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

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg
Past performance is not indicative of future results. Aristotle Global Equity Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are presented net of model fees. Net returns are calculated by subtracting a model fee of 0.50% on an annual basis or 0.04167% on a monthly basis. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets continued to surge, with the MSCI ACWI Index returning 7.62% for the third quarter. Concurrently, global fixed income markets also advanced, as the Bloomberg Global Aggregate Bond Index increased 0.60%. Value stocks underperformed growth stocks over the quarter, with the MSCI ACWI Value Index trailing the MSCI ACWI Growth Index by 2.85%.

Gains in the global equity markets were broad-based during the period, with Emerging Markets performing especially well. Among Developed Markets, North America and Japan were top performers, while gains in Europe were more subdued. On a sector basis, ten out of the eleven sectors within the MSCI ACWI Index advanced, led by Information Technology, Communication Services and Materials. Consumer Staples, Real Estate and Health Care were the worst-performing sectors.

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

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

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

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

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

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

Performance and Attribution Summary

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

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.

From a sector perspective, the portfolio’s underperformance relative to the MSCI ACWI Index can be attributed to both security selection and allocation effects. Security selection in Information Technology and Materials, as well as an underweight in Information Technology, detracted the most from the portfolio’s relative performance. Conversely, security selection in Financials, Communication Services and Consumer Discretionary contributed to relative return.

Regionally, both security selection and allocation effects were responsible for the portfolio’s underperformance relative to the MSCI ACWI Index. Security selection in Europe detracted the most from relative performance, while security selection in Asia/Pacific ex-Japan was the largest contributor.

Contributors and Detractors for 3Q 2025

Relative Contributors	Relative Detractors
Samsung Electronics	MonotaRO
Sony	Nemetschek
FirstCash	Alcon
Cameco	DSM-Firmenich
Jazz Pharmaceuticals	Microchip Technology

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

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

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

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

Recent Portfolio Activity

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

Conclusion

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

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

Markets Review

Sources: CAPS CompositeHub^TM, Bloomberg

Past performance is not indicative of future results. Aristotle International Equity Composite returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross returns will be reduced by fees and other expenses that may be incurred in the management of the account. Net returns are calculated by subtracting a model fee of 0.50% on an annual basis or 0.04167% on a monthly basis, which includes trading costs and the revinvestment of all income. Aristotle Capital Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Global equity markets continued to surge, with the MSCI ACWI Index returning 7.62% for the third quarter. Concurrently, global fixed income markets also advanced, as the Bloomberg Global Aggregate Bond Index increased 0.60%. Value stocks underperformed growth stocks over the quarter, with the MSCI ACWI Value Index trailing the MSCI ACWI Growth Index by 2.85%.

The MSCI EAFE Index gained 4.77% during the period, while the MSCI ACWI ex USA Index rose 6.89%. Within the MSCI EAFE Index, Asia and the U.K. were the strongest performers, while Europe & Middle East increased the least. On a sector basis, ten out of the eleven sectors within the MSCI EAFE Index posted positive returns, with Financials, Consumer Discretionary and Energy generating the largest gains. Conversely, Consumer Staples, Health Care and Communication Services performed the worst.

Global growth projections improved, supported by fiscal expansion in major economies and a trade environment that, while still strained, has shown some stabilization compared to earlier this year. The IMF now forecasts global GDP growth of 3.0% in 2025 and 3.1% in 2026, both higher than prior estimates. While uncertainties remain—ranging from trade negotiations and tariff changes to fiscal deficits and geopolitical tensions—financial conditions have strengthened. A notable factor has been the ~14% depreciation of the U.S. dollar against the euro this year, which has helped flatten implied policy paths and provided monetary policy flexibility for developing economies. Meanwhile, global inflation readings were mixed, as headline inflation edged slightly higher, while core inflation declined below 2%, with varying levels on a regional basis.

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

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

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

Performance and Attribution Summary

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

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.

From a sector perspective, the portfolio’s underperformance relative to the MSCI EAFE Index can be attributed to security selection, while allocation effects had a positive impact. Security selection in Industrials, Materials and Consumer Discretionary detracted the most from the portfolio’s relative performance. Conversely, security selection in Financials and Energy, as well as a lack of exposure to Communication Services, contributed to relative returns.

Regionally, security selection was responsible for the portfolio’s underperformance, while allocation effects had a positive impact. Security selection in Europe & Middle East and Asia detracted the most from relative performance, while exposure to Emerging Markets and Canada contributed.

Contributors and Detractors for 3Q 2025

Relative Contributors	Relative Detractors
Samsung Electronics	MonotaRO
Creditcorp	Accenture
Cameco	Nemetschek
Sony	Alcon
Erste Group Bank	Haleon

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

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

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

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

Recent Portfolio Activity

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. 

ARISTOTLE CAPITAL BOSTON, LLC

Markets Review

U.S. small/mid cap equities delivered robust performance in the third quarter of 2025, with the Russell 2500 Index reaching its first all-time high since November 2024. The rally was driven by a generally favorable macroeconomic backdrop, including a 25 basis point rate cut by the Federal Reserve in September, which marked a shift toward more accommodative policy amid signs of labor market softening. U.S. GDP growth remained strong at 3.8% in Q2, supported by resilient consumer spending and the easing of trade tensions following tariff rollbacks. Inflation edged higher to 2.9%, driven in part by energy costs and tariff passthroughs, but remained within a manageable range for businesses and consumers. Sentiment was risk-on, fueled by Artificial Intelligence driven optimism as companies with AI exposure or disruptive potential saw disproportionate gains, as investors chased momentum and future earnings potential over traditional valuation metrics. Small/mid-caps benefited from dovish Fed rhetoric, attractive relative valuations, broadening of market breadth, earnings recovery and a rotation away from mega cap stocks.

Stylistically, growth stocks outperformed their value counterparts during the quarter as the Russell 2500 Growth Index returned 10.73% compared to the 8.17% return of the Russell 2500 Value index. This continues the 2024 trend where growth significantly outperformed value.

From a factor perspective, lower quality companies significantly outperformed higher quality companies during the quarter. Factors that had the strongest payoffs were high beta, momentum, higher volatility, non-earners, high sales growth, micro caps, cyclical, and highly shorted stocks.

The best performing sectors were Information Technology (+14.47%), Health Care (+12.37%), and Utilities (+12.30%), while the worst performing sectors were Consumer Staples (-3.77%), Financials (+4.02%), and Real Estate (+5.79%).

Sources: CAPS Composite Hub, Russell Investments
Past performance is not indicative of future results. Composite returns are presented pure gross and net of the maximum wrap fee and include the reinvestment of all income. Pure gross returns do not reflect the deduction of any trading costs or other fees and are supplemental to the net returns. Net returns are calculated by subtracting the highest applicable wrap/SMA fee, which includes trading costs and custodial fees, from the pure gross monthly composite return (2.00% on an annual basis, or 0.17% monthly). Composite returns are preliminary pending final account reconciliation. Please see important disclosures at the end of this document.

Performance Review

For the third quarter of 2025, the Aristotle Small/Mid Cap Equity Composite generated a total return of 2.57% net of fees (3.07% pure gross of fees), underperforming the 9.00% total return of the Russell 2500 Index. The largest detractor from relative performance was security selection in Health Care (a combination of stocks we owned coupled with not owning biotechnology), Industrials and Materials. This was partially offset by strong security selection in Consumer Discretionary coupled with an overweight allocation to Information Technology and an underweight allocation to Financials.

CONTRIBUTORS

Ciena (CIEN), is an optical networking equipment manufacturer for telecommunications and web scale network operators. The stock was bolstered due to strong earnings results and optimistic forward guidance driven by AI-related demand and technological innovation. We believe the company is well-positioned to benefit from strong demand for bandwidth given its differentiated product portfolio and history of technological innovation, which should lead to strong operating results and shareholder value creation.

Alamos Gold (AGI-CA), engages in the exploration, development, mining and extraction of precious metals. The company benefited from rising gold prices as investors purchased the commodity as an inflation hedge. We maintain our investment as we believe in the company’s lower geopolitical risk profile, solid production growth plan from 600k oz to 1M oz per year over the next five years, and strong operational track record.

DETRACTORS

Haemonetics (HAE), is a global provider of hematology and blood management products and solutions. The company delivered mixed results during the quarter, beating analyst earnings estimates but posting weaker than expected revenue results. We believe that the company’s strong competitive position within the plasmapheresis market along with increased investment in research and development should create value for shareholders over a multi-year period.

MACOM Technology Solutions (MTSI), is a designer and manufacturer of high-performance semiconductor products. Despite reporting strong Q3 earnings, the stock declined as investors reacted to a slight margin impact from a recent acquisition and a slower-than-expected recovery in the industrial market—both short-term deviations from analyst forecasts. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Columbia Banking System (COLB), is a Washington state based commercial bank that is in the early stages of winding down a large portfolio of low-yielding loans with organically driven higher yielding relationship loans and lower cost core deposit funding. A combination of operational cost savings associated with the Pacific Premier Bancorp merger and an increased focus on increasing fee-based income should allow for higher than historical profit margins and an attractive EPS growth outlook, ultimately allowing for incremental share buybacks or dividend increases.

Essential Utilities (WTRG), is a Pennsylvania-based utility providing water, wastewater, and natural gas services across nine states through its Aqua and Peoples Gas subsidiaries. Rate base expansion should continue to be driven by ongoing infrastructure investments and municipal water system acquisitions. A favorable regulatory landscape in the company’s core markets, including Pennsylvania and Texas, supports operational stability and consistent dividend growth. The company is a designated “Dividend Aristocrat”, having raised its dividend for 34 straight years.

Hilton Grand Vacations (HGV), isa leading global timeshare company that develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select vacation destinations, under the brand names: Hilton Vacation Club, Hilton Grand Vacation Club, Hilton Club. HGV’s proprietary relationship with Hilton Worldwide Holdings (HLT) allows it to market exclusively to HLT’s 180 mil Hilton Honors members to capitalize on growing demand for travel. Recent acquisitions broadened the company resort base to include properties appealing to higher income consumers.

James Hardie Industries (JHX), manufactures Fiber Cement and Fiber Gypsum products (siding, backerboard, etc.) used primarily in residential construction (newbuild and repair/remodel). JHX acquired the existing portfolio company, The AZEK Company (AZEK), which provides JHX with a broader product offering for distributors, contractors and homeowners, positioning the company for market share gains in an expanded addressable market. Operating synergies, merger cost synergies and enhanced scale efficiencies should further enhance the shareholder value creation potential.

Pinnacle West Capital (PNW), isan Arizona-based, vertically integrated electric utility company serving central Arizona. Population migration and the expansion of industrial manufacturing within the Phoenix metropolitan area is driving increased energy demand and capital investment opportunities for the company. An improving regulatory backdrop in Arizona should also allow for reduced earnings volatility and accelerated cost recovery moving forward.

Primo Brands (PRMB), is a branded beverage company focused on healthy hydration. The company is the top player in U.S. bottled water with approximately 19% market share. The portfolio of brands is well diversified across distribution channels, product format, sizes and price points that allow the company to cost efficiently reach 90% of the U.S. population. Increasing consumption of bottled water should be supported by concerns about municipal tap water quality, the wellness movement leading to lower consumption of soda, juice, and alcoholic beverages, and innovation in water flavors and premium products attracting consumers toward the category.

Service Corporation International (SCI), is North America’s largest provider of deathcare products and services. The company is strategically positioned to benefit from long-term demographic tailwinds driven by the aging Baby Boomer population. Given the high fixed-cost nature of the business, rising volumes are expected to deliver operating leverage, driving margin expansion and increased cash generation. Total shareholder value is further enhanced by a balanced capital allocation strategy, featuring dividends, share repurchases, and accretive acquisitions that strengthen the company’s market leadership.

SELLS/LIQUIDATIONS

1-800-FLOWERS.COM (FLWS), is an e-commerce provider of floral and gift products. The position was liquidated due to an increasingly uncertain fundamental outlook.

ALLETE (ALE), is a Minnesota based electric utility company. The position was liquidated ahead of its pending acquisition by a private equity consortium.

AZEK (AZEK), is a manufacturer of composite decking products for primarily residential applications. The company was acquired by James Hardie Industries plc (JHX).

Carter’s (CRI), is a manufacturer, distributor and retailer of infant and young children’s apparel. The position was liquidated due to deteriorated fundamental performance and an uncertain strategic outlook.

Pacific Premier Bancorp (PPBI), a California based bank holding company, was acquired by Columbia Banking System (COLB).

NCR Voyix (VYX), is a provider of digital commerce solutions to the retail, restaurants, and digital banking industries. The position was liquidated due to deteriorating fundamental performance following the spin out from NCR Corporation.

Outlook

We remain optimistic about the long-term potential for the small/mid-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range. Potential tailwinds, including deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for small/mid-cap stocks. Volatility remains elevated over concerns around inflationary risks, geopolitical tensions, and potential U.S. economic and labor weakness.

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 Information Technology and Materials 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 are also underweight in Financials as the sector has experienced strong returns, leading us to harvest gains and redeploy the proceeds to what we consider to be more attractive reward to risk opportunities. Given our focus on long-term business fundamentals, our 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

U.S. small/mid cap equities delivered robust performance in the third quarter of 2025, with the Russell 2500 Index reaching its first all-time high since November 2024. The rally was driven by a generally favorable macroeconomic backdrop, including a 25 basis point rate cut by the Federal Reserve in September, which marked a shift toward more accommodative policy amid signs of labor market softening. U.S. GDP growth remained strong at 3.8% in Q2, supported by resilient consumer spending and the easing of trade tensions following tariff rollbacks. Inflation edged higher to 2.9%, driven in part by energy costs and tariff passthroughs, but remained within a manageable range for businesses and consumers. Sentiment was risk-on, fueled by Artificial Intelligence driven optimism as companies with AI exposure or disruptive potential saw disproportionate gains, as investors chased momentum and future earnings potential over traditional valuation metrics. Small/mid-caps benefited from dovish Fed rhetoric, attractive relative valuations, broadening of market breadth, earnings recovery and a rotation away from mega cap stocks.

Stylistically, growth stocks outperformed their value counterparts during the quarter as the Russell 2500 Growth Index returned 10.73% compared to the 8.17% return of the Russell 2500 Value index. This continues the 2024 trend where growth significantly outperformed value.

From a factor perspective, lower quality companies significantly outperformed higher quality companies during the quarter. Factors that had the strongest payoffs were high beta, momentum, higher volatility, non-earners, high sales growth, micro caps, cyclical, and highly shorted stocks.

The best performing sectors were Information Technology (+14.47%), Health Care (+12.37%), and Utilities (+12.30%), while the worst performing sectors were Consumer Staples (-3.77%), Financials (+4.02%), and Real Estate (+5.79%).

Sources: CAPS Composite Hub, Russell Investments

Sources: CAPS Composite Hub, Russell InvestmentsPast 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 third quarter of 2025, the Aristotle Small/Mid Cap Equity Composite generated a total return of 2.93% net of fees (3.07% gross of fees), underperforming the 9.00% total return of the Russell 2500 Index. The largest detractor from relative performance was security selection in Health Care (a combination of stocks we owned coupled with not owning biotechnology), Industrials and Materials. This was partially offset by strong security selection in Consumer Discretionary coupled with an overweight allocation to Information Technology and an underweight allocation to Financials.

CONTRIBUTORS

Ciena (CIEN), is an optical networking equipment manufacturer for telecommunications and web scale network operators. The stock was bolstered due to strong earnings results and optimistic forward guidance driven by AI-related demand and technological innovation. We believe the company is well-positioned to benefit from strong demand for bandwidth given its differentiated product portfolio and history of technological innovation, which should lead to strong operating results and shareholder value creation.

Alamos Gold (AGI-CA), engages in the exploration, development, mining and extraction of precious metals. The company benefited from rising gold prices as investors purchased the commodity as an inflation hedge. We maintain our investment as we believe in the company’s lower geopolitical risk profile, solid production growth plan from 600k oz to 1M oz per year over the next five years, and strong operational track record.

DETRACTORS

Haemonetics (HAE), is a global provider of hematology and blood management products and solutions. The company delivered mixed results during the quarter, beating analyst earnings estimates but posting weaker than expected revenue results. We believe that the company’s strong competitive position within the plasmapheresis market along with increased investment in research and development should create value for shareholders over a multi-year period.

MACOM Technology Solutions (MTSI), is a designer and manufacturer of high-performance semiconductor products. Despite reporting strong Q3 earnings, the stock declined as investors reacted to a slight margin impact from a recent acquisition and a slower-than-expected recovery in the industrial market—both short-term deviations from analyst forecasts. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Columbia Banking System (COLB), is a Washington state based commercial bank that is in the early stages of winding down a large portfolio of low-yielding loans with organically driven higher yielding relationship loans and lower cost core deposit funding. A combination of operational cost savings associated with the Pacific Premier Bancorp merger and an increased focus on increasing fee-based income should allow for higher than historical profit margins and an attractive EPS growth outlook, ultimately allowing for incremental share buybacks or dividend increases.

Essential Utilities (WTRG), is a Pennsylvania-based utility providing water, wastewater, and natural gas services across nine states through its Aqua and Peoples Gas subsidiaries. Rate base expansion should continue to be driven by ongoing infrastructure investments and municipal water system acquisitions. A favorable regulatory landscape in the company’s core markets, including Pennsylvania and Texas, supports operational stability and consistent dividend growth. The company is a designated “Dividend Aristocrat”, having raised its dividend for 34 straight years.

Hilton Grand Vacations (HGV), is a leading global timeshare company that develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select vacation destinations, under the brand names: Hilton Vacation Club, Hilton Grand Vacation Club, Hilton Club. HGV’s proprietary relationship with Hilton Worldwide Holdings (HLT) allows it to market exclusively to HLT’s 180 mil Hilton Honors members to capitalize on growing demand for travel. Recent acquisitions broadened the company resort base to include properties appealing to higher income consumers.

James Hardie Industries (JHX), manufactures Fiber Cement and Fiber Gypsum products (siding, backerboard, etc.) used primarily in residential construction (newbuild and repair/remodel). JHX acquired the existing portfolio company, The AZEK Company (AZEK), which provides JHX with a broader product offering for distributors, contractors and homeowners, positioning the company for market share gains in an expanded addressable market. Operating synergies, merger cost synergies and enhanced scale efficiencies should further enhance the shareholder value creation potential.

Pinnacle West Capital (PNW), is an Arizona-based, vertically integrated electric utility company serving central Arizona. Population migration and the expansion of industrial manufacturing within the Phoenix metropolitan area is driving increased energy demand and capital investment opportunities for the company. An improving regulatory backdrop in Arizona should also allow for reduced earnings volatility and accelerated cost recovery moving forward.

Primo Brands (PRMB), is a branded beverage company focused on healthy hydration. The company is the top player in U.S. bottled water with approximately 19% market share. The portfolio of brands is well diversified across distribution channels, product format, sizes and price points that allow the company to cost efficiently reach 90% of the U.S. population. Increasing consumption of bottled water should be supported by concerns about municipal tap water quality, the wellness movement leading to lower consumption of soda, juice, and alcoholic beverages, and innovation in water flavors and premium products attracting consumers toward the category.

Service Corporation International (SCI), is North America’s largest provider of deathcare products and services. The company is strategically positioned to benefit from long-term demographic tailwinds driven by the aging Baby Boomer population. Given the high fixed-cost nature of the business, rising volumes are expected to deliver operating leverage, driving margin expansion and increased cash generation. Total shareholder value is further enhanced by a balanced capital allocation strategy, featuring dividends, share repurchases, and accretive acquisitions that strengthen the company’s market leadership.

SELLS/LIQUIDATIONS

1-800-FLOWERS.COM (FLWS), is an e-commerce provider of floral and gift products. The position was liquidated due to an increasingly uncertain fundamental outlook.

ALLETE (ALE), is a Minnesota based electric utility company. The position was liquidated ahead of its pending acquisition by a private equity consortium.

AZEK (AZEK), is a manufacturer of composite decking products for primarily residential applications. The company was acquired by James Hardie Industries plc (JHX).

Carter’s (CRI), is a manufacturer, distributor and retailer of infant and young children’s apparel. The position was liquidated due to deteriorated fundamental performance and an uncertain strategic outlook.

Pacific Premier Bancorp (PPBI), a California based bank holding company, was acquired by Columbia Banking System (COLB).

NCR Voyix (VYX), is a provider of digital commerce solutions to the retail, restaurants, and digital banking industries. The position was liquidated due to deteriorating fundamental performance following the spin out from NCR Corporation.

Outlook

We remain optimistic about the long-term potential for the small/mid-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range. Potential tailwinds, including deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for small/mid-cap stocks. Volatility remains elevated over concerns around inflationary risks, geopolitical tensions, and potential U.S. economic and labor weakness.

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 Information Technology and Materials 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 are also underweight in Financials as the sector has experienced strong returns, leading us to harvest gains and redeploy the proceeds to what we consider to be more attractive reward to risk opportunities. Given our focus on long-term business fundamentals, our 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

U.S. small cap equities delivered robust performance in the third quarter of 2025, with the Russell 2000 Index reaching its first all-time high since November 2021. The rally was driven by a generally favorable macroeconomic backdrop, including a 25 basis point rate cut by the Federal Reserve in September, which marked a shift toward more accommodative policy amid signs of labor market softening. U.S. GDP growth remained strong at 3.8% in Q2, supported by resilient consumer spending and the easing of trade tensions following tariff rollbacks. Inflation edged higher to 2.9%, driven in part by energy costs and tariff passthroughs, but remained within a manageable range for businesses and consumers. Sentiment was risk-on, fueled by Artificial Intelligence driven optimism as companies with AI exposure or disruptive potential saw disproportionate gains, as investors chased momentum and future earnings potential over traditional valuation metrics. Small caps benefited from dovish Fed rhetoric, attractive relative valuations, broadening of market breadth, earnings recovery and a rotation away from mega cap stocks.

Stylistically, value stocks slightly outperformed their growth counterparts during the quarter as the Russell 2000 Value Index returned 12.60% compared to the 12.19% return of the Russell 2000 Growth index. This may be counterintuitive as growth factors mainly drove the market but the Russell 2000 Value Index’s financials sector weight (2.5x larger than the Russell 2000 Growth Index) significantly benefitted from the cut in interest rates.

From a factor perspective, lower quality companies significantly outperformed higher quality companies during the quarter. Factors that had the strongest payoffs were high beta, momentum, higher volatility, non-earners, high sales growth, micro caps, cyclical and highly shorted stocks.

At the sector level, cyclical stocks outperformed defensive stocks. The best performing sectors were Materials (+25.01%), Industrials (+16.56%), and Communication Services (+16.12%) while the worst performing sectors were Consumer Staples (+1.75%), Financials (+4.34%), and Real Estate (+6.95%).

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 third quarter of 2025, the Aristotle Small Cap Equity Composite posted a total return of 3.17% net of fees (3.34% gross of fees), underperforming the 12.39% total return of the Russell 2000 Index. The largest detractor from relative performance was security selection in Industrials, Health Care (a combination of stocks we owned coupled with not owning biotechnology) and Information Technology (not owning quantum computing stocks and non-earning SaaS companies). This was partially offset by strong security selection in the Consumer Discretionary sector coupled with an underweight allocation to Financials and an overweight allocation to Materials.

CONTRIBUTORS

Supernus Pharmaceuticals (SUPN), is a Maryland-based specialty pharmaceutical company focused on developing drugs to treat Central Nervous System diseases. The stock benefitted from strong quarterly results, beating analyst expectations, alongside raising FY25 forecasts. We continue to maintain our position as we believe the company’s differentiated product pipeline, along with its existing neurology products, provides strong growth potential with attractive profitability and free cash flow generation capabilities.

Mercury Systems (MRCY), is a Massachusetts-based technology company focused on delivering processing technology for aerospace and defense missions including signal solutions, display, software applications, networking, storage, and secure processing. The company reported strong earnings, beating analyst expectations, and benefited from its strong position as a supplier to the defense sector. We believe the company will continue to benefit from increased national defense spending as well as revenue expected from their current $1.4B order backlog.

DETRACTORS

MACOM Technology Solutions (MTSI), is a designer and manufacturer of high-performance semiconductor products. Despite reporting strong Q3 earnings, the stock declined as investors reacted to a slight margin impact from a recent acquisition and a slower-than-expected recovery in the industrial market—both short-term deviations from analyst forecasts. We maintain our position, as we believe the company’s meaningful exposure to growing demand from Data Center and 5G end market applications along with the integration of recent acquisitions and domestic manufacturing footprint should drive additional shareholder value in periods to come.

Haemonetics (HAE), is a global provider of hematology and blood management products and solutions. The company delivered mixed results during the quarter, beating analyst earnings estimates but posting weaker than expected revenue results. We believe that the company’s strong competitive position within the plasmapheresis market along with increased investment in research and development should create value for shareholders over a multi-year period.

Recent Portfolio Activity

BUYS/ACQUISITIONS

Columbia Banking System (COLB), is a Washington state based commercial bank that is in the early stages of winding down a large portfolio of low-yielding loans with organically driven higher yielding relationship loans and lower cost core deposit funding. A combination of operational cost savings associated with the Pacific Premier Bancorp merger and an increased focus on increasing fee-based income should allow for higher than historical profit margins and an attractive EPS growth outlook, ultimately allowing for incremental share buybacks or dividend increases.

Dolby Laboratories (DLB), develops and licenses proprietary audio-video technology to content creators, consumer electronics manufacturers, video streaming platforms and automotive manufacturers. Deeper market penetration of its Atmos and Vision technologies with more consumer electronics devices and increasing adoption by auto manufacturers are expected to drive higher margins over the next several years. The company’s capital efficient operating model yields attractive cash flow generation and returns on capital.

Hilton Grand Vacations (HGV), a leading global timeshare company that develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select vacation destinations, under the brand names: Hilton Vacation Club, Hilton Grand Vacation Club, Hilton Club. HGV’s proprietary relationship with Hilton Worldwide Holdings (HLT) allows it to market exclusively to HLT’s 180 mil Hilton Honors members to capitalize on growing demand for travel. Recent acquisitions broadened the company resort base to include properties appealing to higher income consumers.

James Hardie Industries (JHX), manufactures Fiber Cement and Fiber Gypsum products (siding, backerboard, etc.) used primarily in residential construction (newbuild and repair/remodel). JHX acquired the existing portfolio company, The AZEK Company (AZEK), which provides JHX with a broader product offering for distributors, contractors and homeowners, positioning the company for market share gains in an expanded addressable market. Operating synergies, merger cost synergies and enhanced scale efficiencies should further enhance the shareholder value creation potential.

Knight-Swift Transportation Holdings (KNX), is a North American-based transportation (truckload, less-than-truckload and intermodal) and logistics services provider. KNX is poised to benefit from an increase in freight transportation demand combined with subdued supply of transportation providers. A cyclical upturn in the freight cycle should drive increased revenues, earnings and cash flow, providing the company options to reinvest in the business or return capital to shareholders through share buybacks and/or a dividend increase.

ONE Gas (OGS), is an Oklahoma based, fully regulated gas utility company with service territories in Oklahoma, Kansas and Texas. The company has a proven track record of consistent rate base increases driven by population growth and infrastructure investments. A favorable regulatory backdrop in each of their service territories should allow for continued operational consistency and regular modest dividend increases, creating an attractive total return opportunity for the portfolio.

Range Resources (RRC), is a Texas based exploration and production company focused on extracting natural gas from the Marcellus Shale and Utica Shale formations within the Pennsylvania portion of the Appalachian Basin. The company’s large acreage position (800k Marcellus acres) provides a deep inventory (30+ yrs) of low-cost development locations that are expected to allow the company to capitalize on increased global demand for natural gas. Opportunities for increased drilling efficiencies should lower total operating costs, enhance earnings and drive greater cash flow generation that can be used to enhance shareholder value over the next several years.

SELLS/LIQUIDATIONS

1-800-FLOWERS.COM (FLWS), is an e-commerce provider of floral and gift products. The position was liquidated due to an increasingly uncertain fundamental outlook.

ALLETE (ALE), is a Minnesota based electric utility company. The position was liquidated ahead of its pending acquisition by a private equity consortium.

AZEK (AZEK), is a manufacturer of composite decking products for primarily residential applications. The company was acquired by James Hardie Industries plc (JHX).

Carter’s (CRI), is a manufacturer, distributor and retailer of infant and young children’s apparel. The position was liquidated due to deteriorated fundamental performance and an uncertain strategic outlook.

Pacific Premier Bancorp (PPBI), a California based bank holding company, was acquired by Columbia Banking System (COLB).

Ring Energy (REI), is an oil and gas exploration company, which engages in acquisition, exploration, development, and production activities. The position was liquidated due to the energy market outlook weakening thus delaying management’s strategic plan to scale through acquisitions and generate necessary operational efficiencies.

Wabash National (WNC), a manufacturer of dry freight and refrigerated semi-trailers, was liquidated due to uncertain fundamental outlook.

Outlook

We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2000 Index trading near multi-decade lows on a relative basis. Potential tailwinds, including deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing, and infrastructure-related spending, could provide additional support for small-cap stocks. Volatility remains elevated over concerns around inflationary risks, geopolitical tensions, and potential U.S. economic and labor weakness.

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. Overweight allocations in Information Technology and Industrials 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 are also underweight in Health Care as we do not hold Biotechnology companies as that industry has significant binary risk. Given our focus on long-term business fundamentals, our patient investment approach and low portfolio turnover, the strategy’s 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.