In the second quarter of 2025, the Polen Global Growth Portfolio delivered a commendable gross return of 8.16%, translating to 7.87% net of fees. However, this performance trailed the MSCI ACWI Index, which saw an impressive 11.53% gain. The market's dynamics were heavily influenced by a concentrated recovery rally, predominantly fueled by advancements in AI technology and a strong resurgence in cyclical sectors, particularly semiconductors and European banks. This environment presented unique challenges for the Global Growth Portfolio, which prioritizes stable, high-quality, long-term growth companies and typically steers clear of highly volatile cyclical businesses. The portfolio's strategic allocation, emphasizing diversification across sectors and growth profiles, proved to be a hurdle rather than a benefit in a quarter defined by narrow market leadership and pronounced cyclicality, leading to its underperformance against the broader market benchmark.

Despite these challenges, the portfolio managers remain steadfast in their long-term investment philosophy, focusing on businesses capable of generating sustained, double-digit earnings growth. They view market fluctuations and short-term trends as opportunities to reinforce their disciplined investment process, which is centered on identifying and investing in financially robust companies with competitive advantages. The strategic acquisition of new holdings like Starbucks and IDEXX Laboratories, alongside adjustments to existing positions, underscores a proactive approach to portfolio management, aiming to capitalize on attractive valuations and long-term compounding potential. The firm believes that its commitment to fundamental analysis and a focus on high-quality growth will continue to drive resilient long-term returns, regardless of prevailing market conditions or geopolitical uncertainties.

Market Dynamics and Portfolio Performance

The market's trajectory at the start of 2025 was marked by a pervasive sense of optimism, largely buoyed by the anticipated pro-growth policies of the new U.S. administration. This positive sentiment, however, overshadowed underlying concerns regarding potential tariff implications and elevated market valuations. For the first time since the post-Global Financial Crisis recovery in Q2 2009, international equities notably outpaced their U.S. counterparts. This outperformance, when measured in U.S. dollar terms, was predominantly driven by a strong showing in cyclical sectors, including banking and aerospace/defense, which benefited from improved market sentiment. The weakening of the U.S. dollar against other major currencies further amplified this trend, providing an additional tailwind for international investments. Despite these positive developments, the global equity markets remained susceptible to geopolitical tensions and uncertainties, leading to a significant drawdown in the MSCI ACWI.

The second quarter witnessed a remarkable rebound, with a 25% recovery rally. However, this rally was characterized by a narrow breadth, as only a minority of index constituents surpassed the overall market return. The dominant themes were AI leadership, prominently seen in the semiconductor sector, and a continued surge in cyclical stocks, particularly European banks. This environment, favoring high-beta cyclical growth and AI-related infrastructure, posed a considerable challenge for the Global Growth Portfolio. The portfolio, by design, focuses on high-quality, secular growth businesses and typically shies away from highly cyclical or commodity-driven sectors. Consequently, the portfolio underperformed the MSCI ACWI Index by 3.7%, with zero exposure to semiconductors and an underweight in financials and healthcare contributing significantly to this disparity. This quarter highlighted the inherent tension between the portfolio's quality-oriented, long-term growth strategy and the short-term, thematic-driven market movements.

Strategic Portfolio Adjustments and Outlook

In response to the shifting market landscape, the Global Growth Portfolio undertook several strategic adjustments to its holdings. The portfolio managers initiated new positions in Starbucks and IDEXX Laboratories, signaling confidence in their long-term growth prospects. Investments in existing positions such as Shopify, Adyen, Zoetis, and Oracle were augmented, reflecting conviction in their continued growth potential. Conversely, the portfolio divested entirely from Globant and scaled back its exposure to Microsoft, Workday, Sage Group, Siemens Healthineers, Accenture, ADP, Visa, Mastercard, and Alphabet. These adjustments underscore a disciplined approach to capital allocation, prioritizing companies that align with the portfolio’s core philosophy of high-quality, sustainable growth, even amidst market volatility.

The re-establishment of a position in Starbucks, under its new CEO, is based on a belief in the company’s ability to execute a multi-pronged turnaround, focusing on operational improvements and enhanced customer experience. Similarly, the investment in IDEXX Laboratories is rooted in its dominant market position in pet diagnostics, its robust business model, and the favorable long-term trends in pet ownership. While acknowledging recent transitional slowdowns for IDEXX, the managers anticipate sustained double-digit organic revenue growth. The exit from Globant was a direct consequence of its weakened revenue guidance, indicating a more prolonged period of soft IT services spending. Looking ahead, the portfolio maintains a resolute focus on businesses with strong balance sheets, high profitability, and above-average growth rates, asserting that these attributes will enable their holdings to thrive irrespective of broader economic conditions or geopolitical uncertainties. The firm remains committed to delivering mid-teens earnings growth and long-term investment returns for its clients, emphasizing a resilient strategy that avoids short-term market narratives and maintains rigorous valuation discipline.