Investment Pitches

Pitch Summary:
The third largest detractor was HDFC Bank, as the bank continued to face a challenging operating environment and improved in net interest margin has been slower than expected. The resignation of the chairman also led to concerns. However, we have spoken with the management and joined a call with the new interim chairman Keki Mistry, who we respect. We feel comfortable about the government and the quality of its franchise – in particular, its deposit franchise and underwriting culture/capability remain solid and a standout amongst banks. Valuation has been declined to levels not seen before, even during the Global Financial Crisis or the Covid-19 pandemic, and we find this to be very attractive, given HDFC's leading deposit franchise and pristine balance sheet. We believe returns can improve and book value can compound at a mid-teens rate which is attractive in absolute terms.

BSD Analysis:
Stewart Investors maintains a bullish stance on HDFC Bank despite it being the third-largest detractor, viewing current challenges as temporary headwinds. The bank faces a difficult operating environment with slower-than-expected net interest margin improvement and leadership uncertainty following the chairman's resignation. However, the fund's conviction remains strong after direct management engagement, including discussions with respected interim chairman Keki Mistry. The investment thesis centers on HDFC's exceptional franchise quality, particularly its leading deposit franchise and superior underwriting culture that stands out among Indian banks. Valuations have declined to unprecedented levels, below those seen during the Global Financial Crisis or COVID-19 pandemic, creating an attractive entry point. The manager expects returns to improve with book value compounding at mid-teens rates, which is attractive in absolute terms. The fund's contrarian positioning reflects confidence in the bank's fundamental competitive advantages and pristine balance sheet quality. This represents a high-conviction value opportunity in India's leading private sector bank.

Pitch Summary:
The second largest detractor was Tencent, the biggest social media network and online gaming company in China, which declined after an non-icing it would reduce its share buybacks to support accelerated investment in Al. We recently met the company to discuss its Al strategy, and came away with our convictions trengthened. Tencent has been hiring experts in the field and is developing an in-house LLM. Over the longer term, we believe Tencent should benefit from Al thanks to its unique advantages: a massive user base across WeChat, games and payments; rich first-party data; and integrated advertising and content systems. We have been using the recent weakness to build up a meaningful position in the company.

BSD Analysis:
Stewart Investors maintains a bullish stance on Tencent despite it being the second-largest detractor from performance. The stock declined after management announced reduced share buybacks to fund accelerated AI investment, which the market initially viewed negatively. However, the fund's conviction strengthened following direct management meetings discussing AI strategy. Tencent's competitive advantages in AI include a massive user base across WeChat, gaming, and payments platforms, rich first-party data, and integrated advertising and content systems. The company is actively hiring AI experts and developing an in-house large language model. The manager views the recent weakness as an opportunity to build a meaningful position, demonstrating contrarian conviction. The investment thesis centers on Tencent's unique ecosystem advantages that should enable it to monetize AI capabilities effectively across multiple business lines. The fund's decision to increase exposure during weakness reflects confidence in management's long-term strategic vision and the company's competitive moat in the Chinese digital ecosystem.

Pitch Summary:
On the negative side, Monota ro was the largest detector from performance. Monota ro's sales surged late last year after a ransomware attack on rival firm Askul caused it to shut down its services, and customers switched over to Monotaro. Monota ro's valuation multiple related due to higher monthly sales growth but has since fallen back after Askul resumed operations in January 2026.

BSD Analysis:
Stewart Investors experienced Monotaro as their largest detractor from performance, highlighting the temporary nature of the company's recent sales surge. The investment case was complicated by extraordinary circumstances when competitor Askul suffered a ransomware attack, forcing customers to switch to Monotaro's platform. This resulted in inflated sales growth and valuation multiples that proved unsustainable once Askul resumed operations in January 2026. The manager's neutral stance reflects recognition that the competitive advantage was temporary rather than structural. While Monotaro operates in the attractive MRO e-commerce market in Japan, the recent performance demonstrates the importance of distinguishing between temporary market share gains and sustainable competitive advantages. The company's fundamentals remain intact, but the valuation correction suggests the market had overestimated the permanence of customer switching. This represents a lesson in the cyclical nature of competitive dynamics in e-commerce platforms.

Pitch Summary:
The third largest contributor to performance was Silegry, as the management offered a more positive outlook for the second half of 2026, driven by stronger growth, a better pricing environment and relatively stable foundry costs. Recent earnings results indicated that demand was better than expected in the fourth quarter of 2025, especially in areas such as solid-state drives, energy storage and semiconducting equipment, and gross profit margins improved over the previous quarter – a sign that the cycle is turning positive for Silegry's business.

BSD Analysis:
Stewart Investors highlights Silegry as the third-largest performance contributor, with management providing an optimistic outlook for the second half of 2026. The investment thesis is built on improving fundamentals including stronger growth prospects, better pricing environment, and stable foundry costs. Fourth quarter 2025 results exceeded expectations, particularly in solid-state drives, energy storage, and semiconductor equipment segments. The improvement in gross profit margins quarter-over-quarter signals a positive cyclical turn for the business. The fund's bullish stance reflects confidence in the company's positioning across multiple growth areas including storage solutions and energy applications. Management's positive guidance suggests operational improvements and market share gains. Like other semiconductor holdings, the position has been trimmed due to AI-driven valuation expansion. The investment case centers on Silegry's exposure to secular growth trends in data storage and energy infrastructure, combined with improving operational metrics and cyclical recovery.

Pitch Summary:
The second largest contributor was Taiwan Semiconductor Manufacturing (TSMC), the leading semiconductor for undry, as recent earnings results were stronger than expected. With Al demand driving higher profits and strong guidance for the year ahead, the company announced new capital expenditure plans to try and narrow the gap between its supply of advanced nodes and customer demand.

BSD Analysis:
Stewart Investors positions TSMC as the second-largest performance contributor, emphasizing the company's leadership in semiconductor foundry services. The investment thesis is anchored on stronger-than-expected earnings results driven by AI demand, which has generated higher profits and positive guidance for the year ahead. TSMC's announcement of new capital expenditure plans demonstrates management's commitment to addressing the supply-demand imbalance in advanced nodes, a critical competitive advantage in the AI chip manufacturing landscape. The fund's bullish stance reflects confidence in TSMC's ability to capitalize on the AI infrastructure buildout and maintain its technological leadership. However, like Samsung, the manager has trimmed the position due to expensive valuations from AI-driven demand. The investment case centers on TSMC's dominant market position, technological moat in advanced node manufacturing, and strong execution in meeting customer demand. This represents a high-conviction holding despite valuation concerns.

Pitch Summary:
The largest contributor to performance over the period was Samsung Electronics, a leading manufacturer of memory and semiconductors. The company posted record profits thanks to soaring Al-related demand and tight supply for its high-bandwidth memory chips. Samsung started shipping its next-generation HBM 4 chip in February – having reportedly agreed higher prices compared with the previous model – positioning the company to capture a larger share of fast-growing Al server demand. On the other hand, high DRAM and NAND prices look less sustainable in the medium-term as it is already causing demand destruction in consumer electronics products.

BSD Analysis:
Stewart Investors highlights Samsung Electronics as their largest contributor to performance, driven by record profits from AI-related demand and tight supply conditions for high-bandwidth memory chips. The company has successfully launched its next-generation HBM 4 chip with higher pricing, positioning it to capture increased market share in the rapidly growing AI server market. However, the manager acknowledges potential headwinds from unsustainable DRAM and NAND pricing levels that are already causing demand destruction in consumer electronics. Despite the strong performance, the fund has trimmed positions due to expensive valuations driven by AI demand. The investment thesis centers on Samsung's leadership position in memory and semiconductors, particularly benefiting from the AI infrastructure buildout. The manager's decision to reduce exposure suggests a disciplined approach to valuation despite strong fundamentals. This reflects a balanced view recognizing both the company's competitive advantages and potential cyclical risks in memory pricing.

Pitch Summary:
Tyler Technologies, which we added in the quarter, provides software for government administrative purposes, including public administration, property appraisal, tax assessment, court management, and public safety. We'd argue that Tyler's software acts as mission critical SoR whose value is much more than just the code; yet, their product usually represents only a fraction of a percent of a customer's operating budget. Even setting aside the risk-averse nature of municipal government customers, such high levels of NZS seem quite unlikely to be internally vibe coded or ripped and replaced for an "AI-native" startup with no track record. Despite this positive outlook, Tyler's stock has fallen >40% in the past year. Ultimately, we think the most likely outcome is that AI agents will interact with the existing high-NZS SoR rather than replace them.

BSD Analysis:
NZS Capital initiated a position in Tyler Technologies during Q1 2026, viewing it as a compelling opportunity created by AI disruption fears that drove the stock down over 40% in the past year. The fund's thesis centers on Tyler's role as a mission-critical system of record for government entities, providing software for property appraisal, tax assessment, court management, and public safety functions. Management argues that Tyler's value proposition extends far beyond just code, encompassing institutional trust, regulatory compliance, and deep workflow integration that would be extremely difficult for AI-native startups to replicate. The company benefits from serving risk-averse municipal government customers who are unlikely to replace established systems, while Tyler's products typically represent only a fraction of a percent of customer operating budgets, demonstrating high non-zero-sum characteristics. NZS believes AI agents will more likely interact with existing high-value systems of record rather than replace them entirely. The fund views this as an asymmetric opportunity where market fears have created an attractive entry point for a defensible vertical software business.

Pitch Summary:
Everus Construction Group, Inc. (ECG) was another top contributor. The company provides electrical and mechanical contracting services, as well as power transmission and distribution construction. The stock rose following the company's reporting of fourth-quarter and full-year 2025 results, which included a record year-end backlog and profit and revenue growth that exceeded consensus expectations. Management highlighted strong demand and bidding activity across data centers, high-tech, hospitality and utility markets. Looking ahead, we believe demand for the services Everus provides will remain strong, particularly as data centers require increasing energy capacity to support the expansion of AI.

BSD Analysis:
The manager maintains a bullish outlook on Everus Construction Group, driven by strong fundamental performance and favorable end-market dynamics. The company delivered record year-end backlog alongside profit and revenue growth that exceeded consensus expectations, demonstrating operational execution. Management highlighted robust demand across key verticals including data centers, high-tech, hospitality, and utilities, providing diversified revenue streams. The investment thesis centers on the AI infrastructure buildout, particularly data centers requiring increased energy capacity to support AI expansion. The fund sees this as a multi-year secular tailwind that should sustain strong demand for Everus's electrical and mechanical contracting services. The combination of strong current fundamentals and favorable long-term trends supports the manager's conviction in continued outperformance.

Pitch Summary:
Nova Ltd. (NVMI) and Camtek Ltd. (CAMT) were two of the largest contributors to performance during the quarter. Both companies provide equipment used in semiconductor manufacturing to improve chip performance and reduce defects. AI-driven semiconductor demand contributed to strong returns for both companies during the quarter, extending the momentum seen over the past year.

BSD Analysis:
The manager holds a bullish stance on Camtek Ltd., capitalizing on the AI-driven semiconductor equipment demand that has generated strong returns over multiple quarters. Like Nova, Camtek provides critical equipment for semiconductor manufacturing focused on improving chip performance and reducing defects, essential capabilities in the AI era. The company has benefited from the sustained momentum in AI infrastructure investment, with semiconductor manufacturers requiring increasingly sophisticated equipment to meet performance standards. The fund has successfully positioned in this secular growth trend, with Camtek delivering among the strongest contributions to portfolio performance. The manager appears confident in the durability of AI-driven demand for advanced semiconductor manufacturing equipment. This represents effective exposure to the AI infrastructure buildout through specialized equipment providers.

Pitch Summary:
Nova Ltd. (NVMI) and Camtek Ltd. (CAMT) were two of the largest contributors to performance during the quarter. Both companies provide equipment used in semiconductor manufacturing to improve chip performance and reduce defects. AI-driven semiconductor demand contributed to strong returns for both companies during the quarter, extending the momentum seen over the past year.

BSD Analysis:
The manager maintains a bullish view on Nova Ltd., benefiting from the AI-driven semiconductor boom that has sustained momentum over the past year. The company's equipment plays a critical role in semiconductor manufacturing by improving chip performance and reducing defects, positioning it well in the current AI infrastructure buildout. The fund has captured significant gains as AI demand drives increased semiconductor production and quality requirements. Nova's specialized equipment becomes increasingly valuable as chip manufacturers face growing performance and reliability demands from AI applications. The manager appears confident in the continued strength of this secular trend, with AI infrastructure requirements supporting sustained demand for Nova's solutions. This represents a successful positioning in the AI infrastructure theme through semiconductor equipment exposure.

Pitch Summary:
Vital Farms, Inc. (VITL) was another detractor. The company provides specialty eggs and butter sourced from small farms and pasture-raised animals. Heavier promotional activity by some competitors led to concerns about market share shifts and weighed on the stock during the period. Given the more competitive environment, we trimmed our position. We continue to hold the company and view the valuation as attractive but would like to see further evidence that its brand position remains strong.

BSD Analysis:
The manager has adopted a cautious neutral stance on Vital Farms following increased competitive pressure in the specialty egg and butter market. The fund reduced its position size due to concerns about market share erosion from competitors' promotional activities, indicating weakening pricing power. Despite trimming the holding, the manager still finds the valuation attractive at current levels, suggesting the stock has been oversold. The key concern centers on brand strength and market positioning in an increasingly competitive environment. The manager is taking a wait-and-see approach, requiring additional evidence that Vital Farms can maintain its premium positioning against aggressive competitor tactics. This reflects a disciplined approach to position sizing when competitive dynamics deteriorate, while maintaining exposure to potential recovery.

Pitch Summary:
Another company that saw its stock price decline amid AI disruption concerns was Agilysys, Inc. (AGYS), a provider of property management and point-of-sale software for the hospitality industry. Here, too, we believe the business model is more resilient than market participants anticipate. Property management systems are difficult to replace, and contracts are often long term, frequently extending 10 years or more. Given this contract stickiness and Agilysys' niche expertise, we believe customers will look to the company to incorporate AI functionality into its existing platform rather than develop solutions independently. We also believe Agilysys is positioned to accelerate earnings and free cash flow growth from the implementation of its contract with Marriott International, Inc.

BSD Analysis:
The manager views Agilysys as undervalued due to misplaced AI disruption fears, emphasizing the company's defensive characteristics in hospitality software. The investment thesis relies on the stickiness of property management systems, with contracts typically spanning 10+ years, creating significant switching costs for customers. The fund believes Agilysys' niche expertise positions it to integrate AI functionality rather than be displaced by it, turning potential disruption into an opportunity. A key catalyst is the Marriott International contract implementation, which the manager expects to drive accelerated earnings and free cash flow growth. The manager sees the current valuation as attractive given the company's entrenched market position and upcoming contract benefits. This represents a contrarian bet on the durability of specialized hospitality software platforms.

Pitch Summary:
Shift4 Payments, Inc. (FOUR) was one of the largest detractors from strategy performance during the quarter. Shift4 provides integrated payment processing and commerce software for merchants, specializing in the lodging and restaurant verticals. The stock was an example of one that sold off as part of the AI disruption debate. Additionally, the company made a large acquisition in 2025, and we believe investors are waiting to see evidence of realized synergies. Given management's track record of realizing high returns on prior acquisitions, we're being patient as the company integrates the newly acquired business. We also believe Shift4's business model is more resilient to AI disruption than investors may appreciate as the company has unique competitive moats across lodging and restaurants. In our view, Shift4's ability to connect its payment rails across a complex ecosystem would be difficult for would-be competitors to replicate.

BSD Analysis:
The manager maintains a bullish stance on Shift4 Payments despite recent underperformance, viewing the stock's decline as an overreaction to AI disruption concerns. The fund highlights management's proven track record of successful acquisitions and expects synergies to materialize from the 2025 acquisition. The investment thesis centers on Shift4's competitive moats in the lodging and restaurant verticals, particularly its ability to connect payment rails across complex ecosystems. The manager believes this integrated approach creates barriers to entry that would be difficult for competitors to replicate. The fund is demonstrating patience during the integration period, confident that the business model's resilience will become apparent over time. This represents a contrarian position amid broader market concerns about AI disruption in the payments sector.

Pitch Summary:
Repligen, a provider of bioprocessing products, detracted most from our relative returns, as enthusiasm for life-sciences tools generally softened during the period. The concerns were driven by a slowdown in purchasing by the National Institutes of Health (NIH), which affected the entire sector. Importantly, Repligen has no exposure to NIH and offered bullish Q1 guidance, so we remain positive about the business. Also, we expect sentiment surrounding life-sciences tools to improve in the second quarter, which should lead to a reversal of the negative momentum.

BSD Analysis:
The manager maintains a bullish stance on Repligen despite sector-wide weakness, emphasizing the company's insulation from NIH funding concerns that pressured peers. The lack of NIH exposure differentiates Repligen from other life sciences tools companies and reduces government funding risk. Management's bullish Q1 guidance suggests strong underlying demand for bioprocessing products despite broader sector headwinds. The manager's expectation for sentiment improvement in Q2 indicates this may be a temporary sector rotation rather than fundamental deterioration. Repligen's bioprocessing focus positions it to benefit from the continued growth in biologics manufacturing, a secular trend driven by increasing adoption of cell and gene therapies.

Pitch Summary:
Our biggest contributor was Twist Bioscience, a maker of synthetic genomic material that is used for both drug discovery and genomic testing. The company is particularly well positioned in the expanding field of liquid biopsy, where we are anticipating substantial secular growth. Additionally, Twist is being used as an outsourced wet lab for other technology companies building genomic databases for their own large language (AI) models. This is a new growth area for the company and was partly responsible for the strong performance in Q1.

BSD Analysis:
The manager presents a compelling growth story for Twist Bioscience based on two key secular trends: liquid biopsy expansion and AI-driven genomic database development. The liquid biopsy positioning captures the shift toward non-invasive cancer detection and monitoring, a massive addressable market with substantial growth potential. The emerging role as an outsourced wet lab for AI companies building genomic databases represents a novel revenue stream at the intersection of biotechnology and artificial intelligence. This dual exposure to both traditional drug discovery applications and cutting-edge AI genomics creates multiple growth vectors. The strong Q1 performance validates the thesis and suggests early traction in these high-growth markets.

Pitch Summary:
Casella Waste Systems, a regional waste management company operating in the northeastern U.S., was our biggest detractor within Industrials. The stock underperformed primarily because it was overlooked by the market, which was more focused on AI infrastructure and defense stocks during the quarter. In addition, the newly appointed CEO laid out conservative guidance, which disappointed some of the fast-money investors. We continue to be confident in the company's ability to compound revenue at a double-digit pace and grow operating profits even faster.

BSD Analysis:
The manager maintains strong conviction in Casella despite recent underperformance, viewing the weakness as a temporary market rotation away from defensive businesses toward AI and defense themes. The conservative guidance from the new CEO appears to have created a buying opportunity by disappointing momentum investors. The manager's confidence in double-digit revenue compounding with even faster operating profit growth suggests strong underlying business fundamentals and operational leverage. Regional waste management companies like Casella typically benefit from pricing power, route density economics, and regulatory barriers to entry. The northeastern U.S. focus provides exposure to higher-value markets with strong environmental regulations that favor established operators.

Pitch Summary:
Our biggest contributor was Modine Manufacturing, which has been growing quickly as it provides HVAC equipment to AI data centers. The company currently generates $1 billion in annual revenue, and it is targeting $2.5 billion in two years. Modine also had a legacy business that was exposed to more cyclical markets such as trucks and off-road vehicles, but it sold that division during the quarter, which caused the stock to rise substantially.

BSD Analysis:
The manager highlights Modine's successful transformation into an AI data center infrastructure play, with aggressive revenue growth targets from $1 billion to $2.5 billion over two years representing 150% growth. The divestiture of cyclical legacy businesses in trucks and off-road vehicles demonstrates strategic focus and portfolio optimization. This business simplification removes cyclical exposure while concentrating on the high-growth AI data center cooling market. The substantial stock appreciation following the divestiture suggests the market values this strategic repositioning. Modine appears well-positioned to capitalize on the massive cooling requirements of AI data centers, a secular growth trend with significant infrastructure investment needs.

Pitch Summary:
Our biggest detractor in IT was ServiceTitan, the dominant vertical software operating system serving residential and commercial home services trades, including HVAC, plumbing, and electrical. The stock sold off during the quarter as it was caught in the aforementioned AI downdraft. However, we believe ServiceTitan's business is AI-resilient, as its customers are skilled trade businesses that are largely insulated from AI-driven labor disruption. Moreover, with one of the industry's most comprehensive datasets – exceeding $80 billion in transaction volume – we believe ServiceTitan is well positioned to enable AI-driven automation on its platform. With its premium Max tier, fully ramped customers with AI are expected to approximately double monthly subscription revenue.

BSD Analysis:
The manager maintains conviction in ServiceTitan despite recent AI-related selling pressure, arguing the business model is actually AI-resilient rather than AI-vulnerable. The thesis centers on ServiceTitan's dominant position in skilled trades that cannot be easily automated by AI, creating defensive characteristics. The company's massive dataset of over $80 billion in transaction volume provides a competitive moat and positions it to be an AI enabler rather than victim. The premium Max tier with AI capabilities that can double monthly subscription revenue represents significant monetization upside. This contrarian view suggests the recent selloff created an attractive entry point for a market-leading vertical software platform with AI-enhanced growth potential.

Pitch Summary:
Our biggest contributor in IT, also for the second quarter in a row, was MACOM, which designs high performance analog and optical semiconductors and is experiencing growth across its three key end markets. First, in data centers, management projects 35-40% growth with the potential for additional upside. Second, in defense, MACOM is well positioned in electronic warfare due to its expertise in power and frequency, supporting applications such as missile warning and radar programs. Third, in communications, the company is seeing increased activity in low earth orbit (LEO) satellites, with customers such as SpaceX.

BSD Analysis:
The manager presents a compelling bull case for MACOM based on diversified growth across three strategic end markets. The projected 35-40% data center growth with potential upside reflects strong positioning in the AI infrastructure buildout. The defense exposure provides stability and growth through electronic warfare applications, leveraging MACOM's specialized power and frequency expertise. The LEO satellite opportunity with marquee customers like SpaceX represents a high-growth secular trend. This diversified exposure across data centers, defense, and space communications creates multiple growth vectors while reducing single-market dependency risk. The company's specialized analog and optical semiconductor capabilities appear well-suited for these high-performance applications.

Pitch Summary:
MFG announced an agreement to merge with its 36.4% owned subsidiary, Barrenjoey Capital Partners (Barrenjoey). While the transaction has merit, we are disappointed by the terms agreed by the MFG Board. Under the merger, MFG will issue shares to Barrenjoey shareholders at $8.45 per share. This implies a valuation for the MFG funds management business of less than two times profit after tax. We have long pressed for more proactive capital management at MFG. The Board's failure to address excess capital left the company strategically exposed and directly enabled this outcome. Shareholders have also been disadvantaged by poor disclosure. Material financial information, including a previously undisclosed $45 million fully franked special dividend payable to Barrenjoey shareholders prior to completion, was released only after media scrutiny and after voting deadlines had passed for some shareholders. Despite this, MFG remains a profitable investment, and we remain positive on its prospects.

BSD Analysis:
Sandon Capital maintains a bullish outlook on Magellan Financial Group despite expressing disappointment with the Barrenjoey merger terms and board execution. The fund manager views the merger as strategically sound but criticizes the $8.45 per share valuation, which implies less than 2x profit after tax for MFG's funds management business. The manager has been advocating for more proactive capital management at MFG, arguing that the board's failure to address excess capital created strategic vulnerability. Poor disclosure practices, including a previously undisclosed $45 million fully franked special dividend to Barrenjoey shareholders, further disadvantaged existing shareholders. The timing of material information release after voting deadlines compounds governance concerns. However, the activist manager emphasizes that MFG remains a profitable investment with positive long-term prospects. This suggests confidence in the underlying business fundamentals despite tactical disappointment with board decisions.