Portfolio Manager Commentary Q2 '25

Dear Client,

It has been an eventful quarter, to say the least!

We had made it through the first three months of the year, taking a “wait-and-see” approach to sweeping policy changes by a new administration, and a more muted outlook from the mega-cap Tech companies following a stellar run.

Then President Trump announced new tariffs on April 2nd that were large enough in scope to catch nearly everyone off guard. The VIX volatility index spiked to its highest level since the early days of the Covid-19 pandemic and the market responded with a massive selloff.

Just a week later, a 90-day pause was announced for the reciprocal tariffs. While the administration maintained the 10% tariff rate across the board, the market nevertheless breathed a collective sigh of relief, ignoring the fact that a 10% across-the-board tariff would have been quite a shock just a week earlier. As I write this letter, the 90-day pause on reciprocal tariffs has been adjusted to an August 1 effective start date, though it’s hard to say what to expect next.

The reaction of the market – which typically abhors uncertainty – has seemingly been that things are back to normal, and we can resume the confident bull market that drove spectacular stock price increases in 2023 and 2024.

While I cannot fault anyone for making the financial moves that help them sleep at night, I think this quarter exhibited two overreactions. First, the sell-off at the beginning of the quarter was too indiscriminate. Second, the rapid recovery and rise to new all-time highs doesn’t appear to be rooted in any concrete reality.

Let me offer an analogy. Imagine the CEO of a large corporation holding a press conference and announcing a complete restructuring of the company’s sales and marketing teams, as well as changes to the R&D department. What would you expect to see next? Maybe the change would be good in the long run. Maybe it would cripple the core strengths of the business. Regardless, you probably would not judge the success or failure of the strategic shift on business performance over the next month or two – simply because those immediate results would not have been impacted by the new policies yet. We need some time to see what effects have rippled through the organization.

Absent any psychological anchoring on other options, a 10% tariff on all trading partners of the U.S. is a fairly major change to policy. Discussion can get muddied sometimes, so to simplify: A tariff is simply a tax on imported goods. If a change of this magnitude was called a tax instead of a tariff, perhaps reactions would be a bit different. But as it stands, this is a change to policy that will impact the costs of countless materials imported into the U.S. Again, whether this ultimately spurs U.S. growth or not remains to be seen – the costs of doing business, particularly for smaller companies, has increased.

So back to my point: I think the selloff in early April was overdone. And also, if one was inclined to think the rising uncertainty was a good reason to lower equity exposures in the first place, the subsequent rebound to new all-time highs has to be acknowledged as driven by hope rather than any concrete, fundamental improvements.

Among my skill set, you will not find an ability to execute short-term trades that anticipate what the market will do next, nor that can predict the temperament of other traders. Looking at market commentary from multiple sources in April, I tend to believe that nobody really has that skill, though the roulette wheel will surely land on your number every now and then with such an approach. Instead, our skills at Motley Fool Wealth Management center around looking at long-term trends and identifying what we believe are high-quality businesses.

In this sense, the market volatility of the past quarter was a gift. We made plenty of buys and sells, not expecting a quick profit, but rather seeing opportunities to upgrade our overall portfolio quality at compelling prices. The success of these trades cannot be fully judged today, next month, or even by the end of this year. Just as federal policy change or a corporate restructure takes time to fully play out, our portfolio trades this quarter are aimed at improved results 3, 5, or even 10 years down the road.

We have built your MFWM portfolios by anticipating multiple possible futures. The goal of a diversified portfolio is to help guard against the really bad potential outcomes while still offering a strong opportunity for above-average returns—all while maintaining a risk profile that allows you and me both to sleep soundly at night.

I am proud of how our team has navigated this recent volatility, and believe we’re meeting those goals outlined above. And I am grateful, as ever, to you for entrusting this important work to us.

Enjoy the rest of your summer, and know that we are here if and when you need to check in.

Sincerely,

Tony Arsta, CFA
Chief Investment Officer
Motley Fool Wealth Management

The above information and the following Quarterly Performance Report (“Report”) are intended solely for current clients of Motley Fool Wealth Management (“MFWM”) for the purpose of providing insight into how we manage our strategies and our investment philosophy. This information should not be disclosed to third parties or duplicated or used for any purpose other than the purpose for which it has been provided.

Similarly, all information presented herein is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. This information reflects the opinions, estimates and projections of MFWM as of the date of publication, which are subject to change without notice.

Performance results discussed in the Report represent past performance, which does not guarantee future results. The performance information presented herein includes information describing certain periods of extreme market conditions, and such results should not be considered repeatable in future periods. The investment return and principal value of an investment will fluctuate so that current performance may be lower or higher than the performance discussed in the Report.

Large Cap Dividend

Portfolio Managers

Tony Arsta, CFA
Jeremy Myers, CFA

Following strong first quarter outperformance to kick off the year, the second quarter for the Dividend strategy left a lot to be desired. During the second quarter, the Dividend strategy posted a 2.15% return, net of fees, versus an 10.94% return for its benchmark, the S&P 500®. That brings returns for the year to 3.68%, net of fees, versus 6.21% for the benchmark. Though we’re not happy with the underperformance this quarter, when we look at how the Dividend strategy has weathered a rough market since the beginning of the year, we feel better about how things have played out.

What often gets missed with end of quarter reporting are the market wiggles that happened along the way. During this past quarter, there were a LOT of wiggles, and the more conservative Dividend strategy performed mostly as we would hope. The portfolio had a relatively small drawdown in April -- about half the decline of the overall market -- as “Liberation Day” tariffs caused a flight to safety in equities. Then, when the tariffs were delayed and reduced a couple of days later, growth stocks took off like a rocket and dividend stocks struggled to keep pace. This is the pattern of behavior we’ve come to expect from this lower-volatility strategy, but it rarely happens in such an abbreviated timeframe.

The next few quarters will give us a clearer understanding of the true effect that tariffs will have on business profits and how those added costs will be distributed across the economy. More generally, interest rate movements could continue to have an outsized influence on the price of dividend-paying stocks. The bond market’s response to changes in inflation expectations and proposed deficit spending by the federal government remain to be seen and will likely play a heavy role in our performance for the remainder of the year.

Trying to predict moves in stock prices, even if you had knowledge of future events, is often a fool’s errand (and not something we Fools encourage). For example, few people would have expected that Israel dropping bombs on Iran would lead to a drop in oil prices and a rally in the stock market. Markets are forward-looking and in this case the stock market seems to be signaling that the worst may be behind us in the near-term. While that could be the case, the increasing frequency of extreme events suggests that we’ll likely have continued volatility for the remainder of the year. Rather than trying to predict the direction of short-term wiggles, we try to find the best businesses and management teams that will be able to navigate a wide range of market environments and then try to hold on through the inevitable ups and the downs.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y
US Large Cap Dividend	2.15%	3.68%	12.58%	7.14%	8.23%
Benchmark (S&P 500)	10.94%	6.21%	15.18%	19.72%	16.65%

Performance

Factoring in size and performance, the portfolio’s largest contributor, and largest detractor, were as follows:

Microsoft: 32.75% return; 7.43% weighting,
Alexandria Real Estate Equities: -20.06% return; 2.65% weighting

After uninspiring performance for a few quarters, Microsoft finally pleased investors by announcing the reacceleration of growth in the Azure cloud hosting business. Investors remain optimistic that Microsoft is one of the best positioned to benefit from the rapid adoption of AI tools by businesses. The company also benefited from the rapid rebound in the mega cap technology stocks following the broader market selloff at the beginning of the quarter.

Alexandria Real Estate, which specializes in life science laboratory buildings, has continued to suffer from a combination of negative sentiment toward the healthcare sector and a reduction in venture capital investment for the biotech industry. Also, excess supply in a couple of key markets has slowed the leasing of existing development projects resulting in lower expectations for future development plans. We think Alexandria has the financial strength to work through a tough market environment and we could see improvement once the healthcare industry adjusts to policy changes by the Trump administration.

Transactions

During the quarter we sold MSCI and added to a few other existing positions across the portfolio. Though MSCI’s core business continues to perform well, it appears that some future growth initiatives, like ESG and Climate, could prove more limited than we anticipated. With shares trading at a large premium to the market, we decided to cash out and reallocate to more timely opportunities across the portfolio.

With the proceeds from MSCI we added to our positions in Ball Corp, Carlisle Companies, NextEra Energy, US Bancorp and West Pharmaceuticals. Our reasoning is as follows:

Investor sentiment toward Ball Corp seems to be turning a corner thanks to strong first quarter results and rebounding volumes in North America. The company is also aggressively repurchasing shares which should help drive long-term shareholder value.
Carlisle has continued to perform well despite macro concerns about tariffs and a slowing economy. Management is doing a great job of navigating the current environment and we expect that shares will perform well as conditions normalize.
West Pharmaceuticals has been a laggard as its biopharma customers have been working through an extending inventory destocking phase following the pandemic. We still like West’s competitive positioning as more next generation biologics achieve FDA approval and come to market.
We think NextEra Energy is being unfairly discounted thanks to concerns about tariffs and impending cuts to renewable energy tax incentives. Management has rebutted the tariff concerns, noting that the company only has about $150 million of exposure (or 0.20%) on $75 billion of capex spending through 2028. Though a reduction in renewable energy tax credits will be a headwind for NextEra, the U.S. is struggling to keep up with energy demand thanks to the rapid growth of artificial intelligence and the requisite data center construction to feed that demand.
US Bancorp isn’t exciting, but it continues to execute well and control costs – exactly what you want from a bank. As capital levels continue to improve, we expect share buybacks to pick up again which should attract investors’ attention and get shares moving in the right direction again.

Finally, we trimmed our position in electric utility WEC, which is one of the largest positions in the Dividend strategy with a weighting of nearly 6%. With the addition of more shares of NextEra Energy, we thought it was sensible to limit our overall allocation to the utility sector.

The above information is intended solely for current clients of Motley Fool Wealth Management (“MFWM”) for the purpose of providing insight into how we manage our strategies and our investment philosophy. This information should not be disclosed to third parties or duplicated or used for any purpose other than the purpose for which it has been provided.

All information presented herein is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. This information reflects the opinions, estimates and projections of MFWM as of the date of publication, which are subject to change without notice. We do not represent that any opinion, estimate or projection will be realized. While we believe this information to be reliable, no representation or warranty is made concerning its accuracy.

Performance results are based on a representative account for each strategy, not individual client accounts. Clients can see their actual account performance on the Interactive Brokers’ website at any time. Client account results may not exactly match the performance of the representative accounts. Such variance is due to a number of factors, including differences in trade prices, transaction fees, market activity, any restrictions have you may have imposed on your account(s), and the amount and the timing of deposits or withdrawals.

The performance information presented herein has been generated during a period of extraordinary market volatility. Accordingly, the performance is not necessarily indicative of results that we may achieve in the future, and we do not represent and it cannot be assumed that the performance of our strategies will be subject to the same economic risk factors that contributed to the above returns. Performance results discussed above represent past performance, which does not guarantee future results. The investment return and principal value of an investment will fluctuate so that current performance may be lower or higher than the performance discussed above. The investment strategy and focus of our model portfolio strategies can change over time. Similarly, there is no assurance that the securities purchased will remain in a model portfolio strategy or that securities sold may not be repurchased. The mention of specific holdings does not constitute a recommendation by MFWM or its affiliates.

To the extent we invest more heavily in particular sectors or industries of the economy, the performance of our strategies will be especially sensitive to developments that significantly affect those sectors or industries. While investing in a particular sector is not a principal investment strategy of any model portfolio, client portfolios may be significantly invested in a sector or industry as a result of our portfolio management decisions. Similarly, a model portfolio’s investment may become concentrated in a small number of issuers. To the extent that we take large positions in a small number of investments, account returns may fluctuate as a result of changes in the performance of such investments to a greater extent than that of a more diversified account. Returns realized by a client account may be adversely affected if a small number of these investments perform poorly.

Index performance is discussed for illustrative purposes only as a benchmark for each strategy’s performance, and does not predict or depict performance of that strategy. While index comparisons may be useful to provide a benchmark for a strategy’s performance, it must be noted that investments are not limited to the investments comprising the indices. Each of the strategy benchmark indices are unmanaged and cannot be purchased directly by investors. It is not possible to invest in an index.

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Fixed Income

Portfolio Managers

Tony Arsta, CFA
Nate Weisshaar, CFA

The second quarter of 2025 didn’t prove to be any less “exciting” than the first, and was arguably more so.

“Liberation Day” (aka April 2^nd) sent shockwaves through stock markets as the raft of proposed tariffs would have stifled global growth. Bond markets liked it, however, as the income from said tariffs would have helped support the US government’s debt load.

But then the horse trading started, tariff levels came down, and market perceptions changed.

And then the new tax bill was rolled out and it became apparent that austerity was not in the cards.

So, to be brief, interest rates during the second quarter had quite a ride.

Rates on 10-yr Treasuries ranged from 4.01% on April 4^th to 4.58% on May 21^st and then settled back around 4.25% to end the quarter. Roughly half a percentage point may not seem like much, but for 10-yr government-backed debt, it is fairly dramatic.

Through all this, income investors have been trying to figure out where things are headed. With budget deficits looking to be maintained, should we worry about bond vigilantes returning? Can they, given what we’ve seen central banks do to lower rates over the past decade?

In all this uncertainty, your Fixed Income SMA managers have been working to deliver low-risk, solid income. We believe our investment grade corporate debt ladder provides an appropriate vehicle for this, but we’ve also taken steps in the past couple quarters to boost returns where we feel it is appropriate.

As the rate environment has improved for yield investors, we’ve taken steps to more closely align your SMA with the benchmark, and you can see it in our returns. While we aren’t happy underperforming our benchmark, we believe we’re delivering solid returns while meeting our mandate of predictable dry powder.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
Fixed Income	2.04%	4.35%	6.96%	3.95%	0.94%	1.33%
Bloomberg Barclays US Corporate Bond Index	2.12%	4.45%	7.78%	5.11%	1.53%	3.26%

During the second quarter of 2025, we pulled funds out of the 2025, 2026, 2027, and 2028 rungs of the corporate ladder and put them into the 2033 rung as well as a new, actively managed 2026 rung provided by State Street.

The fees for active management are a little bit higher (5bp higher than the Invesco Bulletshares vehicle we were previously using), but giving the portfolio managers the ability to stray from an established benchmark should result in higher returns and the yield when we made the transition was 20bp higher than what we were previously getting, more than offsetting the cost.

We also used funds from those sales to establish a position in the iShares 10+ Year Investment Grade Corporate Bond ETF in a similar tactical trade to our move into the iShares 20+ Year Treasury Bond ETF last quarter.

As rates peaked in late May, we felt there were psychological reasons for investors to start shifting into longer-term bonds and that would force rates back down. If we were wrong, your portfolio’s income would benefit from higher yields. If we were right, you’d also enjoy the benefit of a rising ETF price. By taking a 5% position, we felt the benefits could be felt by the overall portfolio without exposing you to too much risk if worst-case scenarios arose.

Going forward, your portfolio managers suspect we could see rates bounce around within a range; we don’t think rates will get dramatically higher from here and think the odds of a recession driving rates meaningfully lower are slim. As such, we’ll continue to try to grab extra yield where we can, always mindful that this SMA is meant to provide ballast and fuel for opportunism in the equity side of your total portfolio.

International

Portfolio Managers

Tony Arsta, CFA
Michael Olsen, CFA

To call this quarter eventful would be a vast understatement. Historic tariffs—the likes of which we’ve not seen since the 1920s—were on, and then off. The U.S. bombed Iranian nuclear facilities, and the world briefly contemplated the possibility of a broader conflict. Stock markets fleetingly swooned, on the possibility of tariff-induced inflation and possible economic maelstrom. When it became apparent that worst-case scenarios might be off the table, stocks marched ever-higher—with U.S. indices registering all-time highs. Against this backdrop, international stocks surged—up 18% year-to-date—attracting newfound interest as investors mulled the comparative uncertainty of U.S. climes.

Against this backdrop, the International SMA returned 8.39% this quarter, versus 12.49% for its benchmark. While we’re disappointed by its underperformance, we think there are good explanations. To start, your International SMA is largely invested in internationally-domiciled companies that sell globally—meaning that they’ve recovered less substantially as broader indices have recovered, because they still remain exposed to tariff risks. Equally, the companies that propelled international indices are, broadly speaking, lower quality enterprises—banks, utilities, and industrials—which we’ve consciously underweighted.

Last, and most importantly, we remain highly confident in the long-term prospects of the businesses in your International SMA: we believe they represent a choice collection of truly-advantaged enterprises, which should grow at above-average rates and generate exceptional profitability for extended periods. The net consequence of owning a relatively small collection of businesses is that performance will not be linear—markets and life do not operate in this fashion. We used market volatility to our advantage—adding to several existing positions, and starting two new positions—resulting in a meaningful improvement in the aggregate portfolio quality.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
International	8.39%	10.41%	8.06%	11.34%	8.21%	5.72%
S&P Global ex-U.S.	12.86%	17.75%	18.30%	14.39%	10.57%	6.70%

Portfolio Contributors

A review of key contributors to the portfolio’s quarterly results follows. As we’ve written before, a portion of the International SMA remains invested in ETFs, to achieve geographic exposures: 12.02% on average, returning 10.69% on a weighted average basis. On a weighted basis, giving effect to average weighting and absolute return, the portfolio’s largest contributor, and largest detractor, were as follows:

Nintendo: 39.90% return; 5.82% weighting
Yum China: -13.64% return; 2.89% weighting

Nintendo shares increased almost 40% in the quarter, on heels of the highly anticipated Switch 2 having a successful launch out of the gate—selling over 3.5 million units worldwide in the first four days, making it the fastest-selling console ever in the gaming industry. The launch was accompanied by the latest version of the flagship Mario Kart franchise. While the initial lineup was a bit thin, we think coming first party titles like Donkey Kong Bananza and Metroid Prime 4, along with backwards game compatibility, should buttress sales momentum.

We’re keenly watching third party game sales—the Switch 2 launched with 3P titles like Cyberpunk 2077 and Street Fighter 6, proof the new hardware could handle higher performance. We hope for, and expect, more AAA titles to come. We also expect Switch 2 unit sales to surpass management’s guidance of 15 million hardware units and 45 million software titles in fiscal 2026. And so while Nintendo is our single-largest position, we remain happy owners of the shares.

Yum China declined 14% this quarter—unsurprising given the announced “Liberation Day” tariffs, which were especially punitive to China. Fundamentals remain challenging, with Yum China operating in a highly competitive, tough consumer environment—registering flat same-store sales growth last quarter at KFC and Pizza Hut. Given the challenging backdrop, management continues to execute well on things within its control: operational efficiency, driving margin expansion; new store openings, targeting 1,600 to 1,800 this year; and shareholder return, $3 billion in buybacks and dividends across 2025 and 2026 (against a ~$17 billion market cap). Predicting whether US/China relations will improve—or the prospects of a macro recovery—is an exercise in futility. But with shares trading near 18 times free cash flow, and our long-term thesis unchanged, we remain comfortable holding the shares.

Portfolio Activity

It was a busy quarter for us—we started two new positions, added to three, trimmed a couple, and sold out of another.

+ Buy Canadian National Rail (addition to existing position): We added to our position in Canadian National Railway (CNR). In short, we believe that near-term uncertainties over the trade war and tariffs, and volume-related weakness in the prior year on one-off issues, have cast a pall on CNR shares—but that its long-term prospects remain bright. On the matter of trade, we believe the administration’s dealings with China, which have afforded near-term relief, offer some insight into its long-term posture: it should not inflict meaningful harm on our trading partners, or meaningfully act to reduce global trade flows, as they do not benefit anyone’s best interest. Likewise, while CNR’s recent results have suffered from idiosyncratic weakness in specific commodities, labor issues, winter weather, and port-related disruptions, we believe its long-term outlook remains bright.

On a normalized basis, we see potential for sustained high-single-digit/low-double-digit growth to free cash flow per share at CNR, driven by a combination of project-driven/idiosyncratic volume increases, above-inflation pricing (enabled by rail’s cost advantage to trucking), operational efficiencies/leverage as CNR closes the efficiency gap to peers, and regular share repurchases from excess free cash flow. Against this backdrop, CNR shares appear fairly cheap, at a low-20s multiple to free cash flow.

+ Buy EssilorLuxottica (new position): We started a position in Essilor Luxottica. You may not recognize the name, but it's highly likely you've interacted with the company in some form. Born from the merger of the two largest players in the eyewear industry, EssilorLuxottica is the undisputed leader in the space, holding an estimated global market share of over 20% — three times the size of its closest competitor. As a vertically integrated business, EssilorLuxottica doesn’t just develop and manufacture frames and lenses; it also owns a portfolio of iconic brands like Ray-Ban and Oakley.

We see EssilorLuxottica as a compelling investment opportunity, thanks to its dominant position in a resilient, growing industry and its exposure to high-growth, innovative areas that could reshape the space in the decades ahead. Unfortunately, poor eyesight is a secular growth story. On account of changes in lifestyle, spending more time indoors and on screens, it is now estimated that nearly half of the world’s population will have myopia (nearsightedness) by 2050. As the number one player in this space, EssilorLuxottica stands to be the primary beneficiary. Moreover, in addition to benefiting from increased sales of regular glasses, EssilorLuxottica is also the leader in the budding area of myopia management. These lenses help slow the development of myopia and we believe they represent a multi-billion dollar opportunity.

Beyond its core business, EssilorLuxottica is strategically positioning itself in high-upside opportunities that could revolutionize the industry. Notably, the company has partnered with Meta to develop AI and AR glasses and recently launched Nuance Audio Glasses—regular eyewear that doubles as hearing aids without the need for ear inserts. While the financial impact of these innovations will be minimal in the near-term, they underscore EssilorLuxottica’s commitment to staying at the cutting edge of the eyewear and healthcare industries.

Taken together, we see potential for sustained high-single growth to free cash flow—a compelling proposition for what we believe to be a defensive and deeply-moated enterprise.

+ Buy First Service Corporation (new): FirstService Corporation operates through two primary business segments. FirstService Residential, representing approximately 41% of consolidated revenues, is the leading provider of outsourced residential community and amenity management services. Serving over 9,000 communities and 4.5 million residents, the company offers a broad range of services, including staffing for maintenance, concierge, security, amenity management, financial services, advisory sales, and vendor procurement/negotiations. FirstService Brands, accounting for 59% of revenues, comprises eight distinct brands that provide property services for both commercial and residential customers. These services span across restoration, commercial painting, roofing installation and repair, floor installations, home inspections, fire protection, and custom closets.

We believe one of the most consistent sources of market mispricing isn’t from underestimating a company's growth potential in a given year; it’s failing to appreciate the duration of sustained above-average growth for exceptional companies. And we believe that history will look back on FirstService as a prototypical example of this mispricing phenomenon.

Despite operating two distinct business segments (and multiple different end markets), the thesis for FirstService is the same regardless of where you look: leveraging the company’s scale to consolidate highly fragmented, multi-billion dollar markets that are full of thousands of smaller players. Estimates peg FirstService Residential (FSR) as two times larger than its closest property management competitor; however, FSR still only has 6-8% market share. And with respect to FirstService Brands (FSB), despite being in the top three for all markets in which it competes, FirstService has less than a 5% market share in all but one. While none of these end markets are prone to rapid consolidation, we do believe that these industries will ultimately consolidate around a few key players. And we believe FirstService will be the primary winner in each end market due to its ability to combine the structural advantages of being part of a large, integrated organization with the entrepreneurial spirit fostered through a decentralized management approach that creates an ownership mentality among individual branches.

We expect FirstService to achieve organic growth in the mid-single digits for many years to come. And since the company’s sub-scale competitors also make attractive acquisition candidates, overall growth will often eclipse 10%. Lastly, the scale advantage should ultimately translate into operational leverage, pushing margins higher and resulting in earnings growth outpacing revenue growth.

+ Buy ICON: We increased our position in contract research organization (CRO) ICON, as the company traded near all-time lows on a relative valuation basis, and shares sat some 60% lower than 52-week highs. The past several months have been tumultuous for ICON and its peers, to put it mildly. Two of its largest customers have cut outsourced R&D spend and rationalized near-term development spending to manage earnings; uncertainty looms over the near outlook for R&D spending amid pending pipeline expirations; and smaller biotech customers continue to contend with a difficult funding environment. These concerns have been compounded by uncertainty surrounding the FDA and administration’s posture regarding new drug approvals, the impact of the Inflation Reduction Act on toplines, and the possibility of Most Favored Nation arrangement being signed into effect by executive order—which would materially impact U.S. revenues for the drug industry.

While the confluence of these factors have contributed to material uncertainty in the near-term, we believe the outlook for ICON shares, and its business, remain bright given a long view. Underlying this are three critical assumptions. First, we believe that drug companies must continue to reinvest in their pipelines to enable higher standards of care for people, and that large medical problems remain unsolved, necessitating ongoing and increasing spending in drug development. Second, if we observe the arc of the drug industry across long periods, the tendency of drug development spending is up and to the right—it has consistently grown at or near inflationary levels. Last, we think that CROs solve critical problems for drug companies—facilitating expedited drug approvals, trading fixed costs for variable costs, and saving money as pipeline pressures increase the need for economy. Roughly half of development spend remains insourced, allowing substantial runway for CROs, and ICON, to increase their share of wallet.

Last, and perhaps more important, ICON shares trade at valuations which presume it will effectively cease to grow—for all of eternity—at a high-single-digit/low-double-digit multiple to trailing free cash flow. While the near-term remains uncertain, we’re confident that taking the other side of this bet across the long-term will reward patient investors. As one of the largest global CROs, we believe ICON is endowed with substantial competitive advantages, which should enable it to grow at solid rates as near-term uncertainties abate.

+ Buy Symrise: We added to our position in flavors and fragrances company Symrise, as shares trade at what we believe to be attractive thresholds on concerns over tariff-related inflation and the associated potential for weakness in Symrise’s end-markets, along with margin-related weakness. In short, we believe this fundamentally misunderstands the long-term arc of Symrise’s business, and the industry.

As the purveyor of proprietary flavor/fragrance formulations, derived from over 10,000 sources worldwide, Symrise delivers a high-impact, hard-to-displace offering to its CPG customers: flavor. It typically represents a small proportion of a CPG customer’s total cost, 1% to 5%, enabling Symrise with some measure of pricing power and the ability to recoup inflation. But because of the way its contracts are structured, pricing is set at the beginning of the year and remains in effect for the calendar period—meaning near-term inflation can sting margins. During periods of inflation, the market is wont to fret over Symrise’s ability to recover lost margin.

Observing history, taking the other side of that bet is typically wise: Symrise has never lost earnings power on a sustained basis. On the matter of recession fears, even if tariffs extract the most-feared macroeconomic consequences, we expect Symrise to be defensively-positioned: its offerings are inputs to products that have proven durable across a wide range of economic environments. We expect demand to remain durable.

Taking a longer view, we believe Symrise remains well-positioned to grow cash flows at high-single-digit rates for a sustained period as its end-markets gain share in the CPG space, on price increases, and the possibility of margin gains on its recently-announced efficiency programs. As shares trade near 20 times our estimate of this year’s free cash flow, we believe they represent attractive value relative to the quality of Symrise’s enterprise and durability of its growth trajectory.

+ Sell Vivendi and Schlumberger: We sold our positions in Vivendi and Schlumberger. In short, we believe there are more attractive places to invest.

+ Trim Brookfield Asset Management: We trimmed our position in Brookfield Asset Management. This says less about our enthusiasm surrounding Brookfield Asset Management’s enterprise and its prospects, but instead represents a portfolio management decision.

+ Trim iShares Core Europe ETF: We trimmed our position in the iShares Core Europe ETF to fund purchases of new ideas and increase our allocation to existing positions.

Large Cap Core

Portfolio Managers

Tony Arsta, CFA
Jeremy Myers, CFA

The Large Cap Core strategy performed reasonably well to start the year, but it struggled to keep pace with its benchmark as growth-oriented stocks dominated in the second half of the quarter. During the second quarter, the Large Cap Core strategy posted a 9.48% return, net of fees, versus a 10.94% return for its benchmark, the S&P 500®. That brings returns for the year to 6.75%, net of fees, versus 6.21% for the benchmark.

Thanks to the balanced approach to the Core strategy, our value-oriented stocks helped us limit volatility in April, resulting in a smaller drawdown than the overall market. However, that advantage slowly slipped away as the quarter progressed and growth stocks rallied strongly. For context, the S&P 500® growth index returned 18.9% vs. 3.0% for the S&P 500® value index. Though the Core strategy held multiple growth stocks that posted outsized returns, it did not hold the more speculative stocks that got hit the hardest early in the year only to rebound the fastest later in this quarter. We were also underweight some of the top-performing sectors in the benchmark, including Information Technology and Industrials while we were overweight sectors like Real Estate and Financials, which were weaker performers.

As crazy as this quarter looked from multiple perspectives, we don’t expect markets to calm down in the near term. In the coming quarters we should begin to see the effect that tariffs will have on corporate income statements and how the pressure on profit margins will be spread across the economic value chain. We should also see how increased deficit spending affects the bond market and interest rate expectations. It’s also reasonable that geopolitical turmoil could continue to dominate the news cycle, though the influence of global conflicts on the stock market has become increasingly difficult to predict.

Overall, we are happy with how the portfolio is positioned for the current market environment and we continue to search for opportunities to improve the portfolio by adding positions with greater return potential while doing our best to manage risk through diversification.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
US Large Cap Core	9.48%	6.75%	14.40%	19.73%	12.29%	14.29%
Benchmark (S&P 500)	10.94%	6.21%	15.18%	19.72%	16.65%	13.65%

Performance

Factoring in size and performance, the portfolio’s largest contributor, and largest detractor, were as follows:

Meta Platforms: 28.16% return; 7.31% weighting
Berkshire Hathaway: -8.79% return; 7.00% weighting

Meta Platforms continues to be a key beneficiary of the AI trade. Thanks to its leading advertising platform spanning multiple social media properties, we believe the company is among the best positioned to monetize its growing AI capabilities. Investors were happy to learn in June that Meta intends to better monetize its globally popular WhatsApp communication platform by introducing advertisements. Though the company is currently spending massive sums to build data centers and to recruit top AI talent, the company’s result to date suggests to us that it’s a worthwhile investment.

Berkshire Hathaway seems to be in a bit of a malaise following the company’s annual meeting in May. At the end of the meeting, investment icon and company founder/CEO Warren Buffett announced that he would be retiring at the end of the year. The 94-year-old Buffett has built a cult following in his six decades at the helm of Berkshire and his hand-picked successor, Greg Abel, will have big shoes to fill. Berkshire has been a top performer for us over the past couple of years and the announcement marked an all-time high in the stock price, so we’re not overly concerned about the recent moves.

Transactions

During the second quarter we sold out of our positions in MSCI and Micron Technologies and we added to existing positions in BioMarin and Vertex Pharmaceuticals.

We sold MSCI mostly based on valuation. Though the core business continues to perform well, it appears that some future growth initiatives, like ESG and Climate, could prove more limited than we anticipated. With share trading at a large premium to the market, we decided to cash out our shares and reallocate to more timely opportunities across the portfolio.

Similarly with Micron Technologies, our thesis played out mostly as anticipated, but the company’s stock price exceeded our fair value estimates prompting a decision to sell. Though Micron is currently well-positioned in the high bandwidth memory market, there are indications that Samsung is finally getting its act together and could start to re-take market share before the end of the year. In this situation, we were happy to take the gains and redeploy the capital.

BioMarin has been beaten down over the past year thanks to a combination of investor concerns about shifting political winds at the FDA and, more specifically, fears that competitive drug launches would siphon market share from key products, Voxzogo and Palynziq. We think these concerns are more than priced in at current levels and that BioMarin’s focus on rare disease could help shield it from possible price controls. Under new CEO Alexander Hardy the company has made progress in growing sales and cutting costs and investors should start to take notice if profitability continues to improve.

Vertex Pharmaceuticals’ shares have declined mostly thanks to an out-of-favor biopharmaceutical sector, but the company continues to meet our expectations. Vertex has earned approval for its newest generation cystic fibrosis treatment and a successful launch of its gene therapy treatment for sickle cell anemia and its first generation, non-opioid pain killer should drive additional growth. Also, unlike many pharmaceutical companies, Vertex’s domestic manufacturing network makes the threat of tariffs less of a concern.

Hedged Equity

Portfolio Managers

JP Bennett, CFA
Michael Olsen, CFA

Well, the quarter past wasn’t lacking for excitement. We’ll save you the details, because you’ve likely read most of them, but a brief refresh: massive reciprocal tariffs and the fleeting possibility of a painful and protracted trade war; a brief and tense conflict in the Middle East with Iran; lingering concerns over consumer confidence and the durability of economic growth/employment; and the cascading effect of these events’ interaction made for an eventful quarter, to say the least. These uncertainties notwithstanding, U.S. stocks recovered smartly after declining almost 20%, finishing the quarter near all-time highs.

Against this backdrop, the Hedged Equity SMA returned 2.1%, versus 7.61% for its benchmark—70% of the S&P 500. Individual equity positions performed solidly, and we took advantage of market volatility to add to several positions and start a few new ones. The primary detractors, somewhat paradoxically, are also a feature of the portfolio: our hedges, designed to offset outsize portfolio exposures, lagged as the markets turned higher. In the long run, we expect this to work to our advantage—limiting market-specific volatility while allowing us to capitalize on the idiosyncratic qualities of individual businesses. But across short periods, in trending markets, it might contribute to periods of underperformance. We’re can handle that, and, indeed, it is by design.

Taking a longer view, we’re encouraged: we think your Hedged Equity SMA contains an idiosyncratic collection of truly outstanding businesses—at reasonable prices—poised to deliver exceptional across-the-cycle growth and returns on invested capital.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
Hedged Equity	2.10%	2.57%	9.59%	10.27%	4.15%	7.48%
Benchmark (70% of the S&P 500)	7.61%	4.42%	10.58%	13.74%	11.71%	9.66%

Portfolio Review

On reviewing the past quarter’s performance, the largest contributors, adjusting for weighting and performance, were as follows:

Nintendo: 39.90% return; 5.68% weighting
iShares QQQ Trust short: -17.77% return; -8.19% weighting

Nintendo shares increased 40% in the quarter on the heels of the highly anticipated Switch 2 having a successful launch out of the gate—selling over 3.5 million units worldwide in the first four days, making it the fastest-selling console ever in the gaming industry. The launch was accompanied by the latest version of the flagship Mario Kart franchise. While the initial game lineup was a bit thin, we think coming first party titles like Donkey Kong Bananza and Metroid Prime 4, along with backwards game compatibility, should buttress sales momentum.

We’re keenly watching third party game sales—the Switch 2 launched with 3P titles like Cyberpunk 2077 and Street Fighter 6, proof the new hardware could handle higher performance. We hope for—and expect—more AAA titles to come. We also expect Switch 2 unit sales to surpass management’s guidance of 15 million hardware and 45 million software units in FY26. And so, while Nintendo is our single-largest position, we remain happy owners of the shares.

Our iShares QQQ Trust short was our single largest detractor in the quarter past. Underlying this was a simple matter-of-fact: The QQQ Trust intends to track the Nasdaq 100, and after the dust settled on Liberation Day tariffs, tech stocks ripped higher. We don’t see this as particularly problematic, but, instead, by design. We’ve structured your Hedged Equity SMA to offer exposure to high-quality enterprises, with reduced volatility/market exposure. Our QQQ short was intended to act as an offset to our large-cap tech exposure, and so it naturally follows that it would lose money when tech stocks rise. By and large, this was offset by our holdings in Amazon, Meta, and Google—all of which contributed positively to portfolio returns in the quarter past.

Portfolio Changes

It was an active quarter for us—we started 5 new positions, added to one position, trimmed one, sold another, and adjusted our short book to better-fit our exposures acknowledging recent market moves.

A summary of the portfolio additions follows.

+ Buy Alphatec (new): We started a position in Alphatec, a rapidly growing small-cap medical device company focused on technologies used in spine surgery. The business has grown from around $90 million in revenue in 2018 to over $600 million in 2024, bringing its market share to an estimated 8%. The company should benefit from scale as they continue to grow and gain market share, enabling it to cover its existing costs, develop new products, and sell more into an existing user base. The company endeavors to launch 8-10 new products per year, and if they execute on this goal, the potential upside over the next 3-5 years is exciting.

+ Buy BioMarin Pharmaceutical (new): BioMarin Pharmaceutical is one of two biotech companies we added to the portfolio. Over the past year, the stock has been beaten down on a combination of investor concerns about shifting political winds at the FDA and worries that competitive drug launches would siphon market share from key products, Voxzogo and Palynziq. We think these concerns are more than priced in at current levels and that BioMarin’s focus on rare disease could shield it from possible price controls. Under new CEO Alexander Hardy, the company has made progress in growing sales and cutting costs. We expect investors to take notice if profitability continues to improve.

+ Buy Dexcom (new): Dexcom occupies a market-leading position in the continuous glucose monitoring (CGM) market—its devices are of the highest quality, as is its business. Today just over 2 million people use a Dexcom CGM, compared to the US population of 25 million people that have type-2 diabetes but do not use insulin plus another 90 million Americans who are pre-diabetic. Given Dexcom’s business quality, the stock has never been particularly cheap. We are initiating a position on the belief that the company’s growth runway, and opportunities are even greater than what has been priced into the stock.

+ Buy NextEra Energy (new): We started a position in NextEra Energy, believing the stock unfairly discounted over tariff worries, and possible cuts to renewable energy tax incentives. Management has rebutted the tariff concerns, noting that only 0.2% of its budget capex through 2028 is exposed to tariffs. Though renewable energy tax credits are in the crosshairs of the recently-passed tax and spending bill, the reality is that the U.S. is struggling to keep up with energy demand—a consequence of rapid growth in artificial intelligence use cases and associated data center construction. NextEra is the leader in renewable energy development in the U.S., and we think the country will need an “all of the above” approach to energy generation investment in the future. Equally notable, renewable energy generation can be rolled out in a fraction of the time it takes to construct a new gas or nuclear facility.

+ Buy Ultragenyx Pharmaceutical (new): Ultragenyx Pharmaceutical is the second of two biotech companies we added to the portfolio. As a smaller pharmaceutical company focused on rare diseases, recent share price weakness is hardly a surprise. Companies in this industry tend to see shares rise and fall together, and drug companies have been out of favor for a while now. In Ulragenyx’s case, the company has several drug development updates expected this year, each of which may cause the company’s fortunes to look brighter or dimmer in the near future. Though the volatility inherent in this sort of investment can be intimidating, we feel it fits within the context of a broad and diversified portfolio. More saliently, at recent share prices, we believe the upside potential of positive news is multiples greater than the downside risk posed by a disappointment.

+ Buy Universal Music Group (addition to existing position): We added to our position in the world’s largest record label, Universal Music Group. Taking a longer view of UMG and its market opportunity, we see an attractive long-term growth story—driven by ongoing subscriber growth, price increases, and margin expansion—because incremental users scale fixed cost. At current share prices, a low-20s multiple to earnings, we believe the market hasn’t properly valued the durability and scope of UMG’s growth prospects. Equally significant, UMG possesses a large, growing, and effectively costless—save artist royalties—asset in its back catalog, which should support durable margin expansion as streaming penetration grows. Taken together, UMG generates strong cash flow at high margins from an irreplaceable asset, and is priced attractively.

We also trimmed our position in Amazon, and sold our position in Alarm.com.

+ Sell Alarm.com: We sold our investment in Alarm.com Holdings. The company’s focus on residential security systems, especially focusing on more innovative technologies, is admirable. But we believe it’s an open question as to whether advancing technology will grow the business, or make home security more commoditized and available cheaply for all—good for society, but not for this company. We are not confident that our concerns will become reality but, on an opportunity cost basis, believe other ideas are more attractive.

+ Trim Amazon.com: We trimmed our position in Amazon. To be sure, we still believe Amazon is a world-class company, and remain heavily invested. At its core, this represents a portfolio management decision, and opportunity cost—we trimmed to add to other positions we find attractive, but maintained a still-large position.

We also adjusted our short book to account for changing market conditions and to better align with underlying portfolio exposures.

+ Reduce our Invesco QQQ Trust short: Our short position in the Invesco QQQ Trust, a fund designed to track the Nasdaq 100 Index, is designed as a hedge on overall exposure to U.S. large caps. As with any short sale, the gross position size becomes larger as the price increases—meaning our short became larger as large cap tech rallied. We covered a portion of our short to keep this market hedge at the desired level.

+ Close our iShares Russell 2000 Growth short: As a hedge on our overall exposure to U.S. small caps, we had a short position in the iShares Russell 2000 Growth ETF. We closed this short because it was becoming increasingly difficult and costly to borrow the shares needed for the short sale. We shifted this allocation to the iShares Russell 2000 ETF (IWM), which performs similarly, and should be easier for us to borrow.

+ Short iShares Russell 2000 ETF (new): We opened a new short position in the iShares Russell 2000 ETF. It is designed as a hedge on our overall exposure to U.S. small caps. This short position will replace the short we are covering in the iShares Russell 2000 Growth ETF (IWO). In times of economic uncertainty, small cap companies can often have a more difficult time adapting their strategies and remaining afloat. Shorting individual small-cap companies can be risky; not only are there frequent surprises, but these companies can often be acquired by larger businesses, which would result in a large loss on a short position. By shorting the broader index, we can hedge against the asset class while avoiding that single-stock risk.

Large Cap Aggressive Growth

Portfolio Managers

Tony Arsta, CFA
Jeremy Myers, CFA

The Large Cap Aggressive Growth strategy delivered strong results in the second quarter, quickly reversing the losses it experienced to start the year. During the quarter, the Large Cap Aggressive Growth strategy posted a 14.98% return, net of fees, versus an 10.94% return for its benchmark, the S&P 500®. That brings returns for the year to 8.49%, net of fees, versus 6.21% for the benchmark.

In our first quarter commentary we described the movements of the Aggressive Growth strategy as a “whipsaw” and this quarter could be called the same, only with results in the opposite direction. The overall market experienced a decline of 15% through early-April only to see a 22% rally through the end of the quarter – a massive move for the market in such a short timeframe. The Aggressive Growth portfolio matched the market’s decline in the first few weeks of the quarter and then outpaced it to the upside as the markets recovered. Considering the higher risk profile of this strategy and the high volatility we have seen year-to-date, we are pleased with these results.

Growth stocks drove most of the gains for the market and we certainly benefited from that tailwind. Our heavy exposure to the Information Technology and Communication Services sectors was a key contributor to our outperformance. We also had limited exposure to some of the weaker performing sectors, like energy and healthcare. Now that the market has surpassed its previous all-time highs and valuations are back near the high end of their historical range, we expect returns may be harder to come by while volatility remains a constant. Also, worries that tariffs and increased government deficit spending could cause inflation to return is a reasonable concern until we see how the economy digests these new variables.

We think the Aggressive Growth strategy is well-positioned for the current environment with an emphasis on owning the top quality businesses in their respective industries. Though we are always looking for new ideas to add to the portfolio, valuations have limited the number of opportunities we are seeing and we don’t intend to overpay for new companies when there may be better places to reinvest with the companies we already own and know best. In this environment we have no problem sitting on our hands and waiting for the opportunity set to improve before making additional moves.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
US Large Cap Aggressive Growth	14.98%	8.49%	15.99%	25.29%	9.91%	13.56%
Benchmark (S&P 500)	10.94%	6.21%	15.18%	19.72%	16.65%	13.65%

Performance

Factoring in size and performance, the portfolio’s largest contributor, and largest detractor, were as follows:

Netflix: 43.60% return; 7.70% weighting
BioMarin Pharmaceuticals: -22.24% return; 3.56% weighting

Netflix continued its strong run into the second quarter as the recent initiatives to introduce advertising and limit password sharing continue to drive additional revenue and subscriber growth. In mid-April, Netflix shared ambitious goals of doubling its revenue and reaching a trillion-dollar market cap by 2030. Shareholders were obviously happy to hear those targets, but with the stock nearly doubling in the past year, the valuation is already pricing in a very rosy future.

BioMarin Pharmaceuticals kicked off the quarter with a large decline thanks to extreme uncertainty about healthcare policy, as well as growing competition for two of its key drugs. Despite positive first quarter results and management reaffirming guidance for the year, the stock has continued to drift downward. Though BioMarin has some short-term challenges, we think the new CEO, Alexander Hardy, is making the right moves to create shareholder value over the long term, which is why we added to our position during the quarter.

Transactions

During the second quarter we started a new position in NextEra Energy; we added to existing positions in BioMarin and Vertex Pharmaceuticals; and we sold out of Micron Technologies.

NextEra Energy is the largest electric utility in the U.S. Its primary business is the operation of the regulated utility, Florida Power & Light (FPL). The rest of the business is non-regulated, including NextEra Energy Resources (NEER), which is one of the largest owners of private renewable energy projects in the country. An electric utility may seem an odd addition to the Aggressive Growth portfolio, but NextEra has long been the “growthiest” of its peers thanks to exposure to the Florida energy market and its leadership in large scale renewable energy developments nationwide. We think NextEra is being unfairly discounted because of concerns about tariffs and cuts to renewable energy tax incentives. Management has rebutted the tariff concerns, noting that the company only has about $150 million of exposure (or 0.20%) on $75 billion of capex spending through 2028. Though a reduction in renewable energy tax credits will be a headwind for NextEra, the U.S. is struggling to keep up with energy demand thanks to the rapid growth of artificial intelligence and the requisite data center construction to feed that demand. We think the U.S. will need an “all of the above” approach to energy investment and renewable energy facilities can be rolled out in a fraction of the time it takes to construct a new gas or nuclear facility.

BioMarin has been beaten down over the past year thanks to a combination of investor concerns about shifting political winds at the FDA and, more specifically, fears that competitive drug launches would siphon market share from key products, Voxzogo and Palynziq. We think these concerns are more than priced in at current levels and that BioMarin’s focus on rare disease could help shield it from possible price controls. Under new CEO Alexander Hardy the company has made progress in growing sales and cutting costs and investors could start to take notice if profitability continues to improve.

Vertex Pharmaceuticals shares have declined mostly thanks to an out-of-favor biopharmaceutical sector, but the company continues to meet our expectations. Vertex has earned approval for its newest generation cystic fibrosis treatment and a successful launch of its gene therapy treatment for sickle cell anemia and its first generation, non-opioid pain killer should drive additional growth. Also, unlike many pharmaceutical companies, Vertex’s domestic manufacturing network makes the threat of tariffs less of a concern.

Our thesis on Micron Technology played out mostly as anticipated, but the company’s stock price exceeded our fair value estimates resulting in a decision to sell. Though Micron is currently well-positioned in the high bandwidth memory market, there are indications that Samsung is finally getting its act together and could start to retake market share before the end of the year. In this situation, we were happy to take the gains and look for other opportunities to redeploy the capital.

U.S. Small & Mid-Cap

Portfolio Managers

Tony Arsta, CFA
Nate Weisshaar, CFA

If investors thought the first quarter was volatile due to government policy, the second quarter had some additional surprises.

On April 2nd, so-called “Liberation Day,” President Trump revealed a raft of punitive tariffs that would have stifled global trade and led to a dramatic sell-off in stock markets. The S&P 500 dropped 12%¹ and the Russell 2000 dropped 15% between April 2nd and April 8th.²

Then April 9th brought the announcement of a tariff reprieve and markets rocketed, large and small caps climbing more than 10% in a single day. Then less than two weeks later, President Trump publicly pressured Federal Reserve Chairman Jerome Powell to lower interest rates, threatening the independence of the Federal Reserve and the underpinnings of the faith in the US Dollar. Markets expressed their discontent by dropping 2% in a day…then bouncing back the next day and (almost) never looking back.³

While the rest of the quarter held plenty of tragic events and impactful announcements, it appears investors have latched on to the strong earnings reports from major artificial intelligence (AI) players like Microsoft (up 29% in the quarter), Meta (26%), Nvidia (43%), and Broadcom (64%), and the seemingly (supposedly?) limitless potential of AI.

Despite all the volatility—and against nearly all expectations—we exited the second quarter of 2025 with the S&P 500 and Nasdaq at all-time highs while the Russell 2000 was flirting with record levels.⁴

In this context, the Small & Mid Cap SMA returned 6% in the quarter, pretty much in line with our benchmark, the S&P Midcap 400.

Annualized Net Returns as of 6/30/2025
	QTD	YTD	1Y	3Y	5Y	10Y
US Small and Mid-Cap	6.29%	3.42%	21.07%	16.90%	7.79%	7.26%
Benchmark (S&P Midcap 400)	6.72%	0.21%	7.38%	12.79%	13.41%	9.24%

Portfolio Review

Factoring in size and performance, the portfolio’s largest contributor and largest detractor were as follows:

Axon Enterprises: 57% return, 6.0% average weight
Brown & Brown: -11% return, 6.3% average weight

Our top performer, Axon (the maker of Taser self defense equipment), was also one of our largest positions which is always good for overall portfolio performance. Axon started the quarter as our third largest position and thanks to its outstanding performance in the quarter, finished as our top holding at over 7% of the total portfolio. What drove a 50%+ return in a single quarter you ask? The company reported first quarter earnings in early May and delivered 30%+ revenue growth and announced a new suite of AI-powered products to help law enforcement customers do their jobs faster and with less hassle. A strong launch to their latest Taser iteration and growing backlog support a solid growth runway and helped drive the stock higher.

Unfortunately, our worst performer, insurance broker Brown & Brown, was also one of our largest positions. Despite solid quarterly results, and strong organic growth, Brown and Brown fell 10% on concerns of softening insurance pricing. While these concerns are real, they miss the longer view: Insurance is a necessary cost of business, and Brown and Brown—as a broker, with unique knowledge of its end-markets—is an essential and hard-to-displace partner to its clients. We believe this lays the foundation for consistent and reliable growth for much longer than the market assumes. As such, we remain happy long-term owners of the shares.

Portfolio Changes

As long-term investors, we aren’t likely to make many changes to your portfolio in any given quarter. However, with all the volatility in the quarter, we saw some opportunities to strengthen the portfolio by exiting several positions, starting some new ones, and adding to a few existing holdings.

Sells: DV, TRU, COO, GMED, GNTX, TREX,
New Buys: SITE, HXL, CLBT, UFPT
Reinvestment: BRBR, LOB, EMN, RARE

Exits

We exited our small position in digital advertising verification company, DoubleVerify (DV), as our thesis wasn’t playing out as we had hoped. We were initially drawn to this company because its independent measurement of digital advertising positioned it to be a valuable partner to global brand advertisers, adding value to any company that wanted to make sure its advertising dollars were serving their intended purpose. Unfortunately, DoubleVerify’s product proved to be “nice to have” as opposed to critical, and it has seen several of its largest customers reducing spending recently as part of broader cost-cutting moves. To continue owning a formerly high-growth company, we need to see its products become ingrained in how its customers operate, we just haven’t seen that materialize for DoubleVerify.

Our investment in TransUnion (TU) was also a bit of a disappointment and we decided to exit the position at a minimal loss as we pursue better opportunities. While the company is well-positioned as part of a credit bureau oligopoly, alongside Equifax and Experian, our assessment of the risks to TransUnion has increased since we first invested. In the short-term, credit inquiries related to mortgages and auto loans face more headwinds than we expected and, more fundamentally, we believe the company is not executing as well as its peers, particularly in adoption of newer technologies to streamline the business.

We closed our position in long-term winner, The Cooper Companies (COO), as recent results have been more mixed. This is partially a reflection of the dual nature of Cooper’s business: their Vision business is a top-notch leader in the contact lens space, but we would classify their surgical business as average. As a result, we decided to redeploy the capital in this name to more promising ideas.

Our reasons for selling spinal surgery tool maker Globus Medical (GMED) are similar to why we sold Cooper: while part of the business is working well, the company needs to spend a lot of time and effort digesting its $3 billion acquisition of Nuvasive—not an easy task for a company of Globus’s $8 billion market-cap. Meanwhile, competition in the spinal surgery space—including from Alphatec, which we added to the portfolio last quarter—continues to intensify.

Another position we exited in the quarter, Gentex Corporation (GNTX), enjoyed a nice decade as a leading maker of components for cars. But being a supplier to the auto industry has always been a tough way to make money, and the geopolitical and technological environment appear to be increasing that degree of difficulty. As a result, we sold out of our investment because we felt the growth runway ahead of the company just isn’t what it used to be, and we think there are better places for your money.

Finally, we closed out of Trex (TREX), the leader in composite decks, because we’ve been disappointed by the company’s slowing growth rates. There are several factors dragging on the company’s growth, many of which are likely temporary, but at the current stock price we believe the risks and opportunities here are fairly well balanced, and we’ve got more compelling ideas

New Buys

One of those compelling ideas is SiteOne Landscape Supply (SITE) which we added to the portfolio this quarter. Like Trex, SiteOne benefits from the trend of homeowners valuing their outdoor spaces. Originally created within agricultural equipment giant Deere, SiteOne went public in 2016 and is one of the largest distributors of professional landscaping supplies in the country. The company has been steadily increasing its market share in the fragmented landscape supply market and we believe this should continue as SiteOne plays offense in the current uncertain economic environment.

Another new name to your portfolio this quarter is Hexcel (HXL), a manufacturer of lightweight composite materials (think carbon fiber and resins) that go into airplanes and other vehicles that need to be as efficient as possible. Hexcel has been supplying the aerospace industry for almost 75 years and counts airplane majors like Airbus and Boeing among its customers. The turbulence faced by the latter recently has given us an opportunity to buy shares in Hexcel at a discount. We believe Boeing’s troubles are temporary and over the next several years, Hexcel’s shares will reflect the company’s competitive moat as a vital supplier to a vital industry in today’s world.

Cellebrite DI (CLBT) is a global leader in digital investigations, lawfully accessing data on phones and other devices to assist in investigations. What this means in over-simplified terms is that Cellebrite has the technology to see what is on phones and other computer hardware in legally sanctioned situations. More than just cracking into the phones of alleged criminals, the company offers a full “case-to-closure” solution to assist law enforcement and other agencies. The rising importance of digital evidence, the increasing complexity of the work involved in this kind of access, and the growing backlog of customers that need this assistance give us confidence that Cellebrite has plenty of growth ahead.

The final new company this quarter is UFP Technologies (UFPT), a company that designs and develops pieces that are used in medical devices, sterile packaging, and other highly engineered products, primarily for the healthcare industry. The components that UFP makes aren’t flashy, but they’re critical for successful patient outcomes. In addition to relying on strong relationships with their customers, UFP’s management team has proven adept at executing small acquisitions to drive growth.

Reinvestment

During the second quarter, we added to our position in BellRing Brands (BRBR), maker of nutrition products like ready-to-drink protein shakes. The stock price declined after the most recent quarterly earnings, despite continued growth and business momentum. Though the company has seen no softness in consumption of their products, management is cautious about the second half of this year, noting that several key retailers have lowered their weeks of supply in inventory. We appreciate the short-term headwinds, but are excited to add shares of a company that still has what we believe is such a solid long-term growth trajectory in front of it.

We also added to our investment in Live Oak Bancshares (LOB). The company is delivering on its goals to grow customer deposits and loans. The stock price has been hit because the company caters to small businesses, which tend to be hit hardest by economic downturns. Given LOB’s long experience with this customer segment, we believe they can weather any storms. At current prices, the upside potential outweighs the downside risks in our estimation.

Another company seeing its stock price hit largely on headlines around tariffs and other broad economic concerns is Eastman Chemical (EMN). Are tariffs a concern? Not really: Eastman has little exposure to tariffs given its wide manufacturing footprint. Is the company cyclical? Yes, it sells into many cyclical industries such as construction and automotive, it also generates a significant portion of its business from more stable product lines such as agriculture, water treatment, and personal care. Further, we believe in this management team’s ability to weather any downturns and continue to strengthen its business in the long run, as it has a history of doing. We used the recent price declines as an opportunity to add to our investment, confidently and patiently holding for the next cycle.

Finally, we added to rare-disease-focused Ultragenyx Pharmaceutical (RARE) after seeing shares slip on broader industry sentiment—small pharmaceutical companies tend to see their shares rise and fall together without regard for company specifics. In the case of Ultragenyx, the company has several drug development updates expected this year, each of which may cause the company's fortunes to look brighter or dimmer. The volatility inherent here may seem intimidating, but we feel the investment fits securely within the context of a broad and diversified portfolio, and at recent share prices, we believe the upside potential of positive news is multiples greater than the downside risk of a disappointment.

1. https://finance.yahoo.com/quote/%5EGSPC/history/ 2. https://finance.yahoo.com/quote/%5ERUT/history/ 3. "US stocks nosedive as Trump harangues Powell" Reuters, 21 April 2025 4. "From Tariff Pain to Record Highs, a Wild Quarter on Wall Street" WSJ, 30 June 2025

US Stock Markets

The US Stock Markets commentary includes the following holdings: US Large Cap Strategy (Vanguard S&P 500 ETF: VOO, US Mid Cap Strategy (Vanguard Mid-Cap ETF: VO), and US Small Cap Strategy (Vanguard Small-Cap ETF: VB)

U.S. Stock Markets were up more than 11% on average for the quarter with the US Large Cap Strategy (“Large Cap”), which holds VOO, up just under 11.9% net of ETF expenses, excluding account level fees and expenses, during the period. Mid-Caps slightly underperformed the broad market this quarter. The Mid Cap Strategy (“Mid Cap”), which holds VO, gained about 8.6% net of ETF expenses, excluding account level fees and expenses, during the period. Small-Caps lagged Mid-Caps, with the Small-Cap Strategy (“Small Cap”), which holds VB, up 7.2%, net of ETF expenses, excluding account level fees and expenses. In general, Large Cap equity performance was roughly in line with the broader market, with the Russell 1000 up about 11.1% in Q2. In a reversal from Q1, Technology and Consumer Cyclical stocks significantly were strong, with the former leading the broader market by roughly 10 percentage points in Q2. Additional tailwinds came from Communication Services – which significantly outperformed the broad market – Industrials, and Utilities. Conversely, Energy, Healthcare, and Real Estate detracted from performance. Growth markedly outperformed Value and the broad market during the quarter. Dividend yielding stocks performed between Value and Growth.

International Stock Markets

The International Stock Markets commentary includes the following holdings: International Developed Strategy (Vanguard FTSE Developed Markets ETF: VEA) and International Emerging Markets Strategy (Vanguard Emerging Markets ETF: VWO).

The Emerging Markets Strategy, which holds VWO, underperformed compared to the Developed Markets strategy, which holds VEA, gaining 9.6% and just shy of 13.1% net of ETF expenses, excluding account level fees and expenses, during Q2, respectively. Within The Developed Markets Strategy, Financials, Industrials, and Information Technology were tailwinds in Q2. Within The Emerging Markets Strategy, Financials and Information Technology propelled the robust results, and all but Consumer Discretionary were modestly positive during the quarter.

US Real Estate

The US Real Estate commentary refers to the Real Estate Investment Trusts Strategy (Vanguard REIT ETF: VNQ)

The Real Estate Strategy, which holds VNQ, had quite a weak quarter against U.S. Stocks. Tailwinds from American Tower, CBRE, and Iron Mountain Incorporated were drowned out by broad underperformance across REITs. The Real Estate strategy delivered a performance of roughly -0.7%net of ETF expenses, excluding account level fees and expenses, in Q2.

Fixed Income

The Fixed Income commentary refers to the following holdings: US Bonds Strategy (Vanguard Total Bond Market ETF: BND), Treasury Inflation-Protected Securities Strategy (Vanguard Short-Term Inflation-Protected Securities ETF: VTIP), and, for taxable accounts only, US Muni Bonds Strategy (iShares National Muni Bond ETF: MUB).

U.S. Bond markets were mildly positive in the quarter, with core bonds underperforming the U.S. Equity market by around 10 percentage points. The US Bond Strategy, which holds BND, posted a gain of roughly 1.2% for the quarter, net of ETF expenses, excluding account level fees and expenses. Long duration underperformed shorter- and intermediate-duration maturities during the quarter. High Yield was comparatively strong, while TIPS were only modestly positive and closer to flat. The TIPS Strategy, which holds VTIP, posted a 0.9% gain, net of ETF expenses, excluding account level fees and expenses in Q2. The Municipal Bonds strategy, which holds MUB, was down modestly, losing -0.1% , net of ETF expenses, excluding account level fees and expenses.

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PLEASE NOTE that the performance results, presented for the passive strategies/index ETFs, do not represent the performance of MFWM’s discretionary management decisions, nor does it reflect the management fee charged by Fool Wealth to manage client accounts. Third party ETFs in which we invest client assets are subject to fees and expenses (“Underlying Fund Fees”) that are separate from (and in addition to) Fool Wealth’s management fee. These Underlying Fund Fees are passed along to clients. Depending on the strategy, Underlying Fund Fees may be significant. Fool Wealth’s management fees reduce the rate of return on investments. Details of Fool Wealth’s fees for index-based portfolios can be found in Item 5(A) (1)(a) of our Brochure (“Form ADV Part 2A”).

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Contents

Large Cap Dividend

Portfolio Managers

Performance

Transactions

Fixed Income

Portfolio Managers

International

Portfolio Managers

Portfolio Contributors

Portfolio Activity

Large Cap Core

Portfolio Managers

Performance

Transactions

Hedged Equity

Portfolio Managers

Portfolio Review

Portfolio Changes

Large Cap Aggressive Growth

Portfolio Managers

Performance

Transactions

U.S. Small & Mid-Cap

Portfolio Managers

Portfolio Review

Portfolio Changes

Exits

New Buys

Reinvestment

US Stock Markets

International Stock Markets

US Real Estate

Fixed Income

Contents

Main Content

Portfolio Manager Commentary Q2 '25

Contents

Please Note...

Archived Commentary

Large Cap Dividend

Portfolio Managers

Performance

Transactions

Fixed Income

Portfolio Managers

International

Portfolio Managers

Portfolio Contributors

Portfolio Activity

Large Cap Core

Portfolio Managers

Performance

Transactions

Hedged Equity

Portfolio Managers

Portfolio Review

Portfolio Changes

Large Cap Aggressive Growth

Portfolio Managers

Performance

Transactions

U.S. Small & Mid-Cap

Portfolio Managers

Portfolio Review

Portfolio Changes

Exits

New Buys

Reinvestment

US Stock Markets

International Stock Markets

US Real Estate

Fixed Income

Contents