Investment Pitches

Pitch Summary:
Ulta, based in Bolingbrook, Illinois, is the largest beauty specialty retailer in the United States with more than 1,300 stores. Ulta stores offer a one-stop shop for mass, professional, and prestige beauty brands in convenient suburban locations. In addition, the company has cultivated a loyal customer base with more than 40 million reward members. Unlike other forms of merchandise, consumers prefer to shop for beauty products in-store versus online. The company believes it can grow its store base to 1,500–1,700 stores by adding 40–50 stores per year. Ulta is also the preferred beauty retailer amongst Generation Z and Millennials, so the chain should gain share as these cohorts age.

BSD Analysis:
The manager initiated a new position in Ulta Beauty, recognizing it as the largest beauty specialty retailer in the United States with over 1,300 stores. The investment thesis is built on several compelling factors: Ulta's one-stop shop model offering mass, professional, and prestige beauty brands in convenient suburban locations, and a highly loyal customer base exceeding 40 million reward members. The manager highlights a key competitive advantage - consumers' preference for in-store beauty shopping over online purchases, providing defensive characteristics against e-commerce disruption. Ulta's expansion plan to reach 1,500-1,700 stores through 40-50 annual additions demonstrates clear growth visibility. The demographic tailwind from Generation Z and Millennial preferences positions Ulta to gain market share as these cohorts age and increase spending power.

Pitch Summary:
We added two smaller positions to the portfolio in the first quarter as well—Casey's General Stores (CASY) and Ulta Beauty (ULTA). Casey's is a convenience store chain based in Ankeny, Iowa with roughly 2,500 stores in 16 states but with the majority of stores located in Iowa, Missouri, and Illinois. The company focuses on smaller rural markets, in which it builds regional ties and becomes more than just a gas station to residents. Each store carries over 3,000 items including snacks, beverages, beauty, and alcohol products, as well as its own private-label brand. The convenience store market is highly fragmented, and Casey's holds a small share despite being the third largest chain in the nation. Management has done a remarkable job of consistently growing sales and sees opportunities to expand its private-label brand and to grow share both organically and inorganically.

BSD Analysis:
The manager initiated a new position in Casey's General Stores, viewing it as an attractive investment in the fragmented convenience store market. The investment thesis centers on Casey's strategic focus on smaller rural markets where it builds strong regional ties and serves as more than just a gas station to local communities. With approximately 2,500 stores across 16 states and over 3,000 items per store including private-label brands, Casey's has established a differentiated market position. Despite being the third-largest convenience store chain nationally, the company maintains a small overall market share in the highly fragmented industry, suggesting significant growth potential. Management's consistent sales growth track record and opportunities for private-label expansion, combined with both organic and inorganic growth strategies, support the bullish thesis.

Pitch Summary:
During the quarter, the Mairs & Power Growth Fund continued to build up its position in Verizon (VZ), another potential beneficiary of AI. By utilizing AI, Verizon aims to construct a digital replica of a city down to the placement of buildings, terrain, and even foliage. By creating a digital twin, Verizon should be able optimize the demand and efficiency of its network and potentially create a better user experience. AI also has the potential to bolster the company's profitability. Every day, the company handles three million customer transactions including nearly 400,000 calls and emails. Generative AI could enable the company to automate many of these transactions.

BSD Analysis:
The manager is bullish on Verizon, actively building the position during the quarter based on the company's AI integration potential. The investment thesis focuses on Verizon's innovative use of AI to create digital twins of cities for network optimization, which could significantly improve operational efficiency and user experience. The manager highlights substantial operational scale with three million daily customer transactions, including 400,000 calls and emails, presenting significant automation opportunities through generative AI. This automation potential could drive meaningful cost savings and profitability improvements. The pitch positions Verizon as a telecommunications leader leveraging AI for both network infrastructure optimization and customer service enhancement, suggesting multiple avenues for AI-driven value creation.

Pitch Summary:
Roche (RHHBY), a long-term holding of the Fund, has partnered with Nvidia with the hope of using AI to increase the speed of designing new drugs. Developing a drug from scratch can take a decade or more, but AI could truncate this timeline considerably. Despite recent setbacks, Roche remains the world's largest biotechnology company with a robust pipeline of promising biologics. While our investment in Roche is not contingent on its AI initiatives, the company should be on the leading edge if an AI breakthrough does occur in drug development.

BSD Analysis:
The manager maintains a bullish stance on Roche, emphasizing its position as the world's largest biotechnology company with a robust pipeline of promising biologics. The investment thesis centers on Roche's strategic partnership with Nvidia to leverage AI for accelerated drug development, potentially reducing the traditional decade-long development timeline. While acknowledging recent setbacks, the manager views Roche as well-positioned to benefit from AI breakthroughs in pharmaceutical development. The pitch suggests the investment is not solely dependent on AI initiatives, indicating confidence in the company's core fundamentals. The manager sees Roche as a potential leader in the intersection of biotechnology and artificial intelligence, positioning it advantageously for future growth in drug discovery and development.

Pitch Summary:
Equifax (EFX) is a frontrunner in both credit reporting and income/employment verification. These data-driven businesses require minimal physical assets and boast high barriers to entry due to their established infrastructure. This, combined with the fixed cost structure of the industry, allows EFX to leverage its operations efficiently and see increasing returns on capital. Even though the credit bureau market is well-developed, EFX actively invests in new products, expands globally, and makes strategic acquisitions. These efforts broaden its addressable market and, in our view, will lead to growth exceeding industry averages. EFX's Workforce Solutions, their largest and fastest-growing segment, holds a unique and comprehensive dataset of approximately 125 million non-farm payroll records. The company is expanding this service to address several end markets including mortgage, credit cards, auto loans, government services, and employee background checks. With EFX's leadership position, market expansion opportunities, and an anticipated return to normalcy in the mortgage market, we project intrinsic value to compound 20% annually over our investment timeline.

BSD Analysis:
Mar Vista initiated a new position in Equifax, emphasizing the company's dominant position in credit reporting and employment verification markets. The fund highlights Equifax's asset-light business model with high barriers to entry due to established data infrastructure and fixed cost structure enabling operational leverage. The manager notes active investment in new products, global expansion, and strategic acquisitions that broaden the addressable market beyond traditional credit bureau services. Workforce Solutions represents the largest and fastest-growing segment, leveraging a comprehensive dataset of 125 million payroll records across multiple end markets. The expansion into mortgage, credit cards, auto loans, government services, and background checks demonstrates diversification potential. Mar Vista projects 20% annual intrinsic value growth, reflecting confidence in the company's market leadership and expansion opportunities. The investment thesis centers on Equifax's ability to monetize its unique data assets while benefiting from mortgage market normalization. The fund views this as a high-quality data business with sustainable competitive advantages.

Pitch Summary:
GXO Logistics experienced a setback this quarter. Customer volumes dropped 9%, stalling any organic growth. This slump was primarily driven by weakness in the omnichannel retail and consumer packaging sectors. As a result, the company's 2024 forecasts fell short of analyst expectations, leading to a drop in share price after the announcement. Despite cyclical headwinds, there are signs of a turnaround for GXO. Management indicated that customer volumes in January have already begun to improve. Additionally, they expect easier comparisons in the later half of 2024 to further aid recovery. To us, this suggests that the first half of 2024 may be the cyclical low point, with a rebound on the horizon. Over the next few quarters, GXO should get back on track towards achieving its long-term financial goals.

BSD Analysis:
Mar Vista maintains a cautiously bullish stance on GXO despite significant quarterly challenges, viewing current weakness as cyclical rather than structural. The fund acknowledges the 9% decline in customer volumes that stalled organic growth, primarily driven by weakness in omnichannel retail and consumer packaging sectors. Management's 2024 forecasts falling short of expectations resulted in stock price pressure, reflecting near-term headwinds. However, the manager identifies early signs of recovery with January volume improvements and expects easier comparisons in the second half of 2024. Mar Vista believes the first half represents a cyclical trough, positioning for potential rebound. The investment thesis centers on GXO's ability to return to long-term financial targets as market conditions normalize. Despite reducing position size, the fund maintains conviction in the company's fundamental business model and recovery prospects. The manager views current challenges as temporary disruption in an otherwise sound logistics operation.

Pitch Summary:
Nike's recent earnings report was a mixed bag. While revenue met expectations and earnings exceeded them, the stock price dipped due to management's cautious outlook for fiscal 2025. The company is currently undergoing a period of internal restructuring and product line adjustments, which is expected to lead to flat revenue growth in the first half of the coming fiscal year. However, this transition aims to position Nike for long-term success. Our conviction in Nike remains high, and we expect it to emerge stronger and more competitive once the restructuring is complete despite the softer revenue forecast. Nike still anticipates earnings will grow around 10% in calendar 2024 and will accelerate to 15% in 2025 as execution normalizes.

BSD Analysis:
Mar Vista maintains high conviction in Nike despite near-term headwinds, viewing current restructuring as positioning for long-term competitive advantage. The fund acknowledges mixed quarterly results with revenue meeting expectations and earnings exceeding, but notes management's cautious fiscal 2025 outlook. Internal restructuring and product line adjustments are expected to pressure first-half revenue growth, creating temporary headwinds. However, the manager emphasizes this transition is strategic, aimed at strengthening Nike's market position. Management guidance for 10% earnings growth in 2024 accelerating to 15% in 2025 suggests improving fundamentals as execution normalizes. Mar Vista views the current period as temporary disruption before enhanced competitiveness emerges. The investment thesis centers on Nike's brand strength and ability to execute operational improvements. The fund expects the company to emerge from restructuring with improved margins and market share.

Pitch Summary:
Despite underperforming during the quarter, Adobe remains a powerful player in the creative professional market. We believe the company is well-positioned to capitalize on two key trends: the ongoing shift towards digital commerce and the rise of generative AI. Adobe stands out as an early leader in generative AI, offering both standalone solutions like Firefly and integrated features within established products like Photoshop. This puts them ahead of the curve, attracting both creative professionals and marketing teams within corporations. As a result, Adobe is experiencing strong bookings growth in the mid-teens, which ultimately translates to healthy revenue, earnings, and cash flow. Based on these factors, we project continued intrinsic value growth for Adobe in the low-to-mid-teens range over our investment horizon.

BSD Analysis:
Mar Vista maintains conviction in Adobe despite quarterly underperformance, viewing the company as well-positioned for secular growth trends. The fund emphasizes Adobe's leadership position in generative AI through both standalone products like Firefly and integrated features in core applications such as Photoshop. This technological advantage is attracting both creative professionals and corporate marketing teams, expanding Adobe's addressable market. The manager highlights mid-teens bookings growth as evidence of strong underlying demand, which should translate to sustained revenue and cash flow growth. Mar Vista projects low-to-mid-teens intrinsic value growth, reflecting confidence in Adobe's ability to monetize AI capabilities. The investment thesis centers on two key trends: digital commerce acceleration and AI adoption in creative workflows. Despite near-term volatility, the fund views Adobe's market position and innovation pipeline as compelling long-term drivers.

Pitch Summary:
Amazon is experiencing a surge in profitability, reflected in significantly higher retail profit margins. Strategic cost reductions in headcount and fulfillment have materialized into financial gains. While the unexpected pandemic-driven demand surge necessitated a rapid expansion of fulfillment infrastructure, this initially impacted operating profits. However, current unit sales growth has effectively reached equilibrium with fulfillment capacity. This balance is leading to positive adjustments to both earnings and intrinsic value estimates. Should the economic climate continue to improve, we believe Amazon's investment potential aligns with its projected 15-20% intrinsic value growth trajectory.

BSD Analysis:
Mar Vista maintains a bullish outlook on Amazon, emphasizing the company's operational efficiency gains following pandemic-era capacity expansion. The fund highlights Amazon's successful cost reduction initiatives in headcount and fulfillment operations, which are now translating to improved retail profit margins. The manager notes that unit sales growth has reached equilibrium with fulfillment capacity, suggesting optimal operational leverage. This balance is driving upward revisions to earnings and intrinsic value estimates, indicating fundamental improvement in the business model. Mar Vista projects 15-20% annual intrinsic value growth, reflecting confidence in Amazon's long-term prospects. The investment thesis centers on the company's ability to monetize its infrastructure investments while maintaining market leadership. The fund views current economic conditions as supportive of Amazon's growth trajectory across its diversified business segments.

Pitch Summary:
TransDigm delivered another impressive quarter, exceeding analyst expectations on both earnings and profitability. Its gross and EBITDA margins widened significantly, driven by strong performances in commercial aerospace and defense. Revenue growth in commercial aerospace aftermarket parts (+27%) and new defense orders were key contributors to this outperformance. Management responded by raising full-year 2024 forecasts for revenue and profitability. Continued growth in both defense and commercial aftermarket should be fueled by recovering passenger traffic, higher aircraft utilization, and a strong bookings backlog. With domestic travel exceeding pre-pandemic levels and international travel nearing full recovery, TransDigm appears well-positioned for continuous growth. This, combined with its efficient operations, should drive long-term stock price appreciation.

BSD Analysis:
Mar Vista expresses strong conviction in TransDigm's aerospace recovery thesis, highlighting exceptional quarterly performance that exceeded expectations. The company demonstrated significant margin expansion with gross and EBITDA margins widening substantially, indicating operational leverage in the business model. Commercial aerospace aftermarket revenue surged 27%, reflecting the recovery in air travel and increased aircraft utilization rates. Management's decision to raise full-year guidance signals confidence in sustained momentum across both defense and commercial segments. The fund emphasizes TransDigm's positioning to benefit from structural tailwinds including normalized travel patterns and strong order backlogs. With domestic travel surpassing pre-pandemic levels and international recovery progressing, the company appears poised for sustained growth. Mar Vista views the combination of cyclical recovery and operational efficiency as drivers for long-term appreciation.

Pitch Summary:
Walt Disney's latest financial results showcased significant progress, leading to an increase in stock price. The most noteworthy factor was the improved performance of its streaming business. With media profitability recovering, management is optimistically guiding for 20% earnings growth in 2024. This positive outlook is also supported by lower costs and strong performance from its parks division. Walt Disney's streaming service is on track to become profitable by its fiscal fourth quarter. This aligns with our original investment thesis, which expected the direct-to-consumer (DTC) business to move from a loss of $2 billion to a profit of $1 billion. Even after the recent stock price increase, Walt Disney remains undervalued relative to Netflix. We expect this gap to shrink as its streaming business matures and becomes increasingly profitable over the next few years.

BSD Analysis:
Mar Vista maintains a bullish stance on Disney, driven by the company's streaming turnaround story. The fund's original thesis centered on Disney's direct-to-consumer business transitioning from a $2 billion loss to $1 billion profit, which is materializing as expected. Management's guidance for 20% earnings growth in 2024 reflects improving fundamentals across streaming and parks divisions. The streaming service is approaching profitability by fiscal Q4, validating the investment case. Despite recent stock appreciation, the manager believes Disney trades at a discount to Netflix, suggesting valuation upside as the streaming business matures. The combination of cost reduction initiatives and strong parks performance provides multiple drivers for sustained growth. Mar Vista views this as a compelling turnaround story with clear catalysts for value creation.

Pitch Summary:
Tyson Foods (TSN) is one of the world's largest chicken, pork, and beef processors. The company's brands include Tyson, Jimmy Dean, Hillshire Farms, and Ballpark. Tyson shares have declined from a high of over $100 in 2022 to the current mid-$50 range due to unprecedented simultaneous cyclical price pressures in each of its businesses. The company is reducing its costs and making operating improvements to withstand the current downturn. This should allow for a meaningful profit recovery when conditions improve. We believe the demand for protein will remain strong and that Tyson shares have a meaningful upside from the current price. The most recent earnings report showed improving profits.

BSD Analysis:
Matrix established a position in Tyson Foods after shares declined roughly 45% from 2022 highs, creating what the manager views as an attractive cyclical opportunity. The investment thesis centers on Tyson's dominant market position as one of the world's largest protein processors across chicken, pork, and beef segments. The manager acknowledges unprecedented simultaneous cyclical pressures across all business lines but emphasizes ongoing cost reduction and operational improvement initiatives. With strong brand portfolio including Jimmy Dean and Hillshire Farms, Tyson maintains pricing power in essential protein markets. The recent earnings improvement validates management's turnaround efforts. Matrix expects meaningful profit recovery as cyclical headwinds normalize, supported by structurally strong protein demand trends.

Pitch Summary:
American Electric Power (AEP) is a high-quality electric utility company with over 5.5 million customers in 11 states. The Utility sector was the worst-performing market sector in 2023. AEP's share price decline created an opportunity to buy a company with predictable earnings and dividend growth. Historically, Utility companies have been more defensive when the economy slows, and markets become more turbulent. But there is also a growth story emerging for the sector as demand for electricity to power investment in new technology (AI, data centers) is projected to rise rapidly through the end of the decade. The company recently added two new directors nominated by activist investor Carl Icahn, who made a large investment in the company. We are optimistic about the company's appreciation potential.

BSD Analysis:
Matrix initiated a position in American Electric Power following significant sector underperformance in 2023, viewing the decline as an attractive entry point for a high-quality utility with predictable cash flows. The manager highlights AEP's defensive characteristics during economic slowdowns while emphasizing an emerging growth narrative driven by AI and data center electricity demand. The involvement of activist investor Carl Icahn, who secured two board seats, adds a potential catalyst for operational improvements and shareholder value creation. With over 5.5 million customers across 11 states, AEP offers stable dividend growth prospects. The thesis combines value opportunity from sector weakness with secular growth from technology infrastructure buildout. Matrix expects meaningful appreciation potential as utility fundamentals improve and the AI-driven electricity demand story unfolds.

Pitch Summary:
Tyson Foods (TSN) is one of the world's largest chicken, pork, and beef processors. The company's brands include Tyson, Jimmy Dean, Hillshire Farms, and Ballpark. Tyson shares have declined from a high of over $100 in 2022 to the current mid-$50 range due to unprecedented simultaneous cyclical price pressures in each of its businesses. The company is reducing its costs and making operating improvements to withstand the current downturn. This should allow for a meaningful profit recovery when conditions improve. We believe the demand for protein will remain strong and that Tyson shares have a meaningful upside from the current price. The most recent earnings report showed improving profits.

BSD Analysis:
Matrix views Tyson Foods as a compelling turnaround opportunity following a significant 45% decline from 2022 highs to the mid-$50s range. The manager attributes the weakness to unprecedented cyclical pressures across all protein segments simultaneously, creating an unusually challenging operating environment. Tyson's cost reduction initiatives and operational improvements position the company to benefit meaningfully when industry conditions normalize. The investment thesis centers on the structural demand for protein remaining robust despite current headwinds. Matrix's confidence is reinforced by recent earnings showing early signs of profit improvement, suggesting the turnaround strategy is gaining traction. The company's diversified protein portfolio across chicken, pork, and beef provides multiple recovery vectors. Tyson's strong brand portfolio including Jimmy Dean, Hillshire Farms, and Ballpark offers pricing power and market positioning advantages. The manager's emphasis on 'meaningful upside' suggests significant appreciation potential from current depressed levels.

Pitch Summary:
American Electric Power (AEP) is a high-quality electric utility company with over 5.5 million customers in 11 states. The Utility sector was the worst-performing market sector in 2023. AEP's share price decline created an opportunity to buy a company with predictable earnings and dividend growth. Historically, Utility companies have been more defensive when the economy slows, and markets become more turbulent. But there is also a growth story emerging for the sector as demand for electricity to power investment in new technology (AI, data centers) is projected to rise rapidly through the end of the decade. The company recently added two new directors nominated by activist investor Carl Icahn, who made a large investment in the company. We are optimistic about the company's appreciation potential.

BSD Analysis:
Matrix initiated a position in American Electric Power following significant sector underperformance in 2023, viewing the decline as an attractive entry point for a high-quality utility with predictable cash flows. The manager emphasizes AEP's defensive characteristics during economic uncertainty while highlighting an emerging growth narrative driven by AI and data center electricity demand. The involvement of activist investor Carl Icahn, who secured board representation, adds a potential catalyst for operational improvements and shareholder value creation. AEP's 5.5 million customer base across 11 states provides geographic diversification and regulatory stability. The utility sector's projected electricity demand growth through the decade, particularly from technology infrastructure, represents a structural tailwind. Matrix views the combination of defensive income characteristics and growth potential as compelling at current valuations. The manager's optimism about appreciation potential suggests confidence in both the turnaround story and long-term sector dynamics.

Pitch Summary:
Tenet Healthcare Corp. is a top-ten U.S. operator of hospitals, outpatient surgery centers, and healthcare business process services. We initiated our position in late 2022 as we believed that the market's short-term focus on COVID-caused staffing and admissions challenges overshadowed the value of Tenet's long-term strategy of growing outpatient surgery centers. Outpatient surgery provides a cost-effective and patient-centered level of care that patients prefer and a business model that drives significantly higher returns to Tenet above that of the legacy hospital model. Tenet surged nearly 40% in the first quarter as the company executed nine hospital sales at valuations above where the stock trades. These divestitures drive three improvements to incremental return on equity by allowing Tenet to reduce debt, accelerate the corporate shift to higher-returning outpatient surgery centers, and free more capital to be returned to shareholders via stock buybacks. While the divestitures temporarily depress Tenet's earnings growth, it accelerates our core thesis. We remain optimistic about the company's newfound capital flexibility, and during the quarter we maintained our holding in Tenet.

BSD Analysis:
The manager maintains strong conviction in Tenet Healthcare's strategic transformation from traditional hospitals to higher-return outpatient surgery centers. The investment thesis, initiated in late 2022, was based on the market's myopic focus on COVID-related challenges while overlooking the long-term value creation from the outpatient strategy. Outpatient surgery centers offer superior economics through cost-effectiveness, patient preference, and significantly higher returns versus legacy hospital operations. The recent 40% surge was driven by successful execution of nine hospital divestitures at valuations above the stock's trading multiple, validating management's capital allocation strategy. These transactions create a triple benefit: debt reduction, acceleration of the shift to higher-return outpatient centers, and increased capital available for shareholder returns through buybacks. While divestitures temporarily pressure earnings growth, they accelerate the core transformation thesis and improve return on equity. The manager views the newfound capital flexibility as a key competitive advantage for future value creation.

Pitch Summary:
Sweetgreen, Inc. operates restaurants serving fresh and healthy foods in the United States. The salad-focused restaurant concept has invested heavily to develop a captive network of growers that help ensure the freshness of its produce, a distinct competitive advantage. Additionally, management's investment in automation technology, known as the "Infinite Kitchen," has shown strong promise of significant labor cost savings, a reduction of order fulfillment errors, and increased restaurant throughput. While Infinite Kitchen has only been tested in a handful of stores to date, initial data supports the potential for automation technology to significantly improve both margins and average unit volumes. The stock rose in the quarter on accelerating same-store sales growth and better than expected guidance from management. In addition, investors took notice that material margin improvements could quickly reduce Sweetgreen's cash burn, a prior source of concern, and during the quarter we added to our position as fundamentals continued to improve.

BSD Analysis:
The manager demonstrates growing conviction in Sweetgreen's transformation story, adding to the position as fundamentals improve. The investment thesis is built on two key competitive advantages: a captive network of growers ensuring produce freshness and the promising "Infinite Kitchen" automation technology. The automation platform addresses critical restaurant industry challenges by reducing labor costs, minimizing order errors, and increasing throughput. While still in early testing phases across limited stores, initial data validates the technology's potential to drive significant margin expansion and volume growth. Recent strong performance was driven by accelerating same-store sales growth and better-than-expected guidance, signaling operational momentum. The potential for material margin improvements to reduce cash burn addresses a previous investor concern and represents a key inflection point. The manager's decision to increase the position reflects confidence in the company's ability to scale its differentiated model and achieve sustainable profitability through operational leverage.

Pitch Summary:
SMART Global Holdings, Inc. is a diversified technology company with leading market positions in memory, LEDs, high-performance computing (HPC), and the Internet of Things (IoT). Our interest was piqued when the company hit a rough patch in 2019-early 2020 as several factors led to an earnings decline. Volatility in its memory business caused by weakness in Brazil, new product investments the company had made ahead of revenue, and order delays in its HPC business all converged. While none of these developments are particularly unusual, it is uncommon for all three to turn negative at the same time. Our thesis was that the company's impressive new management team could not only smooth out some of the volatility in the business but also drive growth through superior capital allocation and organic investment. With the stock trading at less than 8x earnings at the time of our investment (Q3 2020), we believed the risk/reward was excellent. The stock was strong in the quarter due to positive earnings results and guidance. The memory business appears to be in a cyclical upturn within a strong long-term secular growth trend driven by increased memory content in everything from phones to data center equipment to cars. Smart Global remains a leader in HPC implementation for AI, a market that remains strong, and there is anticipation that the company's efforts to enhance its go-to-market strategy should gain traction. We believe the long-term risk/reward is still strong and maintain a large position in the stock, though we reduced our position during the quarter as part of our regular risk management process.

BSD Analysis:
The manager maintains a bullish long-term view on SMART Global Holdings despite recent position trimming for risk management purposes. The original investment thesis from Q3 2020 centered on an attractive valuation below 8x earnings during a temporary convergence of negative factors affecting memory, HPC, and new product investments. The manager's confidence was anchored by strong new management capable of smoothing business volatility and driving growth through superior capital allocation. Recent strong performance was driven by positive earnings and guidance, with the memory business entering a cyclical upturn supported by secular growth from increased memory content across devices and data centers. The company's leadership position in HPC for AI applications provides additional growth exposure to a robust market. Enhanced go-to-market strategies are expected to gain traction and drive further growth. While maintaining a large position, the recent reduction reflects disciplined risk management rather than fundamental concerns about the long-term opportunity.

Pitch Summary:
Navitas Semiconductor Corp. designs and produces highly efficient power semiconductors and is the leader in Gallium Nitride (GaN) technology, which enables superior energy efficiency and charging speeds over traditional silicon. This material is difficult to handle, and Navitas overcame significant technological hurdles to create a meaningful competitive advantage in what has a high potential to become a large and growing market. We originally invested in Navitas early in 2023 when the company was out of favor due to a mobile phone end-market downturn which slowed growth. We also detected market confusion over the acquisition of a Silicon Carbide-(SiC) based company. Navitas made this acquisition to broaden its product portfolio, but the market at the time viewed it as a possible signal that the company's GaN technology was slow to gain traction. These concerns faded as Navitas grew revenues by over 100% in 2023 and the stock performed strongly. The stock declined in the quarter as revenue guidance came in lower than anticipated due to a slowdown in the EV market. While Navitas will continue to be subject to volatile end markets like mobile phones and EVs, we believe that each end market will have less effect over time as the company diversifies into new areas like data centers, appliances, and other markets. We continue to feel that Navitas has a large, untapped market opportunity and retains a significant technological advantage, and as such increased our position during the quarter.

BSD Analysis:
The manager demonstrates strong conviction in Navitas Semiconductor's gallium nitride (GaN) technology leadership despite recent volatility from end-market exposure. The investment thesis centers on the company's technological competitive advantage in GaN power semiconductors, which offer superior energy efficiency and charging speeds versus traditional silicon. Navitas overcame significant technical hurdles to commercialize this difficult-to-handle material, creating meaningful barriers to entry. The manager initially invested in early 2023 during a period of disfavor due to mobile phone market weakness and market confusion over a Silicon Carbide acquisition. Strong execution was validated by over 100% revenue growth in 2023, though recent EV market slowdown pressured guidance. The diversification strategy into data centers, appliances, and other markets should reduce end-market concentration risk over time. The manager views the current weakness as temporary and increased the position, citing the large untapped market opportunity and sustained technological advantages.

Pitch Summary:
Brookfield Renewable Corp. operates one of the world's largest renewable power platforms with a global portfolio featuring hydroelectric, solar, and wind projects along with other assets. We became Brookfield Renewable shareholders in 2020 when the company bought a holding of ours, TerraForm Power, and the acquisition generated significant returns for the Fund. We remained shareholders post-merger because we believed Brookfield Renewable was a well-managed company with excellent assets and strong growth prospects trading at a reasonable valuation. We feel these characteristics still hold and the decline in the stock during the quarter was driven mainly by concerns that higher interest rates, with the U.S. Treasury 10-year bond yield rebounding during the quarter, could have a negative impact on industry growth due to higher financing costs and restricted access to capital. While these concerns are valid, we believe they are short-term in nature and that Brookfield Renewable's financial strength and management acumen will allow it to benefit from opportunities created by weaker competitors to drive outsized future growth. In the meantime, the company offers an attractive dividend yield and above-average growth for the sector. We took advantage of what we viewed as temporary price weakness and increased our position during the quarter.

BSD Analysis:
The manager maintains strong conviction in Brookfield Renewable despite quarterly underperformance driven by interest rate concerns. The investment thesis is built on the company's scale as one of the world's largest renewable power platforms with diversified global assets across hydroelectric, solar, and wind. The manager's history with the company dates to 2020 through the TerraForm Power acquisition, which generated significant returns. Key investment merits include excellent asset quality, strong management team, and reasonable valuation despite recent weakness. While acknowledging valid concerns about higher financing costs impacting industry growth, the manager views current headwinds as temporary. The company's financial strength and management expertise are expected to create competitive advantages during market stress, potentially driving outsized future growth. The attractive dividend yield provides income support while the manager increased the position during perceived temporary weakness.