultimately centered on understanding individual businesses—how they compete, how they allocate capital and how their economics change over time. We recognize that progress in business fundamentals and investment outcomes do not always align over shorter periods. Thus, we approach our investment process with patience and a willingness to reassess our views as circumstances change. Rather than react impulsively to every macro headline or try to time short-term market moves, we focus on what is analyzable and enduring: the long-term fundamentals of the companies we own. We believe this careful, fundamental approach remains the most reliable way to add value for our clients over the long run, across a wide range of market environments.

One of our Portfolio Managers has a beloved brother and family. The PM tries to spend quality time with them on every occasion. Birthdays are a good time to hang out and celebrate. Recently, on the brother’s birthday, the family was all together, early one Saturday.

“What shall we do today, to make it special?” asked our PM.

The brother replied … “Of course, we need to begin by going to IHOP for breakfast. You get free pancakes on your birthday!”

“Um, pancakes, OK for a start. Then what?”

“You can then come with me to that car dealer I told you of, the one that gives away free pens for each test drive.”

“Oh, you’re buying a new car? Great day for that!”

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

As we reflect on our journey and the progress made since the inception of our Council, we are proud of the strides we have made to expand our Diversity, Equity and Inclusion efforts. In 2024, we emphasized this expansion by strengthening our partnership with Human Resources and together adding depth to our employee programs and community engagement. We believe embracing diverse experiences and perspectives enhances decision-making and ultimately leads to better outcomes for our clients, employees and communities.

Robotics marks a foundational shift in how industries perform physical work, blending mechanical systems with intelligent software to automate tasks once reserved for humans. As automation scales from factory floors to hospitals, farms, highways and defense systems, demand is accelerating in response to long-term shifts in labor availability, sustainability priorities and technological capability. The rapid evolution of robotics is no longer theoretical—it is now an investable reality. We estimate that the total addressable market (TAM) for robotics in 2025 was $107 billion and project it to grow to $711 billion in 2035, implying a compound annual growth rate (CAGR) of 21% (see Appendix). While estimates differ depending on how broadly or narrowly robotics is defined, this forecast illustrates the substantial long-term market growth potential and underscores the scale of opportunity for investors. Companies that integrate robotics into their operations are gaining competitive advantages through efficiency and scalable growth models. While deployment challenges and regulatory considerations remain, we believe robotics is positioned to become one of the most important enablers of economic transformation in the decades ahead.

To read the full thought piece, please use the link below. 

To view the full presentation click here

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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.