Investment Pitches

Pitch Summary:
During the quarter, we also increased exposure to our global security/supply-chain diversification theme by initiating a position in Kaynes Technology India Limited, a leading electronics manufacturing service (EMS) player in India. We expect to further build our position in coming quarters. Kaynes provides OEM and ODM services for a variety of end industries, including automotive, industrial, railway, medical, and aerospace & defense. The company strategically focuses on low-volume and high-value sub-spaces, which contribute to its industry-leading EBITDA margin of approximately 15% compared to the average of mid-to-high single digits among other EMS players. In our view, the company is well positioned to benefit from the Indian government's "Make in India" initiative, which encourages domestic manufacturing of electronic products and components by providing attractive tax subsidies and manufacturing infrastructure. We are excited about Kaynes' recent announcement about setting up an Outsourced Semiconductor Assembly and Test facility, which we believe represents a significant incremental growth opportunity in the medium to long term. We expect the company to deliver 40% to 45% compounded EBITDA growth over the next three to five years.

BSD Analysis:
Baron expresses strong conviction in Kaynes Technology, projecting exceptional 40-45% compounded EBITDA growth over the next three to five years. The investment thesis is built on India's "Make in India" initiative and global supply chain diversification trends favoring Indian manufacturing. Kaynes' strategic focus on low-volume, high-value segments generates industry-leading EBITDA margins of approximately 15%, significantly above peer averages. The company's diversified end-market exposure across automotive, industrial, railway, medical, and aerospace & defense provides stability and growth opportunities. The planned Outsourced Semiconductor Assembly and Test facility represents a significant expansion into higher-value semiconductor services. Government tax subsidies and infrastructure support enhance the investment attractiveness. Kaynes is well-positioned to benefit from multinational companies seeking alternatives to China-centric supply chains.

Pitch Summary:
We added to our digitization theme by building a position in PDD Holdings Inc., a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China's second largest e-commerce player, capturing approximately 20% market share. In our view, PDD's competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company's meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD's revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company's growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China's excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu's recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management's skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.

BSD Analysis:
Baron presents a compelling bull case for PDD Holdings, projecting the company will at least double earnings and free cash flow over three years. The investment thesis centers on PDD's unique team purchase model that eliminates intermediaries and reduces costs for consumers. The manager highlights PDD's rapid ascent to become China's second-largest e-commerce player with 20% market share, driven by superior execution and focus on value-oriented consumers. Rising take rates demonstrate strong pricing power as merchants compete for platform traffic. The international expansion through Temu represents a significant growth catalyst, leveraging China's manufacturing capacity to serve global markets. Temu's achievement of variable breakeven in the U.S. market validates the business model's scalability. PDD's operational efficiency and dominance in the value segment provide sustainable competitive advantages in China's competitive e-commerce landscape.

Pitch Summary:
Shares of Trent Limited contributed to performance during the quarter. Trent is a leading retailer in India that sells direct-to-consumer private label apparel through its proprietary retail network. Share price appreciation was driven by strong quarterly sales performance as well as continued footprint expansion of its Zudio value fashion franchise. We believe the company will generate over 25% revenue growth in the near to medium term, driven by same-store-sales growth and outlet expansion. In addition, we believe operating leverage and a growing franchisee mix will lead to better profitability and return on capital, driving more than 30% EBITDA CAGR over the next three to five years.

BSD Analysis:
Baron maintains a highly bullish outlook on Trent Limited, projecting exceptional growth metrics with over 25% revenue growth and 30% EBITDA CAGR over the next three to five years. The investment thesis centers on the company's successful Zudio value fashion franchise expansion and strong same-store sales growth. Trent's direct-to-consumer private label model provides higher margins and better inventory control compared to traditional retail formats. The manager emphasizes operating leverage benefits as the company scales, combined with an increasing franchisee mix that should improve capital efficiency and returns. India's growing middle class and increasing fashion consciousness provide a favorable backdrop for retail expansion. Trent's proprietary retail network and brand portfolio position it well to capture market share in India's fragmented retail landscape.

Pitch Summary:
Shares of South Korean conglomerate Samsung Electronics Co., Ltd. increased during the quarter due to an improving outlook for memory semiconductors in 2024, driven by supply discipline, DRAM and NAND inventory normalization, and an increase in AI-related demand. We are confident Samsung will remain a global leader in semiconductors and 5G smartphones, and further believe the company may exceed expectations by capturing share gains in the attractive high bandwith memory and high-end foundry markets in the relatively near term.

BSD Analysis:
Baron expresses strong confidence in Samsung Electronics' positioning across multiple technology segments, particularly memory semiconductors and smartphones. The manager anticipates a recovery in memory markets driven by supply discipline and inventory normalization, coupled with emerging AI-driven demand. Samsung's leadership in DRAM and NAND flash memory positions the company to benefit from improving pricing and demand dynamics. The fund sees potential upside from market share gains in high-bandwidth memory, which is critical for AI applications, and high-end foundry services. Samsung's diversified technology portfolio, including 5G smartphones and semiconductor manufacturing, provides multiple growth vectors. The company's scale advantages and technological capabilities in memory production create significant competitive moats in a capital-intensive industry.

Pitch Summary:
Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited contributed in the fourth quarter due to investor expectations for a cyclical recovery in semiconductors heading into 2024 and significant incremental demand for artificial intelligence (AI) chips. We retain conviction that Taiwan Semi's technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, 5G, and IoT, will allow the company to sustain strong double-digit earnings growth over the next several years.

BSD Analysis:
Baron maintains a bullish stance on Taiwan Semiconductor, emphasizing the company's technological leadership and pricing power in the foundry market. The manager highlights TSMC's exposure to multiple secular growth drivers including AI chips, high-performance computing, automotive semiconductors, 5G infrastructure, and IoT devices. The fund expects strong double-digit earnings growth sustainability over the next several years, driven by cyclical recovery in the semiconductor industry and structural demand from AI applications. TSMC's dominant market position as the world's leading contract chip manufacturer provides significant competitive advantages and barriers to entry. The company's advanced manufacturing capabilities, particularly in leading-edge nodes, position it well to capture premium pricing and market share gains.

Pitch Summary:
AAON, Inc. is a high-quality manufacturer of HVAC equipment based in Tulsa, OK. It is a leader in providing premium, semi-custom HVAC equipment to the non-residential market with products that are more energy efficient, have longer life spans, and overall are better customized than peers to fit customers' needs. This has driven significant outperformance over the past decade with organic growth in the high single-digit to low double-digit range compared to a low to mid-single-digit range for its peers. Strong secular growth driven by decarbonization and broader ESG trends/regulations is leading to greater demand for the types of products AAON specializes in such as energy efficient HVAC equipment that provides better air quality. To satisfy incoming regulations, peers have been forced to update their offerings and raise prices, while AAON today has ready-to-ship products satisfying all regulations. This dynamic is reducing the price premium between AAON's products and the industry standards from 15% to 20% historically to a high single-digit level today. This price gap reduction is accelerating volume growth and enabling the company to take share. With the acquisition of BasX Solutions, a leader in data center, cleanroom systems, and custom HVAC units in December 2021, AAON expanded its addressable market by around 50% to over $30 billion in segments of the market where its focus on energy efficient units is extremely valuable. BasX's adjusted cash flow (EBITDA) has roughly doubled over the past two years under AAON's ownership. Lastly, CEO Gary Fields has undertaken a multi-year reorganization of the company's management team and invigoration of company culture with a greater focus on selling and pushing the AAON solution from niche to mainstream. A simple illustration of the change brought by Gary is the opening of the exploration center this past April. This is a 28,000 square foot facility with over 10,000 square feet of exhibits and AAON products. We toured this facility at the company's Analyst Day this past May where AAON units were placed next to competitor solutions. By purchasing and deconstructing competitors' solutions, the team clearly highlighted the value of AAON's superior products. They are more durable and have higher levels of efficiency. The team hoped that they would bring one to two potential customers a week to the center, but the demand has been so strong that one to two customers a day are visiting with a strong conversion from visits to eventual orders. Going forward, with run-rate revenue at a little over $1 billion in a $30 billion market, there is ample opportunity ahead for AAON to grow and take market share. We expect mid-single-digit price increases across its product set along with mid-single-digit volume growth. The business is about 65% replacement/35% new construction with a mix of end-markets and limited exposure to new office construction. Given the growth opportunity ahead, the company is continuing to invest aggressively but at the same time has taken steps to maximize its physical footprint and, over time, will achieve greater levels of operating leverage. We believe the company will drive gross margins from the low 30% to the mid-high 30% levels with EBITDA margins expanding from the low to high 20% levels over our five year investment horizon. We calculate this combination of above market growth combined with significant margin expansion will allow us to double our investment over the next five years.

BSD Analysis:
The managers present an exceptionally detailed bull case for AAON based on superior product positioning, regulatory tailwinds, and significant margin expansion potential. AAON's energy-efficient HVAC solutions are benefiting from decarbonization trends and ESG regulations, with the company already compliant while competitors scramble to update offerings. The narrowing price premium from 15-20% historically to high single digits is accelerating market share gains and volume growth. The BasX acquisition expanded the addressable market by 50% to $30 billion, with the acquired business doubling EBITDA under AAON's ownership. Management transformation under CEO Gary Fields is driving cultural change and commercial excellence, evidenced by the successful customer exploration center exceeding expectations. With only $1 billion in revenue within a $30 billion market, significant growth runway exists. The managers project margin expansion from low 30% gross margins to mid-high 30% and EBITDA margins from low to high 20% levels, supporting their thesis of doubling the investment over five years. This represents a high-conviction industrial growth story with strong competitive positioning and clear value creation catalysts.

Pitch Summary:
Varonis Systems, Inc. is a cybersecurity vendor that helps organizations classify, locate, and protect sensitive data across on-premise and cloud environments. Shares of Varonis increased on strong quarterly results with annual recurring revenue (ARR) growth and free cash flow beating consensus. Last year, Varonis began transitioning to a Subscription as a Service (SaaS) model, which will benefit clients via lower maintenance costs, better automation, and faster remediations of data vulnerabilities. Throughout 2023, demand for the SaaS model has been much higher than investors anticipated, and SaaS already accounts for over 15% of ARR. SaaS customers are landing with more licenses, paying 30% higher prices per license, and signing deals faster. As this mix shift progresses, we anticipate improved sales efficiency and higher margins. Varonis remains a competitively advantaged business in the data security industry, which we believe can accelerate in 2024 as recent SEC disclosure requirements for security breaches drive industry awareness, and regulated companies look to invest in data security as a prerequisite for adopting generative AI.

BSD Analysis:
The managers present a compelling transformation story for Varonis centered on its successful transition to a SaaS model and expanding market opportunity. The company's shift from traditional licensing to SaaS is driving significant value creation, with SaaS customers paying 30% higher prices per license and signing deals faster. The SaaS model already represents over 15% of ARR, exceeding investor expectations and providing a clear path to improved margins and sales efficiency. The investment thesis is strengthened by regulatory tailwinds, including new SEC disclosure requirements that are driving increased awareness of data security needs. The emergence of generative AI creates additional demand as regulated companies require robust data security infrastructure before AI adoption. Varonis maintains competitive advantages in the data security space, positioning it well to capitalize on these secular growth drivers. This represents a high-quality cybersecurity investment benefiting from both business model transformation and expanding market opportunity.

Pitch Summary:
GitLab Inc. is an end-to-end software development and IT operations platform that enterprises use to create, secure, and deploy programming code. The stock rose after GitLab delivered strong quarterly results driven by improving win rates in enterprise deals, solid seat growth, and higher average selling prices. In recent years, GitLab has delivered more than 400 feature enhancements to its platform, enabling its customers to consolidate more software development steps into GitLab, lowering total IT costs and achieving faster software delivery times. As a result, GitLab has realized higher average revenue per user (ARPU) through a combination of price increases and upgrades to its Ultimate Tier product. These ARPU increases, coupled with consistent user growth, bode well for future sales and margin expansion. GitLab also has several exciting new growth levers, including a monetizable generative AI product that helps developers write code, detect vulnerabilities automatically, and remediate bottlenecks in the coding process, a new enterprise planning SKU that brings non-developers onto the platform, and a Dedicated Tier for clients in regulated industries.

BSD Analysis:
The managers present a strong bull case for GitLab based on platform consolidation trends and expanding monetization opportunities. GitLab's comprehensive DevOps platform allows enterprises to consolidate multiple software development tools, reducing IT costs while improving efficiency. The company has demonstrated strong execution with over 400 feature enhancements, driving higher average revenue per user through both price increases and product tier upgrades. The investment thesis is strengthened by multiple growth catalysts, including generative AI capabilities for code development, expansion beyond developers to enterprise planning users, and specialized offerings for regulated industries. Improving win rates in enterprise deals and consistent user growth support the revenue expansion story. The managers view GitLab as well-positioned to benefit from the ongoing digital transformation and the need for integrated development platforms. This represents a high-quality SaaS investment with strong competitive moats and multiple expansion vectors.

Pitch Summary:
SentinelOne, Inc. is a cybersecurity software company that specializes in endpoint protection, cloud security, and security data analytics. Shares rose on outstanding quarterly financial results and strong guidance. SentinelOne is one of the fastest growing public cybersecurity companies, with revenue expected to grow more than 46% this fiscal year. Growth has been driven by a combination of: 1) market share capture from legacy endpoint vendors that struggle to compete against SentinelOne's AI-enabled platform; 2) an ongoing shift of Information Technology (IT) infrastructure to the cloud driving demand for cloud application protection (growing triple digits); and 3) cybersecurity vendor consolidation favoring end-to-end platforms with comprehensive security portfolios over single-point solutions. The company is also leveraging its single data store and AI capabilities to cross-sell more products into its existing customer base and increase average sale prices. Between larger deal sizes and improving operating efficiencies, we believe the company can continue to expand margins at a significant rate and begin generating positive free cash flow in the next fiscal year.

BSD Analysis:
The fund managers present a compelling bull case for SentinelOne based on strong fundamental growth drivers and competitive positioning. The company is capturing market share from legacy endpoint security vendors through its AI-enabled platform, benefiting from the structural shift to cloud infrastructure and industry consolidation trends favoring comprehensive platforms. With revenue growth exceeding 46% annually, SentinelOne demonstrates exceptional growth momentum in the cybersecurity sector. The managers highlight the company's ability to cross-sell additional products and increase average selling prices through its unified data architecture and AI capabilities. The path to profitability appears clear, with expanding margins and positive free cash flow expected in the next fiscal year. The investment thesis centers on SentinelOne's technological superiority and market positioning in a rapidly growing cybersecurity market. This represents a high-conviction growth investment with strong secular tailwinds.

Pitch Summary:
Current Position: Vitec Software Group (VIT.B-ST) Vitec Software Group [Vitec] is a vertical market software (VMS) serial acquirer. Vitec is headquartered in Umea, Sweden, and operates in Nordic countries, including Sweden, Norway, Denmark, and Finland. The company was founded in 1985 by a pair of research scientists, Lars Stenlund and Olve Sandberg. Initially, the company was an energy efficiency consultancy that offered services that included software applications for their clients. At first, the software was used as a lead generator for their consultancy services, but in 1995, Olav came up with the bright idea, "We shouldn't sell this as a license. We're going to sell it like a newspaper" Source; Lars Stenlund Interview). This created potentially one of the first Software as a Service (SaaS) models (note that Salesforce is generally considered to be the first commercially successful SaaS model, which launched in 1999; Olav beat them to it by 4 years!). After that, the company has gone through a few major shifts; the most important was developing a strategy of growth by acquisition (serial acquisition). They did this in part because they realized that growing a single vertical in software is extremely difficult. Sales ramped slowly, but once you lock in a consumer, the churn is extremely low. The cash flow that a vertical software business produces exceeds the amount that can reasonably be reinvested into the business. So, to grow fast and efficiently, you need to take those excess cashflows and acquire other similar VWS businesses. In 2003, they shifted from a singular focus on growing their energy efficiency VMS company to acquiring other VMS companies. This was around the same time that Mark Leonard of Constellation Software was implementing a similar VMS serial acquisition model in Canada. For anyone who follows this type of VMS software business, it will be clear to them that Vitec operates similarly to Constellation in a few ways, but there are some differences. The main difference between the two companies' operating models is that Vitec will invest more in existing companies than Constellation. Vitec was born by scientists; they are natural tinkerers, and they employ a Kaizen strategy to achieve incremental gains, which aligns with their willingness to reinvest in the business. This higher reinvestment in the business results in a higher organic revenue growth rate (the Vitec organic growth rate was 14% vs. 8% for Constellation last quarter). The effect of this difference is that Vitec will have higher depreciation and a lower ROIC (Vitec is 7% vs. Constellation at 16%) due to the incremental capital that is invested in the acquired businesses. The upside from this incremental investment is that Vitec has been able to keep high margins by directly providing their consumers with incrementally valuable products at a faster rate (Vitec Gross Margin: 52% and Net Margin: 12% vs. Constellation Gross Margin: 35% and 8%). Outside of this major operating model difference, there are a few other smaller differences between the two companies. Vitec has a higher acquisition bar when it comes to culture fit and regional location than Constellation. Overall, many investors think of Vitec as Constellations smaller Norwegian cousin, and I tend to agree. Lar's even commented on the similarities between the two companies recently, saying "But we've understood that we're not really Constellation. Our approach comes from the industrial side; we are geeks". In 2021, the company's founder, Lars Stenlund, who had been chairman and CEO since Vitec's founding, stepped down as CEO, and Olle Backman took over. Olle was the Vitec CFO prior to the appointment and has shown a strong aptitude for capital allocation since his appointment. Olle's key impact has been optimizing the cash flow better than his predecessors, putting more capital to use quicker. I have listened to a number of interviews with Olle, and I am equally impressed with him as with the Vitec original founders. From 2018 until 2021, Vitec completed 4 or 5 acquisitions per year, with an average size of $35 million SEK (~$3 million USD) in revenue. Starting in 2021, the company began to increase the size of its targets while continuing to focus on completing roughly the same number of acquisitions per year. In 2023, the company completed a total of six acquisitions with an average revenue size of $100 million SEK (~$10 million). This includes a mix of business categories and sizes ranging from Enova ($280 million SEK) to DL Systems AB ($14 million SEK). Olle has been able to scale these acquisitions effectively and, so far, has been able to improve both EBITDA margins and operating margins since 2021. Vitec's business model, end market, and management create an extremely attractive business. Vitec has all the characteristics that we look for in an investment, including substantial reinvestment options, a strong capital allocation strategy, and a founder's mindset. We currently believe Vitec will consistently grow at a high rate while maintaining strong, stable margins for many years to come. At the current price, we view the shares as reasonably valued to slightly overvalued, but we think over time the value of the shares will compound at a high rate. We plan to own Vitec for many years to allow our capital to compound with its high growth.

BSD Analysis:
Deep Sail Capital presents a compelling bull case for Vitec Software Group, a Swedish vertical market software serial acquirer operating across Nordic countries. The manager highlights Vitec's differentiated approach compared to Constellation Software, emphasizing higher reinvestment in acquired businesses that drives superior organic growth (14% vs. 8%) and margins (52% gross, 12% net vs. 35% gross, 8% net). The investment thesis centers on the company's mission-critical VMS model with extremely low churn, high switching costs, and strong pricing power. Management transition from founder Lars Stenlund to CEO Olle Backman has enhanced capital allocation efficiency, with acquisition sizes scaling from ~$3M to ~$10M average revenue while maintaining disciplined execution. The manager views the Nordic market as offering attractive acquisition targets at reasonable valuations compared to US peers. Trading at 19x EV/EBITDA and 47x PE, the fund expects 30% IRR over 3-5 years despite viewing current valuation as fair to slightly rich. The long-term holding strategy reflects confidence in the compounding potential of this high-quality VMS platform.

Pitch Summary:
Belgium-based UCB is a biopharmaceuticals company focused primarily on neurological and immunological diseases — areas in which it is a global leader. Its newly launched autoimmune drug is poorly understood by the market, which has weighed on shares. However, we believe the company is a high-quality, undervalued operator with meaningful potential over the long term and accordingly capitalized on a weak share price to initiate a position at an attractive discount to our estimate of intrinsic value.

BSD Analysis:
Diamond Hill initiated a position in UCB based on the company's leadership position in specialized therapeutic areas and market misunderstanding of its new autoimmune drug launch. The fund views UCB as a high-quality biopharmaceutical operator with strong competitive positioning in neurology and immunology, areas requiring significant expertise and regulatory knowledge. The investment thesis centers on the market's failure to properly value the company's newly launched autoimmune treatment, creating an attractive entry opportunity. Diamond Hill believes the weak share price reflects temporary market confusion rather than fundamental deterioration, allowing them to acquire shares at a significant discount to intrinsic value. The fund's confidence in UCB's long-term potential stems from its global leadership in specialized disease areas with high barriers to entry. Management's focus on neurological and immunological diseases positions the company in therapeutic areas with significant unmet medical needs and pricing power. This represents a classic value opportunity where market misunderstanding of a new product launch has created an attractive entry point for a fundamentally strong biopharmaceutical company.

Pitch Summary:
Mitsubishi Corporation is the largest Japanese trading house and has a wide variety of businesses, including salmon, convenience stores, metallurgical coal, copper and Southeast Asia auto distribution, among others. The company is improving its capital allocation, with an increased focus on asset efficiency, non-core asset divestitures and improved return on equity and shareholder returns — operating improvements which we believe are not adequately reflected in the current price. Further, management is actively divesting businesses that are not meeting the company's return on invested capital hurdle, increasing share repurchases and adding management bonus incentive systems, all of which are rare in Japan and lend us confidence about the company's trajectory from here. Though Mitsubishi has fairly heavy cyclical exposure via its metallurgical coal and copper businesses, it is also expanding into less cyclical areas like food, convenience stores and auto distribution, which should dampen potential volatility in the company's operating results, depending on the macroeconomic environment from here.

BSD Analysis:
Diamond Hill's bullish thesis on Mitsubishi Corporation centers on the company's significant capital allocation improvements and corporate governance reforms, which are uncommon in Japan. The fund is impressed by management's disciplined approach to portfolio optimization, including active divestiture of underperforming assets that fail to meet ROIC hurdles. The implementation of management bonus incentive systems represents a meaningful shift toward shareholder-aligned governance in the Japanese market. Diamond Hill views the current valuation as not reflecting these operational improvements and enhanced shareholder returns through increased buybacks. The investment case balances cyclical exposure in metals and coal with diversification into more stable businesses like food and convenience stores, creating a more resilient earnings profile. The fund sees Mitsubishi's business portfolio diversification as reducing overall volatility while maintaining upside exposure to commodity cycles. Management's focus on asset efficiency and ROE improvement demonstrates a commitment to value creation that Diamond Hill believes will drive long-term outperformance. This represents a corporate governance transformation story in Japan's largest trading house.

Pitch Summary:
Switzerland-based metals and mining company Glencore is well-positioned for the uncertainty surrounding the energy transition as it is one of the world's largest copper producers and a large coal producer. It is able to take the currently healthy cash flows from its coal business and invest them in copper and other future-facing metals. However, the cash flows from its coal business also provide an attractive hedge if and as the energy transition takes longer than expected. Glencore's management team is opportunistic when it comes to capital allocation, repurchasing shares at attractive valuations, divesting non-core assets and making thoughtful acquisitions. With an improved balance sheet, Glencore is well-positioned to weather a variety of environments. We believe the outlook over the next several years is positive and capitalized on an opportunity to initiate a position in a high-quality operator.

BSD Analysis:
Diamond Hill initiated a position in Glencore based on the company's unique positioning during the global energy transition, viewing it as a strategic hedge play. The fund appreciates Glencore's dual exposure to both traditional energy (coal) and transition metals (copper), allowing the company to benefit regardless of transition timing. Management's opportunistic capital allocation approach, including share repurchases at attractive valuations and strategic asset optimization, demonstrates strong stewardship that the fund values. The investment thesis centers on Glencore's ability to generate substantial cash flows from coal operations while simultaneously investing in future-facing metals like copper. Diamond Hill views the improved balance sheet as providing financial flexibility to navigate various market environments. The fund sees this as a high-quality operator trading at an attractive entry point, with management's track record of thoughtful acquisitions and divestitures supporting long-term value creation. This represents a contrarian bet on a diversified mining company positioned to benefit from both current commodity cycles and long-term energy transition trends.

Pitch Summary:
Shares of Polish supermarkets operator Dino Polska benefited from signs inflation may be topping out — a positive for the company from a cost perspective but also because it potentially allows Dino Polska to resume opening new stores, which is its main growth driver. Management has reiterated its new store target assumptions for 2023-2024 and has resumed making purchases in the company's land bank account — possibly signaling internal plans to accelerate store openings moving forward.

BSD Analysis:
Diamond Hill's bullish thesis on Dino Polska is predicated on improving macroeconomic conditions in Poland, specifically moderating inflation trends. The fund views declining inflation as a dual benefit: reducing operational cost pressures while enabling the company to resume its primary growth strategy of new store expansion. Management's reiteration of store opening targets for 2023-2024 demonstrates confidence in the growth trajectory, while renewed land bank purchases signal potential acceleration of expansion plans. The investment case centers on Dino Polska's ability to capitalize on improving operating conditions to drive organic growth through geographic expansion. This represents a cyclical recovery play on a Polish retailer positioned to benefit from stabilizing macroeconomic conditions. The fund appears confident that management's strategic focus on store expansion will drive meaningful value creation as inflationary pressures subside. Diamond Hill views the company's land acquisition activity as a positive leading indicator of future growth acceleration.

Pitch Summary:
Swedish digital music-streaming services provider Spotify is beginning to turn the corner from growth to monetization — bolstered by its announcement during the quarter of a new round of substantial cost cuts. We have been pleased with Spotify's speed in executing its pivot to monetization and its willingness and ability to address the cost base to that end. We believe shares remain undervalued relative to the company's intrinsic value and its potential to continue monetizing its vast and still-growing user base.

BSD Analysis:
Diamond Hill views Spotify as successfully transitioning from a growth-focused to monetization-focused strategy, evidenced by substantial cost cuts announced during Q4. The fund manager is impressed with management's execution speed in pivoting toward profitability and their proactive approach to cost management. The investment thesis centers on Spotify's ability to better monetize its large and expanding user base, which the fund believes creates significant value not reflected in the current share price. The manager sees the company's vast user ecosystem as an undervalued asset with substantial monetization potential. This represents a classic value play on a technology platform company that has built scale and is now focusing on converting that scale into sustainable profits. The fund's confidence in management's operational improvements and cost discipline supports their bullish stance. Diamond Hill appears to view current market pricing as not adequately reflecting Spotify's intrinsic value given its monetization progress and user base growth trajectory.

Pitch Summary:
We bought RELX in June. RELX is a leading professional data and decision-tools business, with particular strength in academic, legal, auto insurance and financial services markets. RELX's solutions are deeply embedded in the workflow of its users. The company has a long history of progressively improving its existing solutions to make them more valuable, and creating new ones.

BSD Analysis:
Aoris initiated a position in RELX in June 2023, representing a re-entry into a previously owned position. The manager describes RELX as a leading professional data and decision-tools business with particular strength in academic, legal, auto insurance, and financial services markets. A key competitive advantage highlighted is that RELX's solutions are "deeply embedded in the workflow of its users," suggesting high switching costs and customer stickiness. The manager emphasizes the company's track record of continuous improvement, both enhancing existing solutions to increase their value and developing new offerings. This indicates a culture of innovation and customer-focused product development. The fact that this is a re-purchase suggests the manager has confidence in the business model and management team based on prior ownership experience. The manager notes that "prior ownership experience can improve the quality of our judgement about the business," indicating this familiarity was a factor in the investment decision. RELX's diversified end markets and embedded solutions suggest a resilient business model with recurring revenue characteristics.

Pitch Summary:
Fastenal is a US distributor of basic products that are used in manufactured goods, manufacturing processes, and building maintenance, such as screws, nuts and bolts, personal protective equipment, and tools. It has achieved a leading position in these markets through developing innovative ways to serve its customers, such as vending machines on a customer's work site to dispense products. The year 2023 was a slower but still successful one for Fastenal as it pushed hard to grow and take share.

BSD Analysis:
Aoris achieved a 39.8% return on Fastenal in 2023, ranking it as their fifth-best performing holding. The manager describes Fastenal as a US distributor of essential industrial products including fasteners, personal protective equipment, and tools used in manufacturing and building maintenance. The company has established a leading market position through innovative customer service solutions, particularly highlighting on-site vending machines that dispense products directly at customer work sites. This innovation demonstrates Fastenal's focus on convenience and efficiency for customers while creating switching costs and deeper customer relationships. The manager characterizes 2023 as a "slower but still successful" year, suggesting the company continued to execute its growth and market share expansion strategy despite a more challenging operating environment. The emphasis on "pushing hard to grow and take share" indicates aggressive competitive positioning and management's focus on gaining market share even during slower periods. The strong stock performance reflects market recognition of Fastenal's competitive positioning and long-term growth strategy in the industrial distribution market.

Pitch Summary:
L'Oréal continues to operate at a very high level. In 2023 it gained market share in most countries, most beauty categories, and most distribution channels around the world. Its broad-based success in 2023 draws from its long history of product innovation, effective advertising and brand building, and periodic acquisitions of brands that can benefit from L'Oréal's global scale, a recent example being Aesop.

BSD Analysis:
Aoris achieved a 40.8% return on L'Oréal in 2023, making it their fourth-best performing holding. The manager emphasizes L'Oréal's exceptional operational performance, highlighting broad-based market share gains across multiple dimensions - countries, beauty categories, and distribution channels globally. This comprehensive market share expansion demonstrates the company's competitive strength and execution capabilities across its diverse portfolio. The manager attributes this success to L'Oréal's core competitive advantages: a long history of product innovation, effective advertising and brand building capabilities, and strategic acquisitions that leverage the company's global scale. The recent Aesop acquisition is cited as an example of L'Oréal's ability to acquire brands and enhance their value through its global platform. The "very high level" of operations suggests consistent execution and management quality. The broad-based nature of the market share gains indicates that L'Oréal's success is not dependent on specific regions or categories, demonstrating the resilience and diversification of its business model.

Pitch Summary:
Costco had another successful year in 2023 by continuing to deliver great value to its paying members, a particularly resonant proposition in a year of high inflation. In 2023, Costco grew its global membership base by 9 million – or 7.5% – and the renewal rate of its members has never been higher.

BSD Analysis:
Aoris achieved a 47.8% return on Costco in 2023, ranking it as their third-best performing holding. The manager highlights Costco's successful execution of its membership-based value proposition, which proved particularly compelling during a year of high inflation. The company demonstrated strong operational performance through significant membership growth, adding 9 million members globally representing 7.5% growth. More importantly, member renewal rates reached record highs, indicating exceptional customer satisfaction and loyalty. This metric is crucial for Costco's business model as it demonstrates the stickiness of the membership base and the perceived value customers receive. The combination of membership growth and record renewal rates suggests Costco's value proposition is resonating strongly with consumers, particularly during inflationary periods when value-conscious shopping becomes more important. The strong financial performance reflects both the company's operational excellence and the defensive characteristics of its membership-based model during challenging economic conditions.

Pitch Summary:
Microsoft's share price last year was certainly positively impacted by the excitement around AI. It's worth noting that when we made our initial investment in Microsoft in mid-2022, we'd never heard the words ChatGPT or generative AI. What attracted us to the business was its long history of creating new, relevant solutions, such as Teams and Azure cloud computing, and of making its existing products more valuable.

BSD Analysis:
Aoris achieved a 57% return on Microsoft in 2023, making it their second-best performing holding. The manager emphasizes that their original investment thesis in mid-2022 was not based on AI excitement, as ChatGPT and generative AI were not yet widely known concepts. Instead, the investment was grounded in Microsoft's demonstrated track record of innovation and product development, specifically citing Teams and Azure cloud computing as examples of new, relevant solutions. The manager highlights Microsoft's ability to continuously enhance existing products and create additional value for customers over time. While acknowledging that AI enthusiasm contributed to the 2023 share price performance, the underlying investment rationale was based on the company's fundamental innovation capabilities and product evolution. This suggests a disciplined approach to technology investing focused on sustainable competitive advantages rather than thematic trends. The strong performance validates the manager's assessment of Microsoft's long-term value creation potential through continuous innovation and product enhancement.