Investment Pitches

Pitch Summary:
During this quarter, one new position to highlight is GOOGL, which we have high conviction on for a variety of reasons. While obviously well-known and well-researched, we believe the inherent benefits of Google's cloud storage business are still underestimated by the market, particularly from a valuation perspective. With the company trading at relatively low multiples, we believe we found an attractive entry point to buy shares. Also, worth mentioning on Google is how impressed we are with YouTube as a significant and dependable driver of revenue, now clocking in at an impressive run-rate of $30 billion annually. We expect this number to continue to grow at a healthy rate throughout the rest of the decade. Google's moves into live television, their stranglehold on various demographics, and unique position make it a tremendous asset with plenty of growth runway ahead. Finally, we believe much of the speculation around how AI will impact Google's search business has been greatly exaggerated. This business unit, which functions as a high-margin advertising platform model, is tremendously resilient among its customers—and provides a beautiful cash flow machine, relatively unparalleled in the annals of business history. All told, we believe Google represents one of the better risk/reward investments in the market today.

BSD Analysis:
Nightview Capital initiated a position in Alphabet (GOOGL) during Q1 2023, viewing it as an undervalued opportunity trading at attractive multiples. The fund's thesis centers on three key pillars: underappreciated cloud business value, YouTube's robust $30 billion annual revenue run-rate with continued growth prospects, and the resilience of Google's core search advertising business despite AI disruption concerns. Management emphasizes YouTube's expansion into live television and demographic dominance as significant growth drivers for the decade ahead. The fund dismisses market fears about AI's impact on Google's search monopoly, characterizing the advertising platform as an unparalleled cash flow generator with tremendous customer loyalty. Nightview views the combination of cloud growth potential, YouTube's media expansion, and search business durability as creating one of the most attractive risk-adjusted opportunities in the current market environment.

Pitch Summary:
Although not a bank, Interactive Brokers is another business in the financial sector that we find attractive. We initially established the position in November 2021 and have added in recent weeks. Interactive Brokers is now the Strategy's 6th-largest holding at 3% of the portfolio. At first glance, Interactive Brokers might seem similar to many of its competitors. It offers online trading in stocks, bonds, futures, options and other securities. It makes money through a mix of commissions and interest income, and its client base includes both individuals as well as institutions such as financial advisors and hedge funds. Taking a closer look, a picture of a far more differentiated business begins to emerge. Interactive Brokers occupies a unique niche as the go-to platform of choice for active and sophisticated traders. Its core customer trades 300 times a year, while the majority of retail investors trade less than 50 times a year. This makes Interactive Brokers very different from the likes of Robinhood, which is geared to novice investors, or other online brokerages like Schwab that cater to clients who need "high touch" services. Interactive Brokers delivers on what its core customer desires: low costs, best execution, a high degree of automation, and global market access. Its intense focus on customer value is reminiscent of what investors Nick Sleep and Qais Zakaria once called "scale economics shared". In some ways, Interactive Brokers is like the "Costco of brokers". It doesn't try to be all things to all investors, but it provides exactly what its core customer wants. A key differentiator is its technology. The company's founder and chairman, Thomas Peterffy, was an early pioneer in developing electronic market-making systems for professional traders in the 1980s. As Interactive Brokers grew its online brokerage business over the ensuing decades, Interactive Brokers "gave back" to customers by investing into its technology to improve the customer value proposition. Its investments in technology have allowed the company to automate to drive customer fees lower, expand global access, and improve products and capabilities. This fuelled growth as customers became more loyal and recommended the product to friends and family. This further propelled growth, and Interactive Brokers kept the flywheel spinning by reinvesting further in its technology. As a result, Interactive Brokers has created a customer value proposition that is extremely difficult to replicate. It offers best price execution, extensive market access, and low margin rates and foreign exchange fees. Despite charging customers such low fees, Interactive Brokers has remarkably attractive profitability. The company routinely earns operating margins in the 60% range versus a comparable figure of about 40% for Schwab. We believe Interactive Brokers' "scale economics shared" advantage will compound over time, because the company continues to re-invest in these value-added features for customers as the business grows. What's most exciting to us is that Interactive Brokers still has a long runway of future growth ahead. With just two million clients, it is still a relatively small player in a very large industry. Particularly outside the US, where about two-thirds of its existing customers are based, Interactive Brokers does not have meaningful competition. Historically, the number of accounts has grown at an average of 30% per annum over the past seven years and half of this growth came from word-of-mouth. Additional opportunities for future growth include "white labelling" its platform for financial institutions looking to offer their clients international access. For example, a local bank might offer online brokerage services under its own brand and manage the customer relationship, but would use Interactive Brokers for the trading platform. Interactive Brokers is onboarding two large institutions this year onto its platform, which is expected to add 400,000 accounts. If more financial institutions seek to provide a similar offering for their clients, Interactive Brokers will be well positioned to capture this opportunity and drive further growth. At current prices, Interactive Brokers trades at 14 times our estimate of 2024 earnings. We believe this is compelling for a high-quality company with a durable competitive advantage and exciting long-term growth prospects. The valuation also compares favourably to the S&P 500, which trades at 19 times earnings. As shown by the dark blue line in the chart, Interactive Brokers' relative valuation versus the US market stands out as particularly attractive— comparable or better than other periods that have produced attractive relative returns. That said, we are mindful that Interactive Brokers—while not a bank itself— currently finds itself in a "bad neighbourhood" from a market sentiment perspective. To the extent that investor concerns about banks spill over into the broader financial services sector, it would not be surprising to see downward pressure on the stock price in the near term. While we can't predict what the future holds, we can take comfort in the strength of the balance sheet and management's conservative approach to risk control. Since Interactive Brokers is not a bank, the majority of the firm's investments are in short-term Treasurys and other risk-free instruments that are marked-to-market every quarter. This includes customer deposits as well as the firm's sizable equity of $12bn. The company offers high interest rates on cash balances (benchmark rate less 50 basis points), which puts them at low risk of customers pulling cash out to invest in money market funds. In comparison, other banks provide customers low interest on cash and make income by investing client cash into long duration assets. Interactive Brokers runs a very different business model and does not carry the same risk as these banks. We often say that our greatest concern is the risk of permanent capital loss—as opposed to short-term volatility or underperformance—and we like to find management teams whose interests are well-aligned in this regard. With the vast majority of his $20bn fortune invested alongside us, it would be hard to find a better example than Thomas Peterffy at Interactive Brokers.

BSD Analysis:
Orbis presents a compelling bull case for Interactive Brokers, positioning it as the "Costco of brokers" with a differentiated value proposition targeting sophisticated active traders. The fund emphasizes IBKR's "scale economics shared" model, where technology investments drive down customer costs while maintaining 60% operating margins versus Schwab's 40%. The company serves a unique niche with customers trading 300 times annually compared to typical retail investors' sub-50 trades, creating strong customer loyalty and word-of-mouth growth. With only 2 million clients and 30% annual account growth over seven years, IBKR has significant runway for expansion, particularly internationally where competition is limited. The white-label opportunity with financial institutions could add substantial scale, with 400,000 accounts expected from two new partnerships. At 14x 2024 earnings versus the S&P 500's 19x, the valuation appears attractive for a high-quality growth company with founder Thomas Peterffy's $20 billion aligned investment. The conservative balance sheet with short-term Treasury investments and strong cash management differentiates IBKR from traditional banks facing duration risk.

Pitch Summary:
South Korea is the opposite of Japan in the sense that it has spent much of the postwar period investing heavily in national defence in the wake of the Korean war. It remains one of a small handful of advanced economies with universal conscription today. As a proportion of GDP, South Korean defence expenditures were already among the highest in the world, and this has only accelerated along with the recent surge in global defence spending. Nowhere is this more visible than at Hanwha Aerospace. The South Korean armed forces are distinct in capabilities, standing apart conspicuously from the profiles of western powers. This contrast is evident in the composition of its military hardware stockpiles. Because the nation is constantly on alert for the possible resumption of a land war against North Korea, South Korea boasts some of the largest inventories of tanks, artillery, and armoured vehicles, far more than leading western militaries. South Korean defence contractors like Hanwha Aerospace became specialists in these areas, enjoying abundant and stable demand domestically. After the Cold War, many militaries thought such weapons passé, designed to fight the conflicts of yesteryear. Most countries downgraded their status, neglecting their research, production, and maintenance. With the importance of armoured vehicles, particularly artillery, to the trajectory of the Ukraine war challenging these presuppositions, many nations last year began to rearm themselves for the kind of conflict for which South Korea has been preparing for decades. Hanwha Aerospace found itself at the financially fortunate crosscurrents of these events, uniquely capable of selling competitive quality weapons and ready to meet international demand quickly and at a reasonable price due to domestic scale economies. Over the past decade, South Korea has become a top ten defence exporting nation according to the Stockholm International Peace Research Institute, and it may continue to take share if the products in which it specialises remain in high demand. Last year, South Korean defence exports exceeded $17bn in value, an all-time high, growing over fivefold from $3bn in 2020. Hanwha Aerospace accounted for the plurality of that figure. This year, the company finds itself in a close race against Germany's Rheinmetall—also held in the portfolio—to supply Australia's next-generation infantry fighting vehicles, a deal that could alone be worth $15bn. Whether Hanwha Aerospace can follow these achievements with even more sales successes later this year and beyond remains uncertain, but the fact remains that Hanwha Aerospace is an emerging defence contractor that is competitive with the incumbents of the west. The specific per unit economics of its sales are confidential, but the company has said that its export orders achieve operating profit margins in the low-to-mid-teens versus the high single digits for domestic orders. This means Hanwha Aerospace's export business may have the profit potential of its global peers. Hanwha Aerospace is also valued below its historical average EV/EBITDA multiple. And likewise, we believe it may continue delivering outstanding shareholder returns. Hanwha Aerospace makes one of the best artillery platforms in the world, the arms over which South Korea has the greatest competitive advantage. It manufactures other products in high demand including multiple launch rocket systems and armoured fighting vehicles. Worldwide demand should help Hanwha Aerospace improve on its profitability due to the higher margins of its export business. Forecasting the financials of a defence company is difficult because of the unpredictable nature of the timing of deliveries, and one can never be certain of the outcome of competitive defence tenders. But Hanwha Aerospace's order backlog in its armoured vehicles segment is nearly four times the size of its market cap today, enough to keep the company's factories busy for the next couple of years. Plus, the promising growth trajectory of its exports is buttressed by a strongly supportive state and durable global trends. Moreover, each sales success is likely to beget recurring business, as Hanwha Aerospace would naturally supply munitions, conduct maintenance, and provide platform upgrades for the hardware it delivers. We believe that Hanwha Aerospace's recent achievements are not ephemeral. Instead, they possibly signify the stable ascendance of a formidable global competitor.

BSD Analysis:
Orbis presents Hanwha Aerospace as a uniquely positioned beneficiary of the global defense spending surge, leveraging South Korea's decades-long focus on land-based warfare capabilities. The manager emphasizes the company's specialization in artillery, tanks, and armored vehicles—weapons systems that western militaries had de-emphasized post-Cold War but are now in high demand following the Ukraine conflict. The investment thesis centers on Hanwha's competitive advantages: domestic scale economies, proven manufacturing capabilities, and superior profit margins on export orders (low-to-mid teens vs. high single digits domestically). The company's massive order backlog in armored vehicles—nearly four times its market cap—provides substantial revenue visibility for the coming years. South Korea's emergence as a top-ten defense exporter, with exports growing fivefold from $3bn to $17bn since 2020, demonstrates the scalability of this opportunity. The potential $15bn Australian infantry fighting vehicle contract against Rheinmetall represents a significant near-term catalyst. Trading below historical EV/EBITDA multiples despite this transformed growth profile suggests meaningful valuation upside.

Pitch Summary:
We saw value in MHI before the Ukraine war due to its strong energy portfolio. The company builds some of the most advanced natural gas turbines. It is the only experienced developer of nuclear energy reactors left in Japan after the Fukushima disaster. And it is the world market share leader in the nascent carbon capture industry. We see these three energy technologies as essential tools for negotiating the path forward to any feasible carbon-neutral paradigm. Against the backdrop of the Ukraine war prompting a pragmatic rethink of global energy security, MHI is realising opportunities in all three of these domains, and shareholders have been rewarded accordingly. MHI is also Japan's largest defence contractor. On the surface, Japan is an unlikely candidate for dynamism in the defence industry. The country constitutionally forswore war making capacity after the Second World War, and pacifism is deeply rooted in the identity of the modern nation. For instance, in 2017, the government had to pause its attempt to permit the country's armed forces to preemptively shoot down incoming missiles due to fierce public opposition. This longstanding commitment to peace through self-restraint is plainly evident in the numbers. Japan continues to spend less on defence as a proportion of gross domestic product (GDP) than other major economies. This situation is poised to change rapidly. Last year, the government announced plans to double defence spending within five years, which could make Japan the third largest spender on defence worldwide, a position that is receiving consistent majority approval in opinion polling for the first time ever. The government has also highlighted the need to strengthen the domestic defence industry by increasing permitted profit margins to match global standards, a policy that could take effect as soon as the next fiscal year starting this April. The Japanese government has selected MHI to develop a next-generation stealth fighter in partnership with Britain and Italy, and it can only carry out this project if Japan loosens its strict limits on the export of defence technologies. On an EV/EBITDA basis, MHI still trades at a discount to its history even though we believe its businesses have brighter futures than ever before. Last year, energy supported the valuation. We think defence, now just around 10% of its revenue, will be a key part to the possible continuation of the company's share price gains. As Japan's defence spending intentions from last year take concrete form this year, we strongly expect MHI's defence business to receive a considerable uplift in both sales and profit margin.

BSD Analysis:
Orbis presents a compelling dual-thesis investment case for Mitsubishi Heavy Industries, positioning the company as a beneficiary of both the global energy transition and rising defense spending. The manager highlights MHI's unique positioning in three critical energy technologies: advanced natural gas turbines, nuclear reactor development (as Japan's sole remaining experienced developer post-Fukushima), and world-leading carbon capture capabilities. The defense angle centers on Japan's historic shift toward military normalization, with government plans to double defense spending within five years and potentially become the world's third-largest defense spender. MHI's selection to develop next-generation stealth fighters with Britain and Italy represents a significant catalyst, contingent on Japan loosening export restrictions. The valuation argument appears compelling, with MHI trading at an EV/EBITDA discount to historical levels despite what the manager views as significantly improved business prospects. The defense segment, currently only 10% of revenue, offers substantial upside potential as Japan's defense spending materializes into concrete orders with improved profit margins.

Pitch Summary:
Sanjiang Fine Chemicals is a petrochemical company based in China. There are plenty of negatives about the petrochemical industry, and even more about Sanjiang Chemical current positioning: ● It is a commodity business. Your product is just as good as your neighbor's, and you can only compete in price; ● Although there are regional price differences, it is a global market. Demand usually grows a bit faster than global GDP; as for supply, a new plant may take 5 to 7 years to be built, from planning to commissioning. Therefore, investment cycles are fairly predictable. We have been in a downcycle over the last couple of years, and it should last at least another year; ● Petrochemicals can be made by processing three different feedstocks. From the cheapest to the most expensive: ethane (extracted from natural gas), naphtha (refined from oil), and methanol (produced from coal or gas). Sanjiang Chemical's current plants only produce them from methanol, the least competitive of them. So, why are we invested in a marginal cost producer in a commodity industry during a downcycle? Because the company is just about to substantially 1) increase its production capacity, and 2) improve its competitive positioning. Let me elaborate. The magnitude of the capacity increase: after three years of construction, the new plant has just been completed; it is expected to add at least 50% to the company's revenue, starting from 1Q23. It may not run at 100% capacity at the beginning, an issue which may take a few quarters to adjust. In any case, the expensive, capex-heavy, balance-sheet leveraging phase of the project is over. The yet to be announced 2022 results should show its maximum financial leverage. The nature of the capacity increase: the new facilities will be fed by a mix of naphtha and ethane, which through the cycle are going to be far cheaper than methanol. Therefore, the company should significantly improve its cost competitiveness. So now we have a sense of what the company will look like in a few months, compared to its history. It seems that it is on the verge of a huge increase in earnings. But what about the price? How much of this is priced in? Its business is so cyclical that to estimate how much the company will earn once the new plant is up and running would be a fool's errand. But some large numbers can give us a hint of the potential. At the end of 2020, the company expected the new plant to generate 20% return on assets on a yearly basis. At RMB 6.5bn of capex, that equates to RMB1.3bn. To keep things in perspective: the whole company's market cap at the end of 2022 was about RMB 1.5bn. Although no detailed explanation was provided, that expected return is most likely before interest costs, and considering a very different environment than today (in 2020 the company had record results on its methanol plant). In reality I think the new plant will not be able to generate such high returns so soon; in mid cycle years though, those potential profits are feasible. From 2017 to 2021, net earnings from their current facilities fluctuated between RMB 0.4bn and RMB 1.1bn – 2022 results, yet to be announced, should be far worse –, for an average of RMB 0.75bn. Given the size and the feedstock advantage of the new facilities, it seems reasonable to assume that it can double its earnings, which means that it may earn its whole market cap in a single year. Since historically it pays more than 30% of its profit as dividend, arithmetically the future seems bright. However, to assume that the next five years will be similar to the last five may be unreasonable. They may be far worse, for the whole industry – remember, we are in the midst of a downcycle. On the other hand, the cycle can improve faster than expected, which would not be the first nor the last time it happens. Most of the time, I shy away from such predictions. Regardless, given that the construction has finished, I am confident that the company can survive this downcycle, and that it shall pass. It always does. Suffice to say that once it becomes clear that the situation is improving, the stock price will probably be much higher (a stock trading at a crystal clear P/E of 1 is very rare). It is certainly not as safe a proposition as buying Tianjin Development Holdings at less than half the cash in hand (while having high-quality profitable subsidiaries), or as bullet-proof as, through Compagnie de l'Odet, earning indirect royalties on 30% of all music listened to globally (while in the hands of one the ablest asset allocators in Europe). But the price at which it is available now, together with the myopic backward-looking view of the market, seems too good an opportunity to miss.

BSD Analysis:
The manager presents a contrarian investment in China Sanjiang Fine Chemicals, a petrochemical company trading at extremely depressed valuations during an industry downcycle. The core thesis centers on a transformational capacity expansion that just completed after three years of construction, expected to increase revenue by at least 50% starting in Q1 2023. More importantly, the new facilities will utilize cheaper feedstocks (naphtha and ethane) versus the company's current methanol-based production, dramatically improving cost competitiveness. The manager highlights the compelling valuation, noting the company's market cap of RMB 1.5bn versus RMB 6.5bn in capex for the new plant, with management's original expectation of 20% ROA. Historical earnings averaged RMB 0.75bn, and the manager believes the new capacity could double earnings, potentially allowing the company to earn its entire market cap in a single year. While acknowledging significant cyclical and commodity business risks, the manager views the current pricing as offering substantial upside once the cycle turns, describing it as trading at a "crystal clear P/E of 1."

Pitch Summary:
We identified a similar tactical investment opportunity during the quarter in Advanced Micro Devices (NASDAQ: AMD). This is one of the world's leading semiconductor chip designers. We believe we have invested in AMD cheaply and ahead of the following coinciding dynamics that will all play out over the coming year and beyond: (i) new product cycle in accelerator chips tailored for AI models; (ii) positive margin mix effect from new products; (iii) economic cycle of depressed core business rebounding; and (iv) acceleration of synergy unlock from recent Xilinx acquisition.

BSD Analysis:
Montaka established a tactical position in AMD, positioning ahead of multiple converging catalysts expected to drive performance over the coming year. The investment thesis is built on four key pillars: AI-focused accelerator chip launches, margin expansion from new product mix, cyclical recovery in core semiconductor demand, and synergy realization from the Xilinx acquisition. The timing appears strategic, with the fund acquiring shares at attractive valuations before these catalysts materialize. The AI angle is particularly compelling given the explosive growth in AI model training and inference demand. AMD's positioning in data center GPUs and AI accelerators should benefit from the generative AI boom. The Xilinx integration adds FPGA capabilities and expands AMD's addressable market in data center and edge computing applications.

Pitch Summary:
We were recently presented with an opportunity to buy Bank of America (NYSE: BAC) cheaply following the fallout from the collapse of Silicon Valley Bank. 'BofA' is a large, well-capitalized, high-returning US bank that is perversely benefiting from stresses in the regional banking sector. Indeed, we are already observing US deposits flowing out of smaller banks, into larger banks. This is a bank that counts Berkshire Hathaway as its largest shareholder. And we were able to buy it at a price more than 40% cheaper than one year ago – and one that we believe represents attractive value.

BSD Analysis:
Montaka initiated a position in Bank of America following the Silicon Valley Bank collapse, viewing the market dislocation as a tactical opportunity. The fund's thesis centers on BofA being a beneficiary of regional banking stress, with deposits flowing from smaller to larger institutions. The investment is supported by strong fundamentals including solid capitalization, high returns, and backing from Berkshire Hathaway as the largest shareholder. The valuation opportunity is compelling, with shares trading 40% below year-ago levels. This represents a classic flight-to-quality play during banking sector turbulence. The fund views this as a tactical investment with attractive risk-adjusted returns given BofA's defensive positioning and market share gains during industry stress.

Pitch Summary:
We have a paper loss of 1% of AUM in a special situation that we participated in last quarter. This was about bonus (i.e. free) preference shares to the equity shareholders of Music Broadcast ltd. Please note this is not a core equity position; it was a way – unsuccessful till now -to put our spare cash to temporary use. Such cases are called as "special situations" in investing parlance. Music Broadcast runs the radio channel Radiocity. The newspaper group Jagran Prakashan is the parent of the company with a 74% stake. Radiocity announced bonus preference shares to its minority equity shareholders in the ratio of 1 bonus preference shares of FV of Rs 100 each for 10 shares of Music Broadcast (then CMP Rs 25). The bonus preference share were to be allotted for free. In simpler words any non-promoter shareholder holding shares worth Rs 250 was entitled to bonus shares worth 100 free (i.e. 40% of cost). Additionally, these preference shares will list on stock exchanges soon (we can sell in the market) and will be ultimately redeemed @ Rs 120 in 3 years. Think of bonus preference shares as delayed dividend. Instead of paying immediately, the company will distribute the sum after 3 years (at 20% premium). Normally a dividend equal to 10% of market cap leads to fall of 10% in share price once the stock goes ex-dividend. Given that these bonus shares are being given to minority shareholders that hold only 26% stake, post record date the stock price should fall by 40% of 26% i.e. 10.4%. We made a 3.5% allocation to Music Broadcast at price of Rs 26.6 per share to play this special situation. Even if price were to fall 30% once stock goes ex-date we would have made 12% in a couple of months. Or so we thought! In reality, post the ex-date, while we got the free bonus shares (worth 38% of our cost), the equity share actually is down 59% as of this writing. Even if we go back to the price of Rs 17.7 on Oct 22, 2020 when the bonus was first announced, the stock has fallen 39% from then price. The only explanations can be that (a) bonus was already in price way before we thought and/ or (b) owing to low liquidity and rush to sell the main equity shares after ex-date, the stock has corrected steeply. Now that reality has not turned as we had imagined, should we sell the equity shares immediately? Four reasons require us to pause. First, free cash will form over 75% of market capitalisation (including preference shares) of the company. Second, this is pre-election year which is normally good for Radiocity's advertising revenues. Third, management has been pro-shareholders (Jagran Prakashan, the parent has done 8 buybacks in last 9 years). And the forth reason is harvesting tax losses. If we hold this position for 9-12 months, (a) we claim tax loss on main equity shares (bonus stripping) and (b) have that as short term loss (15%) versus long term (10%). This means if we sell between 9-12 months, we can use 15% of the 'notional' loss to set off future capital gains. Notional because, it is not actual loss, we have received bonus preference shares for free in exchange. Nonethless, we will sell it before 9 months if we are getting a good price. The bonus preference shares on the other hand will list shortly, and we will decide to sell, buy or hold based on the price at which they start trading.

BSD Analysis:
The fund manager describes a failed special situation investment in Music Broadcast Limited, acknowledging a 1% AUM loss on what was intended as a temporary cash deployment strategy. The thesis centered on capturing arbitrage value from bonus preference shares issued to minority shareholders at attractive terms - free shares worth 40% of investment cost, redeemable at Rs 120 in 3 years versus Rs 100 face value. However, the equity shares declined 59% post ex-date versus the expected 10-30% drop, suggesting the bonus was already priced in or liquidity issues caused excessive selling pressure. The manager identifies four reasons to potentially hold: high free cash composition (75% of market cap), pre-election advertising tailwinds for Radio City, shareholder-friendly management track record (8 buybacks in 9 years by parent Jagran Prakashan), and tax loss harvesting benefits. The position represents a clear special situations strategy gone wrong, with the manager candidly acknowledging the misjudgment while outlining potential recovery scenarios. This demonstrates disciplined risk management through position sizing (3.5% allocation) and transparent mistake analysis.

Pitch Summary:
One of our Clean Growth IV portfolio companies, Amprius (NYSE: AMPX), recently reported a tremendous battery breakthrough. Using proprietary silicon anodes, the company's lithium-ion batteries deliver double the energy density compared to other common batteries such as those used in Tesla, Rivian and Ford EVs. This has important implications for future EVs and for electric powered drones and other aircraft. This allows customers to "either increase energy content in a battery pack without increasing weight, reduce weight in applications that target a fixed energy content, or combinations of both," according to the Amprius press release.

BSD Analysis:
North Sky Capital highlights a significant technological breakthrough by portfolio company Amprius, which has developed lithium-ion batteries with double the energy density of conventional batteries used by major EV manufacturers. The proprietary silicon anode technology represents a meaningful competitive advantage in the rapidly growing battery market. This breakthrough addresses critical pain points in electric vehicle adoption by enabling either increased range without weight penalties or reduced battery weight for equivalent performance. The technology has broad applications beyond EVs, including electric aircraft and drones, expanding the total addressable market. The timing is particularly favorable given the mega-trend of decarbonization and over $1 trillion invested in energy transition in 2022. North Sky's position as an existing investor through Clean Growth IV provides them with insider access to this promising technology. The breakthrough positions Amprius to capture significant market share as the EV industry scales and energy density becomes increasingly important for competitive positioning.

Pitch Summary:
While the War in Ukraine had the potential to severely disrupt Philip Morris' Eastern European business, the company has navigated the turmoil relatively well with sales minimally impacted. But the most important piece of news over the last three months is that the company completed its acquisition of smokeless tobacco maker Swedish Match (maker of the popular Zyn Pouches) at a very attractive price. Just as important, Philip Morris bought the rights from their former parent company Altria to market IQOS, their leading Heat-Not-Burn reduced risk device, in the United States starting in 2024. The combination of these events has increased our confidence that Phillip Morris will have a sustainable path towards high-single-digit to low-double-digit organic earnings growth for the foreseeable future. At the same time, we view their product portfolio and history of execution as evidence that they are pulling ahead of the rest of the industry in establishing brand loyalty for their reduced-risk products as the world continues to transition away from combustible cigarettes.

BSD Analysis:
Kovitz increased their Philip Morris position following strategic developments that strengthen the company's reduced-risk product portfolio. The completion of the Swedish Match acquisition at an attractive price provides access to the popular Zyn nicotine pouches, while securing US marketing rights for IQOS heat-not-burn devices from Altria creates significant expansion opportunities. Despite geopolitical risks from the Ukraine war, the company's Eastern European operations have shown resilience with minimal sales impact. The manager sees these developments creating a sustainable path for high-single-digit to low-double-digit organic earnings growth. Philip Morris is viewed as pulling ahead of industry peers in establishing brand loyalty for reduced-risk products as global tobacco consumption shifts away from traditional combustible cigarettes. The combination of product innovation, geographic expansion, and execution capability positions the company to benefit from the ongoing tobacco industry transformation.

Pitch Summary:
Keysight Technologies operates in the test and measurement industry where they sell both hardware and software that supports customers R&D and manufacturing efforts in a wide array of disciplines ranging from commercial communications, industrial automation, the "Internet of Things", aerospace and defense applications, automotive electrification and autonomy, semiconductors, and personal electronics. While this business is not a household name, you are almost assuredly using many products every day that were developed using Keysight equipment. Through management actions and strategic M&A orchestrated over the last several years, the management team at Keysight has massively advanced the company's competitive position versus their peers. Looking forward, we believe the company's moat will continue to grow stronger as they leverage significant scale advantages (their annual R&D investments are larger than all of their competitors' revenue except for one), tight integrations with their customers that have become only stickier through software applications that are vital to scientific productivity, and an ability to manufacture specialty integrated circuits at the company's in-house semiconductor fab that allows Keysight to meet customer needs as they attempt to solve leading-edge technological problems. For shareholders, this translates to a dramatically improved margin profile of the company (e.g. gross margins have expanded from the mid-50's to mid-60's) and a business aligned with several important secular growth drivers. Currently, there is concern about how the possibility of a recession could impact the near-term earnings profile of the company. While we share some of the market's concern regarding possible macro weakness denting near-term demand, we are focused on the fact that much of the future advancement in a wide area of technical fields will need an ever-expanding set of integrated hardware and software solutions that Keysight is best positioned to provide. As a result, we believe the company will emerge from any cyclical drawdown with an ability to continue to drive double digit earnings growth in a normalized environment.

BSD Analysis:
Kovitz views Keysight Technologies as a dominant player in test and measurement equipment with strengthening competitive advantages. The manager emphasizes the company's massive scale advantages, including R&D investments larger than most competitors' total revenue, creating significant barriers to entry. Strategic M&A and management execution have enhanced Keysight's competitive position, with gross margins expanding from the mid-50s to mid-60s. The company benefits from sticky customer relationships through integrated software solutions vital to scientific productivity and maintains an in-house semiconductor fab for specialty applications. Multiple secular growth drivers including 5G, IoT, automotive electrification, and semiconductor development support long-term demand. While acknowledging near-term recession risks, Kovitz believes Keysight is uniquely positioned to provide increasingly complex hardware and software solutions required for technological advancement. The manager expects the company to emerge from any cyclical weakness with continued double-digit earnings growth potential.

Pitch Summary:
We re-entered our Jacobs position last year as noise around near-term earnings created an opportunity for us to rebuild a stake as our estimates of fair value were moving higher. We believe Jacobs is in a sound position to re-accelerate organic revenue growth given a solid backlog of higher-margin projects. Project funding from the 2021 Infrastructure Investment and Jobs Act, capital expenditures related to domestic semiconductor supply, and capacity additions for biotechnology are all trends providing tailwinds to Jacobs' businesses.

BSD Analysis:
Kovitz re-entered Jacobs Engineering after market noise around near-term earnings created an attractive entry opportunity while their fair value estimates were rising. The manager sees the company positioned for organic revenue growth acceleration driven by a solid backlog of higher-margin projects. Multiple structural tailwinds support the investment thesis including funding from the 2021 Infrastructure Investment and Jobs Act, domestic semiconductor manufacturing investments, and biotechnology capacity expansion. These trends align with Jacobs' engineering and consulting capabilities across infrastructure, technology, and life sciences sectors. The manager appears to have taken advantage of temporary earnings volatility to rebuild a position in a company benefiting from long-term secular trends in infrastructure modernization and supply chain reshoring.

Pitch Summary:
American Express has been a long-standing holding. Throughout this time, we have seen their moat attacked multiple times, major partnerships end (e.g. Costco), a global stoppage of travel, which drives a significant portion of card spending and is a significant reward used to attract or retain cardholders, and consistent fears that they would not be able to reach the newly affluent generations of Millennials and Gen Z. Not only has American Express survived all of these events, but the company and brand have thrived as the world emerged from the COVID era. American Express sports leading card growth with the aforementioned generations, a revamped, diversified marketing and rewards program, and more acceptance across the globe than ever before. Importantly, they have maintained industry-leading returns on equity among financial company peers. Trading at a below-market multiple despite being a substantially better business than the average S&P company, we find the shares quite attractive. Should a recession come to pass, we believe their position is substantially improved and that a sustained hit to earnings is unlikely.

BSD Analysis:
Kovitz maintains conviction in American Express despite multiple historical challenges including partnership losses, travel disruptions, and demographic concerns. The manager emphasizes the company's resilience and ability to emerge stronger from adversity, particularly during the COVID recovery period. Key thesis points include successful penetration of younger demographics (Millennials and Gen Z), expanded global merchant acceptance, and a diversified rewards program. American Express maintains industry-leading returns on equity among financial peers while trading at a below-market valuation multiple. The manager views this as a quality discount opportunity for a superior business. Kovitz believes the company's improved competitive position would provide earnings stability even in a recessionary environment. The investment case centers on the durability of American Express's premium brand and customer loyalty despite periodic competitive pressures.

Pitch Summary:
PPG is the second largest coatings company in the world with #1 or #2 positions in six of its eight end markets. Those end markets are diverse, ranging from branded house paint to sophisticated aerospace and electric automobile battery coatings, where PPG is a technology leader. We believe that a good proportion of end markets are poised to grow ahead of GDP in the near-to-medium term as vehicle and aerospace production continue to recover, China emerges from COVID lockdowns, electric vehicle penetration continues to increase, and infrastructure stimulus and supply chain near-shoring continue. In recent years there has been an adverse raw material cost cycle that has depressed PPG's earnings, but evidence points to imminent relief. Historically, this has been a good time to own coatings companies as their price increases tend to stick, but costs fall. PPG's balance sheet is also strong, providing the opportunity for accretive capital allocation going forward. With solid growth prospects, cost relief, continued good capital allocation, and a durable competitive position, we think PPG is an attractive investment at this juncture.

BSD Analysis:
Kovitz initiated a position in PPG Industries based on its dominant market position as the second-largest global coatings company with leading positions across diverse end markets. The manager sees multiple growth catalysts including recovering vehicle and aerospace production, China's COVID reopening, electric vehicle adoption, and infrastructure spending driving above-GDP growth. A key element of the thesis involves margin expansion as raw material cost pressures that have depressed earnings are expected to abate. Historically, coatings companies benefit during cost relief cycles as price increases remain sticky while input costs decline. PPG's technology leadership in sophisticated applications like aerospace and EV battery coatings provides competitive differentiation. The company's strong balance sheet enables accretive capital allocation opportunities. Kovitz views the current environment as an attractive entry point given the combination of cyclical recovery, structural growth drivers, and margin expansion potential.

Pitch Summary:
We believe Visa (V), a current portfolio holding, is one the best examples of a compounder we have come across. Visa's network acts as a toll collector on global money movement in exchange for enabling secure and near frictionless financial transaction capabilities. High returns on capital, nearly 70% EBITDA margins, and sustained secular tailwinds (i.e., cash to credit) have made it one of the great compounders of the modern era. Since its 2008 IPO, total shareholder returns have grown roughly 23% per, on average, and its market capitalization stands at roughly $450B. Visa's business model is a classic example of the "network effect". The network effect is a powerful competitive advantage and describes any situation in which the value of a product, service, or platform depends on or "grows with" the number of buyers, sellers, or users who utilize it. In the case of Visa, its network effect has grown over time as more Visa credit card holders led to more merchants accepting credit, which led to more merchants signing on to Visa's network, which increased the value to card holders, and so on. This type of positive feedback loop is a hallmark of the strong network effect. Each day that has passed since its introduction in 1958 (via a predecessor company), Visa's network continues to grow. This in turn makes it harder and harder to displace and creates a barrier to entry from new competition. Keeping competitors at bay is extremely important in being able to hold your pricing and margin structure. Today, Visa connects 3.5B card credentials (consumers) and 13,000 issuers (banks) on one side, and 70M+ merchants and 3,000 acquirers (merchant's bank who process the transaction) on the other. The scale and ubiquity of their two-sided network is unparalleled around the world (ex-China) and allows them tremendous power with each participant. It's also important to understand what Visa is not. It is often wrongly characterized as a financial institution. Visa is not a bank. Visa does not issue credit/debit cards (despite the logo on your card). Visa does not take on any balance sheet risk. Rather, Visa is a digital infrastructure and technology business. Visa's propriety VisaNet network serves as both the heart and gatekeeper of global commerce where 15 cents of every $1 spent offline, and 43 cents of every $1 spent online flows through their rails.

BSD Analysis:
Kovitz presents Visa as an exemplary compounder with exceptional network effects and competitive positioning. The manager emphasizes Visa's role as a digital infrastructure provider rather than a traditional financial institution, highlighting its asset-light model with 70% EBITDA margins and high returns on capital. The thesis centers on Visa's unparalleled two-sided network connecting 3.5 billion card credentials with 70+ million merchants globally, creating powerful barriers to entry and pricing power. Since its 2008 IPO, the company has delivered approximately 23% annual returns, reaching a $450 billion market capitalization. The secular shift from cash to digital payments provides sustained tailwinds for growth. Kovitz views the network effect as self-reinforcing, where increased adoption by cardholders drives merchant acceptance, which in turn attracts more cardholders. The manager positions Visa as a toll collector on global commerce, processing significant transaction volumes with minimal balance sheet risk.

Pitch Summary:
We own JPMorgan and Bank of America shares (and Goldman Sachs, for which the recent events are far less impactful given its business mix). Clearly, this issue is not a risk for JPMorgan although, at first glance, it appears concerning for Bank of America. The questions one needs to ask is what needs to happen to necessitate breaking into the HTM portfolio piggy bank, and what else is happening within the bank to offset these risks. Please ask if you would like to see more detail on this working but, in summary, Bank of America would need to suffer c.50% deposit outflows to force a mark to market on their HTM assets. There are several reasons we think this is unlikely. The first is size. With $1.9 trillion of deposits (vs. SVBs c$200bn) Bank of America is a systemic part of the depositary base in the US, and system deposits would need to meaningfully contract for them to be impacted. The second is diversity. Bank of America is a broad-based bank with an array of depositors (not narrowly focused on the tech companies in Silicon Valley as SVB was). The third is support from the Fed. The new "BTFP" facility allows banks to borrow up to 100% of the par value of their HTM assets, removing the need for an outright sale. As of December 2022, the rise in interest rates has generated an unrealised $100bn loss on Bank of America's HTM assets. The most likely outcome is that these bonds mature at par and no loss is suffered, although an opportunity to earn a higher return in today's interest rate environment is of course forgone. If these bonds were bought above par, then some portion of this loss may have to be realised from 2033 onwards as this is the earliest maturity within the portfolio. The flip side is that the recent move in interest rates has also driven an $8bn realised annual increase in profits today. In both banks, solid management decisions have avoided the duration risk trap which others have fallen into. We believe in the structural returns from our holdings. They have generated an average 15% return on capital in a very tricky decade, and the next cycle should present further consolidation opportunities (c.f. Credit Suisse finally retiring their investment bank). Both banks have around a third of the leverage they had prior to the 2008 crisis, and three times the liquidity. Capital-light fee-based businesses are a larger contributor to their bottom lines, and credit risk within trading has been vastly reduced due to proprietary trading regulation. Asset quality is significantly higher, with mortgages at lower loan-to-value ratios made to homeowners with higher average FICO scores. All told, the cyclicality in the businesses through asset exposure, credit risk, and balance sheet leverage are lower than any point in the recent past, and revenues are more diverse. Finally, to the inevitable down cycle. We will see in a few days the impact of the recent malaise as they report Q1 earnings, and we expect solid deposit figures following depositor flight to safety from regional banks in the US. Given the tightening of financial conditions within the regional banks, we also expect loans to migrate to the money centre banks, creating long-term customer relationships with high franchise value. Trading at 9x normalised earnings the stocks are cheap and, while we don't have a particular view on when they might re-rate, the strength shown through this difficult period (which is likely not over) will shine through in above-average intrinsic value growth, as well as potentially higher valuations, as we move through the next five years.

BSD Analysis:
The manager addresses concerns about Bank of America's $100bn unrealized HTM losses while building a defensive bull case. The thesis emphasizes BAC's systemic importance with $1.9 trillion in deposits, requiring a catastrophic 50% deposit outflow to force HTM asset sales. The manager highlights three key protective factors: massive scale, diversified deposit base beyond tech sector concentration, and Fed support through the BTFP facility. Despite HTM headwinds, BAC benefits from $8bn in annual profit increases from higher rates. The structural improvement narrative mirrors JPMorgan, with 67% lower leverage since 2008, improved asset quality, and reduced cyclicality. At 9x normalized earnings, the manager sees attractive valuation for a money center bank positioned to benefit from regional bank stress through deposit and loan migration.

Pitch Summary:
We own JPMorgan and Bank of America shares (and Goldman Sachs, for which the recent events are far less impactful given its business mix). Bank balance sheet assets are cash, loans, and investments, with funding liabilities in the form of deposits and debt / bonds. Banks are allowed to designate their investment assets in two ways: Available for Sale (AFS) or Held to Maturity (HTM). AFS securities are held at fair value, with any moves between reporting dates reflected in mark-to-market changes, meaning their value fluctuates with interest rate and credit risk changes. HTM assets are held at cost as they are not intended to be sold. The expectation from regulators is that assets designated HTM won't be reclassified, however, they do acknowledge circumstances can change. Should this happen, a mark-to-market revaluation is triggered, impacting their book value and regulatory capital. Reclassification of HTM assets to AFS therefore only really happens if banks are in such a tight liquidity position (due to deposit flight) that they cannot cover these outflows from their cash on hand, or even by selling their AFS assets, forcing them to eat into their nest egg of HTM securities. Clearly, this issue is not a risk for JPMorgan although, at first glance, it appears concerning for Bank of America. We believe in the structural returns from our holdings. They have generated an average 15% return on capital in a very tricky decade, and the next cycle should present further consolidation opportunities (c.f. Credit Suisse finally retiring their investment bank). Both banks have around a third of the leverage they had prior to the 2008 crisis, and three times the liquidity. Capital-light fee-based businesses are a larger contributor to their bottom lines, and credit risk within trading has been vastly reduced due to proprietary trading regulation. Asset quality is significantly higher, with mortgages at lower loan-to-value ratios made to homeowners with higher average FICO scores. All told, the cyclicality in the businesses through asset exposure, credit risk, and balance sheet leverage are lower than any point in the recent past, and revenues are more diverse. Finally, to the inevitable down cycle. We will see in a few days the impact of the recent malaise as they report Q1 earnings, and we expect solid deposit figures following depositor flight to safety from regional banks in the US. Given the tightening of financial conditions within the regional banks, we also expect loans to migrate to the money centre banks, creating long-term customer relationships with high franchise value. Trading at 9x normalised earnings the stocks are cheap and, while we don't have a particular view on when they might re-rate, the strength shown through this difficult period (which is likely not over) will shine through in above-average intrinsic value growth, as well as potentially higher valuations, as we move through the next five years.

BSD Analysis:
The manager presents a compelling bull case for JPMorgan based on superior risk management and structural advantages. Unlike regional banks caught in the SVB crisis, JPMorgan avoided duration risk traps and maintains strong capital ratios even after adjusting for HTM losses. The thesis centers on structural improvements since 2008, including 67% lower leverage, 3x higher liquidity, and reduced cyclicality through diversified revenue streams. The manager highlights JPMorgan's defensive positioning during the banking crisis, expecting deposit inflows and loan migration from stressed regional banks. At 9x normalized earnings, the valuation appears attractive for a systemically important bank with 15% average ROC over the past decade. The investment case relies on both defensive characteristics during the current cycle and long-term consolidation opportunities as weaker competitors exit the market.

Pitch Summary:
We began accumulating shares of GE Aerospace in April of last year, with our current position established at an average cost of approximately $149 per share. Like Boeing, GE stands to benefit from powerful macro trends including reshoring, increased defense spending, and the global rebound in air travel. But unlike Boeing, GE is not a turnaround story. The company has already successfully repositioned itself as a focused aerospace leader. It's investing heavily in U.S. factories and suppliers to expand production capacity, improve supply chain resilience, and support reshoring initiatives. GE also plays a critical role in defense. On the commercial side, it powers the majority of widebody aircraft in North America and holds a dominant position in the narrow-body segment through its joint venture with Safran Aircraft Engines, CFM International. GE's high-margin engine MRO business is another bright spot, poised for growth as airlines extend the life of existing aircraft. In effect, GE benefits both from Boeing's recovery and from broader structural demand in aviation. We also see GE as an innovation leader—applying AI and digital tools to improve predictive maintenance, streamline inspections, and enhance manufacturing processes. Altogether, our investment in GE reflects confidence in a stable, future-focused company that's positioned at the center of global aerospace and industrial growth.

BSD Analysis:
WestEnd positions GE Aerospace as a high-quality aerospace leader with dominant market positions, acquired at approximately $149 per share beginning in April 2024. The manager distinguishes GE from Boeing as an established leader rather than a turnaround story, emphasizing the company's successful transformation into a focused aerospace entity. The investment thesis highlights GE's commanding market share in both widebody and narrow-body aircraft engines, particularly through the CFM International joint venture with Safran. Key value drivers include the high-margin maintenance, repair, and overhaul (MRO) business, which benefits from airlines extending aircraft lifecycles and growing flight activity. GE's strategic investments in U.S. manufacturing capacity and supply chain resilience align with reshoring trends and defense spending increases. The company's innovation leadership in AI and digital tools for predictive maintenance and manufacturing optimization provides competitive advantages and operational efficiency gains. WestEnd views GE as benefiting from both Boeing's recovery and broader structural aviation demand, creating multiple growth catalysts. The manager's confidence reflects GE's stable market position, technological leadership, and strategic positioning at the center of global aerospace growth trends.

Pitch Summary:
Rockwell Automation is another 'picks and shovels' investment in the Industrials sector—an established company well-positioned to benefit from reshoring trends, increased defense spending, and the broader adoption of automation and AI in manufacturing. As the economy grows, we expect more industries to invest in faster, smarter, and more reliable production systems, which directly supports demand for Rockwell's offerings. Its portfolio of automation technologies—including sensors, software, and control systems—helps make domestic manufacturing more efficient and cost-effective. In the defense space, Rockwell also supplies critical systems used in military production facilities. Unlike Boeing, Rockwell is not a turnaround story. It is already a key enabler of advanced manufacturing and a leader in industrial AI, offering solutions for predictive maintenance, quality control, and digital twins that optimize factory operations with leaner workforces. We saw compelling demonstrations of Rockwell's technology at Nvidia's GTC conference in March, which reinforced our investment thesis. We began accumulating shares of Rockwell in early March at an average price of approximately $271 per share.

BSD Analysis:
WestEnd presents Rockwell Automation as a high-quality industrial automation leader positioned to capitalize on multiple secular trends, acquired at approximately $271 per share in March. The manager emphasizes Rockwell's established market position rather than a turnaround story, highlighting the company's leadership in industrial AI and advanced manufacturing solutions. The investment thesis centers on Rockwell's comprehensive automation portfolio including sensors, software, and control systems that enable efficient domestic manufacturing. Key growth drivers include reshoring trends, increased defense spending, and broader AI adoption in manufacturing processes. The company's solutions for predictive maintenance, quality control, and digital twins provide operational efficiency gains that justify premium pricing. WestEnd's conviction was reinforced by technology demonstrations at Nvidia's GTC conference, suggesting strong partnership potential in AI-driven manufacturing. Rockwell's dual exposure to commercial and defense manufacturing provides diversified revenue streams and positions the company to benefit from supply chain localization initiatives. The manager views Rockwell as a critical enabler of the manufacturing renaissance, with sustainable competitive advantages in automation technology and industrial AI applications.

Pitch Summary:
Given our conviction in Boeing's recovery, we also sought out complementary opportunities—'picks and shovels' plays—that could benefit from Boeing's resurgence. Howmet Aerospace stood out. Beyond its direct connection to Boeing, Howmet is well positioned to benefit from broader sector tailwinds, including rising demand in aerospace and defense and the growing emphasis on building resilient domestic supply chains. As a key supplier of critical components for both commercial and military aircraft, Howmet plays an essential role in supporting next-generation manufacturing. Its expertise in advanced materials and precision engineering makes it a go-to partner for aerospace companies raising quality standards and adopting new technologies. We began building a position in Howmet in early March at an average cost of $130 per share.

BSD Analysis:
WestEnd positions Howmet Aerospace as a strategic 'picks and shovels' investment to complement their Boeing position, acquired at $130 per share in March. The manager highlights Howmet's critical role as a supplier of advanced components for both commercial and military aircraft, emphasizing the company's expertise in precision engineering and advanced materials. The investment thesis capitalizes on multiple industry tailwinds including rising aerospace and defense demand, domestic supply chain resilience initiatives, and next-generation manufacturing adoption. Howmet's positioning as an essential partner for aerospace companies upgrading quality standards and implementing new technologies provides sustainable competitive advantages. The company benefits from both Boeing's recovery and broader structural trends in aviation, creating multiple revenue growth drivers. WestEnd views Howmet as well-positioned to capture value from the aerospace industry's focus on supply chain localization and advanced manufacturing capabilities. The investment reflects confidence in Howmet's ability to maintain its critical supplier status while expanding market share through technological leadership and operational excellence.