Investment Pitches

Pitch Summary:
Fidelity High Dividend ETF (FDVV) offers a strategic blend of dividend income and capital appreciation. The ETF is designed to replicate the Fidelity High Dividend Index, focusing on companies with high dividend yields and growth potential. With a low expense ratio of 0.15%, FDVV provides an efficient passive investment vehicle. The ETF is heavily weighted towards sectors like Financials, Utilities, and Real Estate, which traditionally offer higher dividend yields. However, it also maintains a strong presence in mega-cap tech stocks, aligning it closer to core equity funds with a dividend tilt. This composition allows FDVV to benefit from both growth and income, making it a compelling choice for investors seeking a balanced approach.

BSD Analysis:
FDVV's strategy of selecting companies with sustainable and growing dividends helps avoid dividend traps, though it results in a lower current yield. The ETF's focus on sectors with acceptable forward valuations, such as tech and financials, positions it well in the current market environment. Despite its higher beta compared to the S&P 500, FDVV's performance has been competitive, particularly during periods of growth stock rallies. The ETF's dividend yield has consistently outperformed the S&P 500 over the past five years, contributing to a strong total return. While FDVV may not serve as a hedge against market downturns, its combination of growth and income potential makes it a viable alternative to both traditional dividend ETFs and broader market indices.

Pitch Summary:
The Invesco S&P 500 Low Volatility ETF (SPLV) is designed to provide exposure to the least volatile stocks in the S&P 500. However, its methodology, which lacks sector weight constraints and weights by volatility, has led to underperformance due to higher sector concentration and interest-rate risk. The current market and macroeconomic conditions suggest that SPLV is more likely to underperform the broad market. SPLV's low representation of growth stocks, due to its low-volatility bias, has excluded high-growth sectors from participating more prominently. While it has outperformed the S&P 500 year-to-date, this is attributed to temporary factors such as lower tech exposure rather than enduring conditions.

BSD Analysis:
SPLV's strategy of weighting by volatility rather than market cap results in a portfolio heavily concentrated in sectors like Tech, Utilities, and Real Estate, which are sensitive to interest rate changes. This concentration poses a risk in the current economic environment characterized by rising interest rates. Additionally, SPLV's performance is hindered by its exclusion of high-growth sectors, which have been significant drivers of market returns. Despite its recent outperformance relative to the S&P 500, this is largely due to its lower exposure to the tech sector, which has faced a selloff. The fund's low Sharpe ratio and risk-adjusted performance further highlight its challenges.

Pitch Summary:
Hawaiian Electric Industries (HE) has been downgraded to a HOLD due to recent macroeconomic events affecting its recovery pace. The company, which provides electric services to most of Hawaii, is dealing with a significant liability from a wildfire and high capital expenditure needs. Despite initial optimism about regulatory support and market overpricing of bankruptcy risk, the recovery is expected to be slower than anticipated. The target price has been adjusted from $18.95 to $13.95, reflecting these challenges. The company's restructuring phase and lack of dividends justify a lower P/E multiple compared to the sector.

BSD Analysis:
The Utilities Sector remains positive year-to-date, benefiting from its defensive nature during economic downturns. However, Hawaiian Electric's specific challenges, including a $1.91 billion liability and high CAPEX requirements, weigh heavily on its financial outlook. The company's credit rating remains in the junk range, leading to high interest expenses. An At-the-Market program and potential convertible debt issuance are planned to address liquidity needs. The company's ability to improve its ROE through regulatory support is crucial for reducing share dilution and improving financial stability.

Pitch Summary:
Tesla's Q1 2026 delivery numbers are expected to exceed consensus estimates, potentially leading to a short-term rally in its stock. However, the company has aggressively cut prices and offered financing deals to boost sales, indicating potential desperation to maintain delivery volumes. These price cuts, along with strategic adjustments to qualify for EV incentives, are likely to reduce average selling prices significantly. The introduction of more affordable 'Standard' trims is expected to shift the sales mix unfavorably, impacting revenue. Despite increased deliveries due to EV subsidies, the overall earnings outlook for Q1 2026 appears bleak, with anticipated earnings per share falling well below consensus estimates.

BSD Analysis:
Tesla's aggressive pricing strategy in Q1 2026, including low-interest financing and price reductions, suggests a focus on maintaining market share amidst competitive pressures. While these moves have stimulated demand, particularly in markets with expiring subsidies, they have also compressed margins. The company's cost of goods sold per unit decreased in Q4 2025, but rising lithium prices could reverse this trend, increasing production costs. Investors should be cautious of the potential impact on Tesla's profitability, as the short-term boost in deliveries may not translate into sustainable earnings growth. The market's reaction will likely hinge on Tesla's ability to manage costs and maintain its competitive edge in the evolving EV landscape.

Pitch Summary:
In most of these quarterly letters, I intend to highlight a holding that I have not otherwise presented. This time, we will take a quick look at Robertet SA, a French producer of natural botanicals and extracts used for perfumery, flavorings, and cosmetics. The company was founded in the mid 1800s in Grasse, France, an area today known as the perfume capital of the world thanks to a microclimate that is particularly well-suited for growing aromatic flowers. Ironically, the perfume industry is said to have arisen in Grasse in response to the region's primary historical industry: leather tanning, and specifically a need to cover the various associated odors it generated. Robertet began operations as a distiller, buying flowers from the smallholder farmers in the region and transforming them into essences for use by the perfumers and soapmakers of Paris and London. Following many decades of growth and expansion, it operates today a worldwide supply network, sourcing exotic ingredients from partners and its own farms and plantations. In addition to the fields of jasmine and roses in Grasse, Robertet also grows ylang ylang, vanilla, and clove in Madagascar, as well as sandalwood in New Caledonia, among many others. The company is renowned for its quality, and its products continue to find their way into many of the world's most expensive designer perfumes. Charming as the operations are, the financial results are equally appealing. The rise in demand for natural inputs over synthetic alternatives has allowed Robertet to double its revenue over the last decade while operating income nearly tripled. Robertet's best years are still ahead. The growing global middle class is demanding better quality products and is more conscious of exactly what goes into their food and onto their skin. "People like to smell good and eat delicious food" is a thesis unlikely to be disproven however society may change. Robertet is controlled by the Maubert family, who have guided the company for four generations. From time to time, larger competitors like DSM Firmenich and Givaudan have attempted to take over Robertet, but the Mauberts have always resisted. I don't know if future generations of Mauberts will be as zealous in maintaining the company's independence, but if not, I am confident they would only sell as a price well above today's. Fortunately for a long-term investor like Tactile Fund, Robertet has a little-known series of non-voting shares. These offer the same economics as the common shares, but typically trade at a 10-15% discount. We are quite happy to buy these non-voting shares, taking ownership in this world-class company at less than 15 times earnings.

BSD Analysis:
The manager presents a compelling bull case for Robertet SA, a French specialty chemicals company focused on natural botanicals for perfumery and cosmetics. The investment thesis centers on the secular shift from synthetic to natural ingredients, driven by an increasingly conscious global middle class demanding higher quality products. Robertet has demonstrated strong execution, doubling revenue over the past decade while nearly tripling operating income, indicating both top-line growth and margin expansion. The company benefits from unique physical assets including proprietary farms and plantations across multiple geographies, creating a vertically integrated supply chain that's difficult to replicate. Family control by the Maubert family for four generations provides stability and long-term orientation, while also creating potential M&A optionality given historical takeover interest from larger competitors. The manager identifies an attractive entry point through non-voting shares trading at a 10-15% discount to common shares, offering the same economics at approximately 15x earnings. The combination of secular tailwinds, proven execution, unique assets, and attractive valuation creates a compelling long-term investment opportunity.

Pitch Summary:
In industrials we bought Honeywell, partially funding it by selling out of a marginal holding in Otis, which has been going through execution issues that made us question management quality. The appeal in Honeywell was better risk-reward and a more attractive mix of quality, defensiveness and upside relative to other industrial names we own. Honeywell is undergoing a transformation as it breaks up the company into an aerospace business, an automation company and a quantum computing company. We believe the stock today undervalues the assets as they separate into three more focused and independently traded entities over the coming months.

BSD Analysis:
The manager initiated a bullish position in Honeywell based on attractive risk-reward characteristics and an upcoming corporate transformation. The investment thesis centers on Honeywell's superior mix of quality, defensiveness, and upside potential compared to other industrial holdings. The company is undergoing a strategic breakup into three focused entities: aerospace, automation, and quantum computing, which should unlock value through improved operational focus and separate valuations. The manager believes the current stock price undervalues these assets as standalone companies, creating a catalyst-driven opportunity. The transformation should result in more focused management teams and clearer investment propositions for each business segment, potentially leading to multiple expansion.

Pitch Summary:
We redeployed the capital into Booking, which we view as a durable, high-quality travel platform with a strong competitive position. We believe its role in bookings, cancellations and customer service would remain hard to disintermediate, and we saw an opportunity to own the stock after valuations had been pressured by AI-related concerns.

BSD Analysis:
The manager established a new bullish position in Booking Holdings, viewing it as a high-quality travel platform with durable competitive advantages. The investment thesis centers on Booking's essential role in the travel ecosystem, particularly in bookings, cancellations, and customer service functions that would be difficult for competitors to disintermediate. The manager sees the company's platform as having strong network effects and customer loyalty that create barriers to entry. The timing of the investment appears opportunistic, as AI-related concerns have pressured valuations despite the underlying business fundamentals remaining strong. This presents an attractive entry point for a quality compounder in the travel sector.

Pitch Summary:
We initiated a position in T-Mobile: our core view is that it has the best network at the lowest cost in the U.S., and that should insulate it from competition from other wireless entrants (such as cable players). We also believe it should be economically insensitive given the nature of the industry (high recurring revenues and mobile wireless being an essential service for consumers).

BSD Analysis:
The manager initiated a new bullish position in T-Mobile based on superior competitive positioning and defensive characteristics. The investment thesis rests on T-Mobile's network quality advantage combined with cost leadership, creating a formidable competitive moat against new entrants including cable companies. The economic insensitivity stems from the essential nature of wireless services and the industry's high recurring revenue model, providing stability during economic downturns. This combination of competitive advantages and defensive characteristics makes T-Mobile an attractive addition to the portfolio. The manager's confidence in the network quality and cost position suggests T-Mobile can maintain market share while generating consistent cash flows.

Pitch Summary:
American Express detracted as regulatory uncertainty around credit card pricing and renewed attention on the Credit Card Competition Act pressured sentiment across the payments and card issuer space, including Capital One, despite stable underlying fundamentals. Our conviction in both remains intact: we view these sector pressures as cyclical and transitory, with no anticipated change to American Express's attractiveness as a high-quality compounder supported by its premium customer base, strong credit underwriting and durable earnings growth.

BSD Analysis:
The manager expresses unwavering bullish conviction in American Express despite regulatory headwinds affecting the broader payments sector. The investment thesis centers on American Express's position as a high-quality compounder with several competitive advantages. The premium customer base provides pricing power and lower credit risk, while strong underwriting capabilities support consistent performance through cycles. The manager views current regulatory pressures as temporary sector-wide issues that don't fundamentally alter American Express's long-term value proposition. The emphasis on durable earnings growth and stable fundamentals suggests confidence in the company's ability to navigate regulatory challenges while maintaining its competitive moat.

Pitch Summary:
In financials, Capital One shares were lower amid broad sector weakness, driven by investor concerns around weakening macro conditions potentially leading to a credit cycle; deal-related overhang tied to the company's Brex acquisition also weighed on near-term sentiment. Our conviction in both remains intact: we view these sector pressures as cyclical and transitory, with no anticipated change to Capital One's long-term earnings power and strategic positioning.

BSD Analysis:
The manager maintains strong bullish conviction in Capital One despite near-term sector headwinds and deal-related uncertainty. The current weakness is attributed to cyclical concerns about potential credit deterioration and overhang from the Brex acquisition, which the manager views as temporary factors. The investment thesis remains anchored on Capital One's long-term earnings power and strategic positioning, which are expected to remain intact through economic cycles. The manager's confidence suggests the current valuation presents an attractive entry point for a fundamentally sound financial institution. The emphasis on unchanged long-term prospects indicates the manager views current pressures as noise rather than structural challenges.

Pitch Summary:
Negative sentiment for software weighed on our sole software position, Microsoft, which also traded down on worries over higher-than-expected AI capex and delays in monetizing its AI backlog. Despite some timing and perception issues, we maintain strong conviction in Microsoft, given durable Azure demand, accelerating AI workload monetization as capacity comes online and strengthening traction in higher-margin software offerings like M365 Copilot, which deepen customer engagement and reinforce Microsoft's competitive moat. We added to our position on weakness.

BSD Analysis:
The manager demonstrates strong conviction in Microsoft despite near-term headwinds around AI capital expenditure concerns and monetization timing. The investment thesis centers on durable Azure demand and the accelerating monetization of AI workloads as capacity comes online. M365 Copilot represents a particularly compelling growth driver, offering higher margins while deepening customer engagement and strengthening Microsoft's competitive moat. The manager's decision to add to the position on weakness reflects confidence in the long-term AI opportunity and Microsoft's dominant position in cloud computing. The temporary disconnect between AI investment and revenue recognition is viewed as a timing issue rather than a fundamental concern.

Pitch Summary:
Relative strength in health care was led by Johnson & Johnson, which delivered strong quarterly results; investors have become more confident that cancer and inflammation medicine growth and recent deals will allow the company to grow through the loss of Stelara exclusivity.

BSD Analysis:
The manager maintains a bullish stance on Johnson & Johnson based on strong quarterly performance and successful portfolio diversification strategy. The company is effectively navigating the upcoming Stelara patent cliff through robust growth in cancer and inflammation medicines, demonstrating the strength of its pharmaceutical pipeline. Recent strategic acquisitions are providing additional growth drivers to offset the anticipated revenue decline from Stelara's loss of exclusivity. Investor confidence is building around J&J's ability to maintain growth momentum despite this significant patent expiration. The diversified healthcare portfolio and strong execution on strategic initiatives position the company well for sustained performance.

Pitch Summary:
Deere, meanwhile, delivered a 20% earnings beat, helped by outperformance in both its small agriculture (e.g., compact and utility tractors) and its construction and forestry segments. Investors were encouraged that large agriculture (machines for commercial farming) orders were better than expected, suggesting there could be upside to Deere's 2026 guidance, and this year may be the cyclical trough. External indicators such as the Dodge Momentum Index and megaproject announcements suggest that nonresidential construction is improving — a plus for Deere's construction and forestry segment — and the company's results helped validate that.

BSD Analysis:
The manager expresses strong bullish sentiment on Deere following exceptional quarterly results that significantly exceeded expectations. The 20% earnings beat demonstrates robust execution across multiple business segments, particularly in small agriculture and construction/forestry. The better-than-expected large agriculture orders suggest potential upside to 2026 guidance and indicate this year could mark the cyclical bottom. External construction indicators like the Dodge Momentum Index and megaproject announcements support improving demand for Deere's construction equipment. The diversified revenue streams across agriculture and construction provide multiple growth drivers, positioning Deere well for a cyclical recovery.

Pitch Summary:
Industrials stocks got a boost from a return to positive territory for the ISM Manufacturing PMI; this helped XPO, a less-than-truckload transportation provider, which is also benefiting from ongoing improvements in service quality, mix and pricing.

BSD Analysis:
The manager presents a bullish view on XPO based on improving industrial fundamentals and company-specific operational improvements. The positive ISM Manufacturing PMI reading provides a favorable macro backdrop for transportation demand. XPO is benefiting from three key operational drivers: enhanced service quality, improved freight mix, and better pricing power. These improvements suggest the company is executing well on its strategic initiatives while positioned to benefit from industrial recovery. The combination of macro tailwinds and operational excellence creates a compelling investment thesis for the LTL transportation provider.

Pitch Summary:
We also initiated a position in Arista Networks, a provider of high-speed switches and networking equipment critical to enabling the operation of cloud platforms and data centers. Arista is well-represented among the hyperscalers and benefits from that capex cycle. In the enterprise business, Arista currently has low share but is poised to continue gaining as companies update their campus networking infrastructure.

BSD Analysis:
ClearBridge initiated a position in Arista Networks, viewing the company as well-positioned within the cloud infrastructure and data center ecosystem. Arista's strong presence among hyperscale cloud providers positions it to benefit from the ongoing capital expenditure cycle driven by AI and cloud computing demand. The company's high-speed switches and networking equipment are critical infrastructure components for cloud platforms and data centers. In the enterprise segment, Arista currently holds low market share but is positioned for continued gains as companies modernize their campus networking infrastructure. This dual exposure to both hyperscale and enterprise markets provides diversified growth opportunities. The timing of the investment suggests ClearBridge sees attractive entry valuation following recent market volatility. Arista's technology leadership in cloud networking positions it as a key beneficiary of digital transformation trends.

Pitch Summary:
We added a new position in the health care sector with Roche, helping reduce the portfolio's health care underweight versus the benchmark and continuing our efforts to improve the quality of our health care holdings. We believe Roche has an attractive growth runway with multiple positive Phase III readouts in early-stage breast cancer and multiple sclerosis. These should enable Roche to grow revenues through the loss of exclusivity period for several of its current cancer and multiple sclerosis drugs and secure its place among pharmaceutical companies that can grow revenue for the next decade.

BSD Analysis:
ClearBridge initiated a new position in Roche as part of their strategy to improve health care portfolio quality and reduce sector underweight. The managers are bullish on Roche's growth prospects, citing multiple positive Phase III trial readouts in early-stage breast cancer and multiple sclerosis as key catalysts. These pipeline developments are expected to drive revenue growth even as existing drugs face patent expirations, demonstrating the strength of Roche's R&D capabilities. The ability to grow through patent cliffs is a critical competitive advantage in pharmaceuticals, indicating robust pipeline execution. ClearBridge positions Roche among the select pharmaceutical companies capable of sustained revenue growth over the next decade. The new position reflects confidence in Roche's therapeutic franchises and pipeline potential. This investment aligns with their focus on quality health care holdings with durable growth characteristics.

Pitch Summary:
Materials was another contributor to relative performance, as rising input prices and tightening supply conditions as well as supply constraints and geopolitical developments drove improving pricing dynamics across key markets. This was particularly beneficial for copper miner Freeport-McMoRan. We believe the company's leverage to global industrial activity and long-term electrification trends leaves it exceptionally well positioned to continue to capitalize on the growing demand for copper.

BSD Analysis:
ClearBridge maintains a bullish outlook on Freeport-McMoRan, emphasizing the company's strategic positioning within favorable copper market dynamics. Rising input prices, supply constraints, and geopolitical developments are creating improving pricing conditions that benefit the copper miner. The managers highlight FCX's dual exposure to both cyclical global industrial activity and secular electrification trends, providing multiple demand drivers. The electrification theme, including electric vehicles and renewable energy infrastructure, represents a long-term structural tailwind for copper demand. Freeport's operational leverage to copper prices positions it to benefit significantly from the improving pricing environment. The combination of supply constraints and growing demand from electrification creates a compelling setup for sustained copper price strength. ClearBridge views FCX as exceptionally well-positioned to capitalize on these converging trends.

Pitch Summary:
Taiwan Semiconductor Manufacturing, the world's leading contract manufacturer of advanced semiconductors for customers, including Apple and Nvidia, announced projected annual revenue growth of nearly 30%, surpassing analyst estimates. Additionally, the company announced a large capital expenditure budget, estimated between $52 billion to $56 billion for the year, signaling high confidence in sustained demand from the global AI boom.

BSD Analysis:
ClearBridge is bullish on Taiwan Semiconductor Manufacturing (TSM), highlighting the company's dominant position as the world's leading contract chip manufacturer serving major clients like Apple and Nvidia. TSM's projected 30% annual revenue growth significantly exceeds analyst expectations, demonstrating strong execution and demand visibility. The massive $52-56 billion capital expenditure budget signals management's confidence in sustained AI-driven demand and their commitment to maintaining technological leadership. This capex level represents substantial investment in advanced manufacturing capacity to support the global AI infrastructure buildout. TSM's customer base includes the most important players in the AI ecosystem, providing diversified exposure to AI growth. The company's ability to exceed analyst estimates while investing heavily for future growth indicates strong fundamental momentum and strategic positioning in the AI value chain.

Pitch Summary:
ASML, a leading maker of extreme ultraviolet lithography equipment critical for the production of advanced semiconductors, was fueled by record-breaking orders for AI infrastructure and a significantly raised revenue outlook for 2026.

BSD Analysis:
ClearBridge highlights ASML as a key beneficiary of the AI infrastructure buildout, with the company reporting record-breaking orders and raising its 2026 revenue outlook. As the leading provider of extreme ultraviolet lithography equipment essential for advanced semiconductor production, ASML occupies a critical position in the AI value chain. The record orders suggest strong demand visibility from chipmakers investing in AI capabilities. The raised revenue guidance indicates management confidence in sustained demand momentum. ASML's monopolistic position in EUV technology provides pricing power and barriers to entry. The company's performance during a challenging quarter for growth stocks demonstrates the strength of AI-driven semiconductor demand. ClearBridge views ASML as well-positioned to capitalize on the ongoing AI infrastructure investment cycle.