Investment Pitches

Pitch Summary:
MercadoLibre is a Uruguay-based company that operates the leading e-commerce shopping platform in Latin America (like Amazon) and provides payment and credit services (like PayPal). Although Latin America is a large market with a population of 650 million, it still has low e-commerce penetration compared to most developed markets. We first bought MercadoLibre in our International Small Company portfolio in 2013, and it graduated to the International All Company portfolio in 2020. Currently, about half of MercadoLibre's business is in Brazil and just under a quarter is in each of Mexico and Argentina. Long-term investments in the marketplace and its rapid-shipping solutions provide significant barriers to entry for competitors. MercadoLibre ships about half of its orders with same-day or next-day arrival to more than 100 million unique buyers. We also like the potential in the company's newer fintech businesses, where 61 million monthly active users benefit from MercadoLibre's payment-processing services, credit cards, loans and savings accounts. In the March quarter, MercadoLibre reported 37% year-over-year revenue growth to $6.1 billion (USD) and a nearly four-fold increase in earnings per share to $12.61 for the December quarter. These results compare favorably to consensus expectations of $5.8 billion in revenue and $7.90 earnings per share. We believe that MercadoLibre's e-commerce and fintech ecosystem provides a unique competitive advantage, leaving the company with a long runway for growth.

BSD Analysis:
Brown Capital Management views MercadoLibre as the dominant Latin American e-commerce and fintech platform with significant runway for growth in an underpenetrated market. The manager emphasizes the massive addressable market of 650 million people with low e-commerce penetration compared to developed markets. Geographic diversification across Brazil (50%), Mexico (25%), and Argentina (25%) provides balanced exposure to key Latin American economies. Competitive moats include substantial logistics investments enabling same-day/next-day delivery to 100+ million buyers, creating significant barriers to entry. The fintech ecosystem expansion with 61 million monthly active users across payments, credit, and banking services represents a compelling growth vector beyond core e-commerce. Recent financial performance exceeded expectations with 37% revenue growth to $6.1 billion and EPS of $12.61 versus consensus $7.90. The 12-year investment journey from small-cap to large-cap demonstrates successful thesis execution and portfolio graduation. The integrated e-commerce and fintech ecosystem creates unique competitive advantages and cross-selling opportunities.

Pitch Summary:
AJ Bell is a U.K-based wealth-management platform, providing both independent financial advisors and do-it-yourself retail investors with tools for planning, integrating and monitoring a variety of stock and fund investments. Think of it as a small Charles Schwab in the U.K. AJ Bell enjoys high profitability (40% operating margins) and returns (45% return on equity), providing the resources necessary to fund long-term revenue and earnings growth of 20%. At fiscal year-end Sept. 30, 2024, the dual-channel platform serves 557,000 customers (up 13% year over year) and the assets under administration (AUA) are £92.2 billion (up 21%). The opportunity remains significant, with AJ Bell's assets under administration representing just 9% of a £1 trillion platform market in the U.K. Additionally, we think there is another £2 trillion in retirement assets in the U.K. that may find its way to platforms such as AJ Bell over the long term. We first bought AJ Bell in 2020.

BSD Analysis:
Brown Capital Management positions AJ Bell as the UK equivalent of Charles Schwab, emphasizing exceptional profitability metrics that fuel sustainable growth. The manager highlights outstanding financial performance with 40% operating margins and 45% return on equity, supporting 20% long-term revenue and earnings growth targets. Strong operational momentum is evident with 13% customer growth to 557,000 and 21% AUA growth to £92.2 billion as of September 2024. The investment thesis rests on massive market opportunity expansion, with AJ Bell capturing only 9% of the £1 trillion UK platform market. The manager identifies an additional £2 trillion in UK retirement assets as a long-term growth catalyst for platform migration. The dual-channel model serving both financial advisors and retail investors provides diversified revenue streams and market positioning. Since the 2020 initial investment, AJ Bell has demonstrated the profitability characteristics necessary to fund organic growth and market share expansion.

Pitch Summary:
Novonesis was formed in January 2024 with the merger of Novozymes and Christian Hansen, two dominant companies in industrial enzymes and food enzymes, respectively, both based in Denmark. Interestingly, it is the largest merger in Danish corporate history. Our Novonesis holding comes from our Christian Hansen position, which we initiated in 2017. We think that Novonesis is an EGC with a larger and more diversified addressable market than Christian Hansen even had before the merger. The combined company sells a broad array of mission-critical products to a large multi-industry customer base. Product examples include cultures used to produce dairy products, probiotics used in dietary supplements, enzymes used in detergents, and enzymes used in the production of biofuels. The revenue mix is now 54% planetary health solutions (previously Novozymes) and 46% food & health solutions (previously Christian Hansen). The combined company is delivering on its growth plan, and its outlook is encouraging. Revenue is expected to grow 6% to 8% in 2024 and 2025 and rise higher thereafter. EBITDA margins are expected to tick up to 37% in 2025. The sales-synergy target is €200 million after four years, and the cost-synergy target of €80 million to €90 million has largely been achieved.

BSD Analysis:
Brown Capital Management views the Novonesis merger as creating a more diversified and scalable platform for growth delivery. The manager inherited this position through their 2017 Christian Hansen investment, now benefiting from the largest merger in Danish corporate history. The investment thesis centers on expanded addressable markets through the combination of industrial enzymes (54% planetary health) and food enzymes (46% food & health solutions). Mission-critical product positioning across dairy cultures, probiotics, detergent enzymes, and biofuel enzymes provides defensive revenue characteristics. Management guidance of 6-8% revenue growth in 2024-2025 with acceleration thereafter supports the growth delivery thesis. Strong execution on synergies is evident with cost synergies of €80-90 million largely achieved and €200 million sales synergy target over four years. Expected EBITDA margin expansion to 37% in 2025 demonstrates operational leverage and profitability improvement from the merger integration.

Pitch Summary:
Cochlear researches, develops and sells cochlear implants for severely hearing-impaired individuals globally. Founded in 1981 and based in Sydney, Australia, the company has cumulatively provided more than a million implants to patients. These mission-critical devices improve the quality of life and serve an underpenetrated addressable global market. Worldwide, there are 1.5 billion people with hearing loss, but more than 60 million have severe (31 million), profound (17 million) or complete (13 million) hearing loss. Patients in this segment can benefit from an implantable solution like Cochlear, but the segment is less than 5% penetrated. Among those with a device, Cochlear is the market leader with a 60% market share and enjoys significant barriers to entry for competitors, and limited risk of technological substitution. The company holds 2,300 patents and spends 12% of sales on R&D, or AUD $277 million in 2024. Product development focuses on sound processing, connectivity, smaller and lighter form factors, and longer battery life. We first bought the company in the International All Company portfolio in 2017.

BSD Analysis:
Brown Capital Management highlights Cochlear as exemplifying market defensibility through dominant positioning in an underpenetrated medical device market. The investment thesis rests on massive addressable market expansion, with only 5% penetration among 60+ million patients with severe hearing loss globally. The manager emphasizes Cochlear's commanding 60% market share and substantial competitive moats through 2,300 patents and significant R&D investment (12% of sales, AUD $277 million in 2024). The mission-critical nature of cochlear implants creates high switching costs and customer loyalty. Product innovation focuses on key differentiators including sound processing, connectivity, and form factor improvements. With over one million cumulative implants delivered since 1981, Cochlear has established strong clinical validation and physician relationships. The 8-year holding period since 2017 reflects confidence in the long-term growth trajectory driven by demographic trends and market penetration expansion.

Pitch Summary:
Givaudan is a large flavors and fragrances company based in Geneva, Switzerland, which generated revenue of CHF 7.4 billion (USD $8.6 billion) in 2024. The company sells a broad array of embedded flavors and fragrances (130,000 formulations) to a large customer base of more than 4,000 companies. Although these products are mission critical to their customers, they are just 0.5% to 6% of the final products' cost of goods sold. The durability of Givaudan's revenue derives from its broad geographical, industry, customer and product diversification. Customers stay and revenue recurs because a change of ingredients would change the end-product's formula. Also, Givaudan typically collaborates with customers on developing product formulas over a 3-month to 36-month period and retains intellectual property rights to the flavors and fragrances. We have owned Givaudan since 2013.

BSD Analysis:
Brown Capital Management presents Givaudan as a prime example of revenue durability within their Exceptional Growth Company framework. The manager emphasizes the company's mission-critical positioning, where flavors and fragrances represent only 0.5-6% of customers' cost of goods sold, creating significant pricing power and customer stickiness. The thesis centers on Givaudan's diversification across 4,000+ customers and 130,000 formulations, which provides defensive revenue characteristics. The collaborative product development process (3-36 months) and retained intellectual property rights create switching costs that protect market share. With CHF 7.4 billion in 2024 revenue and a 12-year holding period since 2013, this represents a core conviction position. The manager views the broad geographical and industry diversification as key competitive moats that support long-term revenue predictability and growth sustainability.

Pitch Summary:
Part of the proceeds were redeployed into enterprise resource planning and finance software maker Workday, as we believe its products are well-positioned for consistent, robust subscription growth with potentially further upside as new investment initiatives scale.

BSD Analysis:
ClearBridge redeployed capital from their Splunk sale into Workday, demonstrating confidence in the enterprise software company's growth prospects. The managers view Workday's enterprise resource planning and finance software products as well-positioned for consistent and robust subscription growth. They see additional upside potential as the company's new investment initiatives begin to scale and generate returns. This investment reflects ClearBridge's strategy of rotating from acquired companies into businesses with strong recurring revenue models and growth visibility. The subscription-based nature of Workday's business provides predictable cash flows and growth characteristics that align with the fund's growth investment philosophy.

Pitch Summary:
During the first quarter, we initiated a new position in MongoDB, in the IT sector. The company offers a leading modern database platform that handles all data types and is geared toward modern Internet applications, which constitute the bulk of new workloads. Database is one of the largest and fastest-growing software segments, and we believe it is early innings in the company's ability to penetrate this market. MongoDB is actively expanding its potential market by adding ancillary capabilities like vector search for AI applications, streaming and real-time data analytics. The company reached non-GAAP profitability in 2022, and we see significant room for improved margins as revenue scales.

BSD Analysis:
ClearBridge initiated a new position in MongoDB, viewing it as a compelling opportunity in the database software market. The managers highlight MongoDB's leading position in modern database platforms designed for Internet applications, which represent the majority of new workloads. They emphasize the early-stage penetration opportunity in what they describe as one of the largest and fastest-growing software segments. The company's expansion into AI-related capabilities like vector search, streaming, and real-time analytics positions it well for future growth. Having achieved non-GAAP profitability in 2022, MongoDB offers significant margin expansion potential as revenue scales. The investment aligns with ClearBridge's strategy of redeploying capital from expensive mega-cap holdings into more attractively valued growth opportunities.

Pitch Summary:
We mentioned at the outset that there was one notable company event in Q2, and that it was a positive one involving Gildan Activewear. The saga that had begun just before last Christmas, when the board stunned the market and its shareholders by terminating Glenn Chamandy, its founder and CEO, finally ended. Mr. Chamandy returned, his replacement departed and the incumbent board was ousted. We have owned Gildan for over a decade and a key reason we have been a shareholder is Glenn Chamandy. Gildan is one of Canada's great success stories. Over the past 40 years, Gildan has grown from a small family-owned business into a global apparel company with over US$3 billion in sales. As well, its share price has seen a remarkable 90-fold increase over the last 25 years. This success is due, in large part, to the vision and leadership of its founder and long-time CEO, Glenn Chamandy. During our long participation as a shareholder, we have been impressed by Mr. Chamandy's stewardship of the business, his strategic vision, his extraordinary knowledge of its competitive landscape, his extensive operational capabilities, and his relationships with key stakeholders and customers. The termination announcement came completely out of the blue. The stories were muddied in the press at the time, but we hypothesized that Gildan's board was hell-bent on implementing a succession plan for Mr. Chamandy, with or without his participation. And as it turned out, it was without. Mr. Chamandy's replacement was Vince Tyra, the former Director of Intercollegiate Athletics for the University of Louisville. You might be wondering how the board could see fit to replace Mr. Chamandy with someone who had recently been at a university. Well, two decades ago, Mr. Tyra was the CEO of Broder Bros. (the predecessor to alphabroder, a leading printwear distributor) and prior to that, he was a divisional president at Fruit of the Loom. The board lauded his "deep understanding of the apparel industry" and crowed about how "he tripled alphabroder's revenue, making it the industry leader" and highlighted how "he led a turnaround of Fruit of Loom culminating in its sale to Berkshire Hathaway". There were a few problems with this narrative. Firstly, during his tenure at Fruit of the Loom, the share price declined by 99% and by 1999, it had filed for Chapter 11 bankruptcy. And during his tenure as CEO of Broder Bros., the company swung from profit to loss, and in the years following his departure, the company was forced to restructure to avoid bankruptcy. On top of that, Mr. Tyra had little manufacturing experience, which is important for a global, vertically integrated, low-cost manufacturer like Gildan. It was clear to us, and to many of our fellow shareholders, that Vince Tyra was no Glenn Chamandy. While we were initially shocked by the termination of Mr. Chamandy and the selection of Mr. Tyra as his replacement, we do what we always do – calmly and coolly collect the facts. The afternoon of the announcement, we met virtually with Don Berg, the chair of the board. We listened to the chair's reason for the termination, and we asked questions. To sum it up, Mr. Berg described to us how Mr. Chamandy had agreed to a succession plan that the board was executing on, but then Mr. Chamandy got 'cold feet' when it came close to the time to step down. The chair acknowledged that we would have to speak to Mr. Chamandy in order to understand what he was thinking. And so we did. Mr. Chamandy's side of the story was completely different, and he appeared as passionate and engaged as ever. We concluded that the board had a made a huge mistake. If left unchallenged, the termination of Mr. Chamandy would lead to a significant impairment in the value of our investment. The board's thinking was dogmatic and inflexible. This necessitated a drastic change in course for Turtle Creek. Our normal approach of 'quiet board engagement' was going to be ineffective here. We needed to go public and we needed to do it quickly. Our response was swift – we wrote a letter to the board and immediately released it to the public. In it, we acknowledged that while succession planning was an important duty of the board, "the Board's abrupt termination of Mr. Chamandy appears to have been conducted in great haste, without meaningful shareholder engagement, and without considering the adverse impact on Gildan's business." What followed the public release of our letter was unprecedented. Within days, shareholders owning over 35% of the company publicly spoke out in favour of his re-instatement. But that represented only the shareholders who issued press releases. In fact, opposition to the board's decision was nearly unanimous. Our legal and strategic advisors had never before seen a response of such breadth and speed. The board's response was a complete shock to us – rather than re-considering their decision that weekend, the board circled the wagons. They entered into a deal with a short-tenured hedge fund shareholder which traded a board seat for voting support. The board signaled that they intended to fight the very shareholders who had elected them in the first place. Was this all about ego – an unwillingness to admit they had made a mistake? Or was it "governance" run amuck? We still don't know but probably both explanations were at play. In any event, the board embarked upon an ultimately futile, yet incredibly expensive defense of their actions. And while the final tally isn't in yet, the company disclosed in late May at their annual meeting that the prior board's defense costs, together with the severance payments to the replacement CEO, ran over US$65 million. To put this in perspective, the very public, high-profile battle between the board of The Walt Disney Co. and Nelson Peltz was only US$40 million. The sheer disregard for company resources is mind-blowing and provides further evidence of just how bad Gildan's incumbent board was. So what did the board do? In addition to their opening entrenchment move with respect to the voting support agreement noted above, they hired countless advisors – legal, corporate finance, public relations, etc. All focused on defending the board's reckless termination decision. They also set out to impugn the character of Mr. Chamandy. Luc Jobin, a Gildan director, went to the press and launched a defamatory campaign with the objective of painting Mr. Chamandy as an ineffective, disengaged leader focused on risky, half-baked acquisitions who needed to be terminated lest he destroy shareholder value. Incidentally, in a subsequent meeting with the board, the chair directly contradicted Mr. Jobin. The chair confirmed that Mr. Chamandy had no performance issues and he had been terminated solely because he wasn't willing to follow the board's succession plan. We quickly concluded that the board needed to be significantly reconstituted. We again wrote to the board expressing that view which we in turn publicly released. Our fellow shareholders were also unconvinced by the board's PR campaign. They continued to publicly and privately communicate that they wanted Mr. Chamandy reinstated. Browning West, a large and long-time shareholder, went even further, putting forth five alternate directors that they hoped would be elected to replace a majority of Gildan's incumbent directors. Browning West requisitioned a special meeting that would allow all shareholders to have a voice in deciding who should represent them on the board of their company. We issued a press release in early January expressing our support for the calling of a special meeting, without delay, and indicating that we intended to support all of Browing West's proposed nominees. In late January, we released an open letter to the board asking them to stop disenfranchising shareholders and to hold the special meeting without delay. As well, we urged them to halt their destructive public relations campaign of inferences and innuendo. But rather than listen to the wishes of company shareholders, the board continued to avoid facing the music. The board refused to call a timely special meeting, instead announcing it would hold the special meeting immediately prior to its annual general meeting. In further defiance, the board delayed its AGM by four weeks from its typical historical date. So rather than wrapping up this fight in March, the board forced an extension of the dispute to the end of May, and it didn't stop there. They also unleashed various legal proceedings against Browning West – which were later dismissed. The board also commenced an ill-conceived and hasty process to sell the company. It is hard to imagine a worse time to put Gildan up for sale, but the board went ahead anyway. Yet again we released an open letter to the board criticizing them for their decision. With it being clear that there was significant shareholder opposition to a 'fire sale' of the Company, no bidders were willing to enter the fray. Then, on April 22, 2024, five key directors – including the ones who led this ludicrous process – suddenly resigned, with two additional directors indicating their intention not to stand for re-election at the annual general meeting in May. That would have been fine, but on their way out the door they appointed hand selected replacements, calling it 'board refreshment'. The new board indicated their intention to continue the old board's path including fully supporting Mr. Tyra, the unqualified replacement CEO. This without speaking to shareholders. You just couldn't make this stuff up. . . We released another public statement addressing this maneuver. At that point, we were confident that the incumbent board would be voted out by the shareholders. Despite their deluded belief that they could win over some shareholders to their side, in fact, their actions had simply made shareholders angrier and more resolute that this board had to be replaced. The final chapter in the saga occurred in May, when the two major proxy advisory firms in North America – ISS and Glass Lewis – both came out strongly against the incumbent board, recommending the election of the entirety of the alternative slate, including Glenn Chamandy. After having perhaps laboured under the mistaken belief that the board's "refreshment" tactic would deliver a split decision from the proxy advisors, the "refreshed board" was faced with certain defeat and on May 23, 2024, they announced their wholesale resignation. Glenn Chamandy's replacement as CEO also resigned with immediate effect. The board appointed the Browning West nominees to the board and ended the sale process. We were obviously gratified with the outcome, which brought an end to the months of uncertainty and distraction that hung over Gildan's remaining management team and its employees. We also remain somewhat baffled by the intransigence displayed by the board right up until its unceremonious mass resignation. Gildan presented Turtle Creek with a set of unprecedented circumstances that necessitated an unprecedented response. By taking our concerns public through a thoughtful and articulate narrative, we gave other traditional institutional shareholders licence to do the same and lent additional credibility to Browning West's campaign.

BSD Analysis:
Turtle Creek's extensive commentary on Gildan Activewear represents a compelling governance-driven investment thesis centered on the return of founder-CEO Glenn Chamandy. The manager's decade-long ownership reflects deep conviction in Chamandy's leadership capabilities, citing his strategic vision, operational expertise, and stakeholder relationships as key value drivers. Gildan's impressive track record under Chamandy's stewardship—growing from a family business to a $3 billion global apparel company with 90-fold share price appreciation over 25 years—validates this management-centric investment approach. The board's decision to replace Chamandy with Vince Tyra, whose previous CEO tenures resulted in bankruptcy and restructuring, represented a significant governance failure that threatened shareholder value. Turtle Creek's activist response, including public letters and proxy campaign support, demonstrates their commitment to protecting investment value through governance engagement. The successful reinstatement of Chamandy and board reconstitution removes a major overhang and restores proven leadership to this vertically integrated, low-cost manufacturer. With the governance crisis resolved, Gildan can refocus on operational execution and market share gains in the global activewear market.

Pitch Summary:
Climbing by 51% was Amphenol Corporation, which produces electrical, electronic and fiber optic cables, and connectors. Amphenol reported higher-than-anticipated revenues and earnings. There was strength across all its end markets, especially the third of its overall revenues coming from data centers.

BSD Analysis:
The manager expresses strong bullish conviction in Amphenol Corporation following an exceptional 51% quarterly return. The investment thesis is built on the company's diversified portfolio of electrical, electronic, and fiber optic connectivity solutions across multiple end markets. Amphenol's financial performance significantly exceeded expectations on both revenue and earnings, demonstrating strong execution across its business segments. The broad-based strength across all end markets indicates the company's diversification strategy is working effectively. Particularly compelling is the data center exposure, which represents one-third of total revenues and benefits from the ongoing digital infrastructure buildout and AI-related demand. Amphenol's position as a critical component supplier in the connectivity ecosystem provides exposure to multiple secular growth trends including 5G, electric vehicles, renewable energy, and cloud computing infrastructure.

Pitch Summary:
Detracting -2% from the strategy was HubSpot, Inc., which provides a cloud-based marketing, sales, and client service platform for businesses. The company's revenues and earnings edged ahead of expectations, though not by as large a margin as typical. Management did lift its guidance for 2025, though noted it was driven by better foreign exchange than by better fundamentals.

BSD Analysis:
The manager takes a neutral stance on HubSpot following a modest 2% detraction from strategy performance. While the company's cloud-based CRM platform continues to show growth with revenues and earnings exceeding expectations, the magnitude of the beat was smaller than HubSpot's typical performance. The investment thesis appears intact given the company's comprehensive marketing, sales, and service platform, but execution concerns emerge from the guidance commentary. Management's 2025 guidance increase was attributed primarily to favorable foreign exchange rather than underlying business improvements, suggesting fundamental growth may be moderating. The manager appears to be monitoring whether this represents a temporary slowdown or a more concerning trend in HubSpot's typically strong execution. The company's position in the competitive CRM and marketing automation space requires consistent strong performance to justify its valuation.

Pitch Summary:
Contributing a 45% return was EMCOR Group, which provides construction and operational services for mechanical and electrical systems to a broad range of commercial, industrial, utility, and institutional customers. EMCOR reported revenues and earnings that bested expectations with a record high level of remaining performance obligations (outstanding and unbilled work for existing customers) along with a healthy pipeline of new projects.

BSD Analysis:
The manager highlights EMCOR Group as a standout performer with a 45% quarterly return, demonstrating strong execution in the construction and engineering sector. The investment thesis centers on EMCOR's diversified service offerings across mechanical and electrical systems for commercial, industrial, utility, and institutional customers. The company's financial performance exceeded expectations on both revenue and earnings, indicating strong operational execution. Most importantly, EMCOR achieved record-high remaining performance obligations, which represents contracted but unbilled work, providing strong revenue visibility. The healthy pipeline of new projects suggests continued growth momentum beyond the current backlog. EMCOR's positioning in essential infrastructure services across multiple end markets provides defensive characteristics while benefiting from ongoing infrastructure investment trends and the transition to renewable energy systems.

Pitch Summary:
The strategy received a 24% boost from Veeva Systems, which offers cloud-based systems for the life sciences industries, from R&D to commercialization. Veeva's revenues and earnings bested expectations with some of the strongest dollar-value results in the company's history. Commercial subscription revenue growth accelerated, driven by Veeva's Crossix platform that provides anonymized data analytics for health care marketing. Veeva also recently announced new AI-embedded features for its Vault suite of customer relationship management applications.

BSD Analysis:
The manager expresses strong bullish sentiment on Veeva Systems following exceptional quarterly performance that delivered a 24% contribution to the strategy. The investment thesis is anchored on Veeva's dominant position in life sciences cloud-based software solutions spanning R&D to commercialization. The company delivered some of its strongest financial results in history, with both revenues and earnings significantly exceeding expectations. Accelerating commercial subscription revenue growth, particularly from the Crossix data analytics platform, demonstrates the company's ability to expand within its customer base. The recent introduction of AI-embedded features in the Vault CRM suite positions Veeva to capitalize on artificial intelligence trends in healthcare. The comprehensive nature of Veeva's platform creates strong customer stickiness and recurring revenue visibility in the growing life sciences technology market.

Pitch Summary:
Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, premium brands, or support services for other consumer companies. In these areas, there was market rotation away from two of our defensive positions, though both provided strong contributions year to date despite these retrenchments. The specialty auto parts retailer O'Reilly Automotive saw its shares slip by -6%. Elsewhere, the warehouse club operator BJ's Wholesale Club pulled back -6%. In the case of BJ's, its earnings surpassed expectations with improving gross margins and higher levels of membership fee income. Though with consumer sentiment and confidence remaining at low levels, BJ's management was conservative in only reaffirming its guidance for the fiscal year, and we added to our position.

BSD Analysis:
The manager demonstrates strong conviction in BJ's Wholesale Club by adding to the position despite a 6% quarterly decline. The investment thesis is supported by solid fundamental performance, with earnings surpassing expectations driven by improving gross margins and higher membership fee income. The membership-based warehouse club model aligns with the fund's preference for defensive consumer businesses with recurring revenue characteristics. While management's conservative guidance reflects cautious consumer sentiment, the manager views this as an opportunity rather than a concern. The decision to increase the position size during weakness suggests confidence in the company's ability to navigate challenging consumer conditions. BJ's defensive positioning and value proposition should benefit from continued consumer focus on value during uncertain economic times.

Pitch Summary:
Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, premium brands, or support services for other consumer companies. In these areas, there was market rotation away from two of our defensive positions, though both provided strong contributions year to date despite these retrenchments. The specialty auto parts retailer O'Reilly Automotive saw its shares slip by -6%. Elsewhere, the warehouse club operator BJ's Wholesale Club pulled back -6%.

BSD Analysis:
The manager maintains a defensive positioning in O'Reilly Automotive as part of their consumer-oriented strategy focused on specialty retailers and value-oriented businesses. Despite a 6% decline in the quarter due to market rotation away from defensive positions, the manager emphasizes that O'Reilly has provided strong contributions year-to-date. The investment thesis appears centered on the company's specialty retail model in the automotive aftermarket, which aligns with the fund's preference for businesses with defensive characteristics. The manager views the recent pullback as temporary market rotation rather than fundamental deterioration. O'Reilly's position as a specialty auto parts retailer provides exposure to the resilient automotive aftermarket sector, which benefits from an aging vehicle fleet and consistent maintenance needs.

Pitch Summary:
Among our holdings, we trimmed CrowdStrike Holdings as it gained 44%. A cloud-based endpoint security provider that secures a range of devices, endpoints, and cloud environments, CrowdStrike benefited early in the quarter as cybersecurity was one of the most resilient areas in an uncertain macroeconomic environment. In June, its results were higher than anticipated, especially with gains in net new annual recurring revenues, which are also expected to double in the next fiscal year. There were some lingering impacts from last year's outage, but with the resulting customer retention rebates about to expire, we expect CrowdStrike's revenues will continue reaccelerating.

BSD Analysis:
The manager maintains a bullish stance on CrowdStrike despite trimming the position after a 44% gain in the quarter. The investment thesis centers on the company's resilient cybersecurity business model and strong fundamental performance. CrowdStrike exceeded expectations in June with particularly impressive net new annual recurring revenue growth, which management expects to double in the next fiscal year. While the manager acknowledges lingering impacts from a previous outage, they view the expiration of customer retention rebates as a positive catalyst for revenue reacceleration. The cybersecurity sector's defensive characteristics during macroeconomic uncertainty further support the investment case. The position trimming appears to be profit-taking rather than a fundamental concern about the business.

Pitch Summary:
We recently added CATL (Contemporary Amperex Technology Co. Limited) to our China basket. CATL is the largest EV battery producer with 40% of the global EV battery market. CATL is also the second largest manufacturer of utility-scale batteries or Energy Storage Systems used for managing power generation. CATL is at the epicenter of the energy transition megatrend that includes the electrification of transportation, grid storage, and supporting these supply chains. Along with Tesla, CATL is positioned to capture an outsized share of this transition. More specifically, CATL is a leader in developing the battery technology infrastructure used by OEMs and utilities. With an already deep integration into EV OEMs and a growing presence in utility-scale energy storage in and outside China, CATL is the proven go-to supplier for next-gen battery technology. On the EV side, CATL has partnerships with nearly all of the vehicle OEMs in China and many in the US and Europe including BMW, Ford, Tesla, Mercedes, VW, Hyundai, Honda, Stellantis and Toyota. The adoption of EV and renewable energy storage is dependent on advancements in battery technology to drive down costs and improve efficiency. For most EVs the battery is the most expensive component at about 40% of vehicle cost. Charging times and range are also major factors in converting consumers from gasoline to electric. I think it is just a matter of time before we see EVs outside of China with 1,000+ miles of range that can charge in 5 minutes, for less than the price of a mid-range gas car. CATL is helping to make this a reality for OEMs without the expertise and scale to do it themselves. Improvements in energy density, cost per kilowatt-hour, durability and charging speed are evolving quickly. As battery technology has improved, the price for a lithium-ion battery pack has fallen ~90% since 2010 and projected to fall by another 40% to 50% by 2026. Improving battery performance also reduces the cost of EV ownership. Last year McKinsey estimated that annual demand for batteries would exceed $200 billion per year if global EV penetration hit just 30%. Excluding China, fully electric + hybrid vehicle penetration in 2024 was estimated to be 12% to 15% of the ~50 million vehicles sold. Within China, the IEA estimates that a third of vehicles sold in 2025 will be fully electric, and 60% will be a combination of hybrids and fully electric, about 20 million vehicles. It is likely that nearly all of China's 35+ million new cars sold annually will have an EV battery within 5 years. CATL is not only the largest fully integrated manufacturer of batteries but a leader in software and systems. CATL shipped over 110 GWh of batteries for Energy Storage Systems (ESS) applications or about 38% of global market share, according to SNE Research. The European ESS sector is trending toward larger-scale storage systems and CATL's 9 MWh solution now sets a new benchmark, outpacing rivals such as Fluence, Envision, and IPS. CATL's supply chain strength in China is allowing the company to win business in Europe [price + leading tech]. Many non-Chinese competitors like Panasonic have exited the ESS space altogether, and others like LG Energy Solution, are trying to compete by building production facilities in Europe. Aside from all this bullish commentary there are obvious geopolitical risks to owning CATL. The company benefits from a partnership with the Chinese government allowing privileged access to China's lithium, cobalt, nickel, manganese and graphite mines at home and in Africa. The US Department of Defense has also added CATL to its list of Chinese military companies which could limit its growth in the US and certain other countries. CATL exists because of extraordinary financial and political subsidies for EV and battery manufacturers that began in the early 2000s when China decided to go all-in on the electrification of the country. Between 2009 and 2022 China invested over $57 billion in subsidies across its EV and battery supply chains. Much of this funding was channeled into a handful of homegrown champions like CATL led by entrepreneurs that could build mega businesses. China has now phased out many of the original direct EV-related subsidies leaving a handful of winners like CATL profitable and financially self-sustaining. While CATL's history and strategic advantages may seem unconventional from a Western perspective, the company has consistently demonstrated its ability to innovate and capture market share in battery technology. Although the stock is up over 18x since IPO in 2018, its valuation on the ChiNext exchange (300750.SZ) of about $150 billion USD is still only 10x our estimate of 2026 operating earnings. Looking out to 2030, operating earnings could be closer to $25+ billion with IP licensing driving higher margins and better returns on capital. CATL also has no net debt.

BSD Analysis:
The manager presents CATL as a dominant play on the global energy transition, holding 40% of the global EV battery market and 38% of energy storage systems market share. The investment thesis centers on CATL's position as the critical infrastructure provider for electrification, with partnerships across major global OEMs including Tesla, BMW, Ford, and Mercedes. The manager emphasizes the massive addressable market, citing McKinsey's estimate of $200+ billion annual battery demand at just 30% EV penetration, while current penetration remains only 12-15% outside China. CATL's technological leadership includes breakthrough products like 10-minute charging batteries and 9 MWh energy storage systems that set new industry benchmarks. The manager acknowledges significant geopolitical risks, including US Department of Defense military company designation and dependence on Chinese government subsidies, but argues these are offset by CATL's proven innovation and market capture. At 10x estimated 2026 earnings on a $150 billion valuation, the manager sees compelling value despite the 18x return since IPO. The projection of $25+ billion operating earnings by 2030 through IP licensing and higher margins suggests substantial upside potential. The debt-free balance sheet provides additional financial strength for this capital-intensive business.

Pitch Summary:
Beyond near-term earnings, large Chinese tech companies often hold substantial stakes in other leading tech companies that they once funded. Alibaba (BABA), for instance, trades at a ~$270 billion market cap but holds ~$85 billion in equity investments on its balance sheet. This includes a 33% stake in Ant Group, regarded as China's dominant fintech platform and often compared to a combination of Amazon, Visa, and PayPal. If Ant were to IPO at the roughly $200+ billion estimated valuation, Alibaba's stake would be worth ~$60 billion, or about 25% of its current market capitalization. While Alibaba's core e-commerce growth is under pressure, the balance sheet holdings are attractive enough to help justify a doubling of BABA over a reasonable period of time.

BSD Analysis:
The manager presents a sum-of-the-parts valuation argument for Alibaba, emphasizing the significant hidden value in the company's investment portfolio. With $85 billion in equity investments on a $270 billion market cap, nearly one-third of Alibaba's value comes from its strategic holdings rather than core operations. The crown jewel is a 33% stake in Ant Group, valued at approximately $60 billion based on a $200+ billion estimated IPO valuation for the fintech giant. The manager positions Ant Group as China's dominant fintech platform comparable to a combination of Amazon, Visa, and PayPal, suggesting substantial standalone value. While acknowledging pressure on Alibaba's core e-commerce business, the investment thesis relies heavily on the balance sheet holdings providing a margin of safety and upside catalyst. The manager suggests these assets alone could justify a doubling of the stock price over a reasonable timeframe. This represents a classic value investing approach, focusing on asset value rather than operational performance. The pitch reflects confidence in Chinese fintech recovery and Ant Group's eventual public listing as key value unlocking events.

Pitch Summary:
Spotify – SPOT continues to be our largest position and has been the largest contributor to fund performance for the past two years. The stock was up 71.5% in the first half. After enduring 4 years of underperformance SPOT has delivered a 5.7x return or 27.5% annualized since we initiated the position 6.5 years ago. The core of our Spotify thesis is that the spoken word (including music) is the most undervalued form of communication on the web, by a country mile. Spotify's business model is to deliver an exceptional search and discovery user experience in exchange for ownership of your real-time behavioral data and a monthly fee for an ad-free Premium Tier. Similar to YouTube and Meta, Spotify continues to demonstrate that owning consumer attention at scale can be more valuable than owning the content being consumed. While other platforms have been ultra successful at monetizing video, unlocking the value of audio has historically required a different approach. Spotify has made enormous progress in closing the monetization gap between audio and video but we are still very early on this journey. Spotify recently got an important boost to future earnings power after winning its years-long fight with Apple. On June 4th the U.S. Ninth Circuit Appeals Court ruled that Apple must immediately comply with Judge Rogers's April 2025 finding that Apple must allow Spotify to direct users to external payment options. Similar to the US ruling, on June 26 Apple released new EU App Store terms to comply with the EU's Digital Markets Act. Developers like Spotify can now include in-app links to external websites and services. A new tiered fee structure was introduced, including a 2% fee on new-user acquisitions and optional service levels at 5% or 13%. Apple also replaced its per-download fee with a 5% Core Technology Commission on external purchases, effective fully by January 1, 2026. Spotify can now directly communicate and bill its U.S. and EU consumers for any Spotify service without the friction that existed before. With 60% iPhone penetration in the U.S. and 35% in the EU, this is a big deal for the next leg of Spotify's growth trajectory. Prior to the ruling, Spotify, like all third-party apps, was not able to offer subscriptions or payment for services without it going through the Apple App Store. Not only would the App Store charge a 15%+ fee but it prevented Spotify from having a direct billing relationship with their users. This prevented Spotify from offering in-app promotions, marketing new products and better controlling churn. As of June 4th, Spotify's ~145M U.S. users will be able to directly purchase anything Spotify wants to sell using a one-click link within the app, including upgrading to the Premium subscription and audiobook credits while not paying the App Store a 15% commission. Direct billing is the next tool in Spotify's tool kit to continue unlocking the value of spoken word. The first benefit will be lower churn from a reduction in friction to sign up and maintain Premium subscribers. Direct billing on Apple will also allow Spotify to seamlessly sell credits for audio books and access to third party services like Skillshare, BBC Maestro, PLAYvirtuoso, Duolingo and Thinkific on its new educational services business (coming to the US soon). Spotify can now evolve faster into a grown-up marketplace platform allowing artists, authors, podcast creators, and content owners of all walks of life to directly monetize their audiences with products and services. Currently, advertising and related revenues represent only ~10% of Spotify's total revenue, or approximately €2 billion, versus $25+ billion for YouTube and $180+ billion for Meta. With Spotify's user base projected to surpass 1 billion within the next 18 months, the runway for scaled advertising monetization is substantial. At roughly 30x our estimate of 2026 EBITDA Spotify's valuation is optically expensive, as it has been the entire time we've owned it. However, looking out over the next few years, SPOT'S $145 billion valuation today will look cheap if management can even get close to achieving their goal of €20 billion of operating earnings with minimal incremental capital invested.

BSD Analysis:
The manager presents a compelling bull case for Spotify centered on the company's victory over Apple's App Store restrictions, which represents a significant catalyst for future growth. The thesis revolves around Spotify's ability to monetize audio content through direct billing relationships and data ownership, positioning it as undervalued compared to video platforms like YouTube and Meta. The recent court rulings allowing direct billing to US and EU users eliminate Apple's 15% commission and friction barriers, potentially reducing churn and enabling new revenue streams through audiobooks and educational services. With 145M US users and projected growth to 1 billion global users within 18 months, Spotify has substantial runway for advertising monetization expansion. The manager acknowledges the 30x 2026 EBITDA valuation appears expensive but argues it's justified if management achieves their €20 billion operating earnings target. The 5.7x return over 6.5 years demonstrates the manager's conviction in the long-term transformation story. The pitch emphasizes Spotify's evolution into a marketplace platform where content creators can directly monetize audiences, representing a significant business model expansion beyond traditional streaming.

Pitch Summary:
Among the European majors, TotalEnergies stands out given their long-term track record of project execution. Alone among the European majors, it kept its dividend intact during COVID-19 and over twenty years has grown revenue, book value and profits per share faster than either Shell or BP. TotalEnergies now calls itself a "multi-energy" company, spanning oil, natural gas, biofuels and a rapidly expanding renewables arm. It is already one of the world's top three LNG suppliers and remains a top ten oil producer. This change in mix is visible in its segmental profit figures, with its 'Integrated gas, renewables and power division having risen from about 14 percent of profits in 2019 to roughly 30 percent today. Management expects LNG production output to jump 40 percent by 2030, while oil production edges up a modest 1.5% per year. Underpinning those plans is a deep well of resources with more than 12 years of proved and probable oil reserves and over 50 years of gas reserves, figures that trail only Exxon in oil reserves. Even if crude prices soften, TotalEnergies is built to last with cash breakeven prices of around USD25 a barrel. Even at current spot prices, the company is highly cash generative with management committing to returning 40% of operating cash flow to shareholders through a combination of dividends and share buybacks. By combining low break-even oil reserves with world-class LNG assets and a fast-growing renewables business, TotalEnergies offers a balanced way to plug into the next phase of the energy story, one that is likely to be powered as much by electrons as by barrels.

BSD Analysis:
The analyst presents a compelling bull case for TotalEnergies based on its superior execution track record and strategic positioning in the energy transition. The company's dividend resilience during COVID-19 and superior long-term growth metrics versus Shell and BP demonstrate operational excellence. The transformation into a "multi-energy" company is already bearing fruit, with the integrated gas, renewables and power division growing from 14% to 30% of profits since 2019. The 40% LNG production growth target by 2030 positions the company well for Asia's coal-to-gas transition and rising AI data center demand. With 12+ years of oil reserves, 50+ years of gas reserves, and a low $25/barrel breakeven, TotalEnergies offers defensive characteristics. The 40% cash flow return policy provides attractive shareholder returns. This diversified energy platform appears well-positioned to capitalize on both traditional hydrocarbon demand and the renewable energy transition.

Pitch Summary:
Target is a well-run retail company whose recent results were less than expected, causing the stock price to fall to attractive levels. Though we expect the economic slowdown and tariffs to depress near-term results, expectations are low enough to provide excellent appreciation from the current price. We started buying the shares a little above $100 at the end of March, down from a 52-week high of $177, and are adding to the position on weakness. The company trades for just over 12 times earnings and has a current well-covered dividend yield of 4.3% on March 31. It is one of only 55 companies that have raised their dividend annually for at least 50 years.

BSD Analysis:
Matrix Asset Advisors initiated a new position in Target around $100 per share, representing a 43% discount from its 52-week high of $177. The entry was driven by disappointing recent results that created an attractive valuation opportunity. Despite expecting near-term headwinds from economic slowdown and tariffs to pressure results, Matrix believes expectations have been sufficiently lowered to enable strong appreciation potential. The company trades at just over 12x earnings with a well-covered 4.3% dividend yield. Target's inclusion in the elite group of only 55 companies with 50+ years of consecutive dividend increases demonstrates exceptional capital allocation discipline and financial strength. The fund is adding to the position on further weakness, indicating high conviction in the risk-adjusted return profile at current levels.