Investment Pitches

Pitch Summary:
Adyen declined significantly following their H1 2023 trading update as profit margins were pressured by recent hiring to expand their workforce and growth slowed notably in their North America market. On the former, despite the short-term headwind to margins, we were generally encouraged by Adyen's long-term strategic approach in this regard. Many of Adyen's competitors, and technology companies more broadly, hired aggressively in 2020/21 only to be forced to pare back and make sizeable cuts across 2022/23. Meanwhile, Adyen was more measured in 2020/21, waiting on the opportunity which presented itself in 2022/23, to strengthen the business through hiring at significantly more attractive cost levels given the weakness among their competitors and the overall tech industry. The latter point on growth, however, was more concerning and the size of the deceleration was the most significant surprise as North America revenues grew 23% YoY compared to a 45% YoY growth rate just 6 months prior. Competition in this market has been a driver of this deceleration as players such as PayPal have been aggressively discounting prices to capture market share. In the short term, this headwind is likely to persist and, with limited catalysts to change the narrative, the share price may remain under pressure. However, in the long term, the current valuation in our view is pricing in an extremely draconian scenario and we believe there still remains a sizeable opportunity for Adyen to capture share in other markets outside North America, but also in different verticals such as in-store and omnichannel payments processing. This position was among the smaller holdings in the Fund going into their trading update and, at present, we have maintained our stance. We endeavour to remain objective and as we continue to conduct our work, we will update our views and portfolio positioning accordingly.

BSD Analysis:
Stenham presents a balanced view of Adyen following significant stock decline after disappointing H1 2023 results. While margin pressure from strategic hiring was viewed positively as counter-cyclical investment, the dramatic North American growth deceleration from 45% to 23% YoY was concerning. The fund appreciates Adyen's disciplined hiring approach during 2022-23 weakness versus competitors' earlier aggressive expansion and subsequent cuts. However, intensifying competition from PayPal's aggressive pricing in North America presents near-term headwinds with limited catalysts for improvement. The current valuation appears to reflect pessimistic scenarios, potentially creating long-term value if Adyen can capture share in international markets and omnichannel payments. Stenham maintains its position while acknowledging execution risks and competitive pressures. The measured stance reflects uncertainty about timing of recovery despite attractive long-term opportunity.

Pitch Summary:
Earlier this year, Alphabet saw its share price decline almost 20% in the space of a month as fears around the threat to Google Search from ChatGPT and Microsoft Bing escalated significantly. ChatGPT was thought to have fundamentally changed the way users search, while Microsoft Bing, after years of being relegated to an afterthought in search, was thought to have found new life following its partnership with ChatGPT owner OpenAI. Alphabet responded with a myriad of AI products, including their own ChatGPT competitor known as Bard, driving close to a 60% rally in the share price from the Feb-2023 lows. More recently, public comments from Microsoft and Apple, which utilises Google Search to power their Safari browser, further solidified Alphabet's dominant position. Apple's Senior Vice President of Services, Eddy Cue, stated "Certainly there wasn't a valid alternative to Google at the time and there still isn't one". The CEO of Microsoft indicated that they were willing to lose $15 billion a year, giving Apple all of the economic upside in order to be the default search engine for Apple's products. However, Apple refused this deal and opted to retain their agreement to keep Google as the default search engine.

BSD Analysis:
Stenham capitalized on AI-driven fears that temporarily pressured Alphabet's stock, viewing the 20% decline as an overreaction to ChatGPT's threat to Google Search. The fund's thesis proved correct as Alphabet's competitive response through Bard and other AI products drove a 60% recovery from February lows. Key validation came from Apple's decision to maintain Google as Safari's default search engine despite Microsoft's willingness to pay $15 billion annually for the privilege. Apple's SVP Eddy Cue's statement that no valid alternative to Google exists reinforces the search giant's moat. Alphabet's entrenched position within the digital ecosystem provides defensive characteristics against disruption. The company's ability to innovate and respond to AI threats while maintaining its core search dominance demonstrates operational excellence. Microsoft's desperate bid for Apple's search traffic actually validates Google's market position and pricing power.

Pitch Summary:
In H1 2023, UMG's share price was pressured by the threat of music generative-AI flooding streaming platforms, competing with artists and labels for listening share. After actively debating the issue internally with the team and externally with multiple industry participants, we believed that the legal, distribution and adoption hurdles that music generative-AI faced were high enough for it to be unlikely to disrupt UMG in a structural way. This view informed our decision to sustain our position throughout the share price decline, contributing to performance as concerns quickly alleviated. In addition, UMG outperformed after its growth prospects were enhanced by a broad-based price increase from streaming platforms such as Spotify. Music labels like UMG capture a portion of the gross profits generated by streaming platform subscriptions and, therefore, these price increases also provide an uplift to UMG's revenue and profits.

BSD Analysis:
Stenham maintained conviction in Universal Music Group despite AI-related concerns that pressured the stock in H1 2023. The fund's analysis concluded that legal, distribution, and adoption barriers would prevent generative AI from structurally disrupting UMG's business model. This contrarian stance proved prescient as concerns subsided and the stock recovered. The investment thesis was further strengthened by streaming platform price increases, which directly benefit UMG through its revenue-sharing agreements with platforms like Spotify. UMG's position as a dominant music label with extensive catalog rights provides defensive characteristics against technological disruption. The fund's decision to maintain the position during weakness demonstrates disciplined fundamental analysis. UMG's ability to capture upside from streaming growth while defending against AI threats validates the quality of its business model.

Pitch Summary:
Shares in Symphony International rose +21% in September as the company announced an "orderly realisation" of its portfolio. Long-term readers of our newsletters will know that, as the largest independent shareholder, we have worked to improve corporate governance at the company and unlock value trapped in the persistently wide discount at which the company has traded. This culminated in a 2021 public campaign to Save Symphony. We view this as a pleasing outcome and will be following the realisation process closely to ensure shareholder value is optimised.

BSD Analysis:
AVI Global Trust achieved a significant victory with Symphony International's announcement of an orderly portfolio realization, validating their activist approach as the largest independent shareholder. The 21% September gain reflects market recognition of the value unlock catalyst that AVI has been advocating for through their corporate governance efforts. AVI's multi-year campaign, including their public "Save Symphony" initiative in 2021, focused on addressing the persistent wide discount that had trapped shareholder value. The orderly realization represents the culmination of their activist strategy to force management action on the structural discount. As an engaged shareholder, AVI successfully pressured the board to pursue value maximization rather than continue operating at a significant discount to underlying assets. The manager's hands-on approach demonstrates their ability to drive change at portfolio companies where they can influence outcomes. AVI will continue monitoring the realization process to ensure optimal execution and shareholder value capture. This outcome reinforces their strategy of targeting situations where active ownership can unlock trapped value in discounted investment vehicles.

Pitch Summary:
Shares in Schibsted rose +7% over the month as a key part of our investment thesis started to play out. We will provide an update here notwithstanding the numerous unknowns at the time of writing. As a reminder, we initiated a position in the summer of 2022. We wrote up the investment in the September 2022 newsletter, highlighting the extreme undervaluation of Schibsted, with its then 33% listed stake in Adevinta swamping its enterprise value. Overall, we argued that Schibsted exhibited a number of attributes we look for – high quality assets, a discounted valuation and catalysts to unlock value. More specially, Schibsted offers 1) exposure to high quality online classified ads businesses which have dominant market positions protected by a powerful network effect, high levels of pricing power and strong margin expansion potential which should compound in value; 2) an inefficient and unsuitable group structure leading the company to trade at a wide discount to NAV and the stub at an inordinately low (then) c.6x EV/EBITDA; and 3) potential catalysts to unlock value, with either an in-specie distribution or sale of Adevinta suitable outcomes to both re-rate the stub and help realise Adevinta's fair value. During the month it was confirmed that Blackrock and Permira made a non-binding proposal to take Adevinta private. This will see Schibsted crystalise a large portion of its value, whilst also retaining a stake in the private company. Of course, the devil will be in the detail, with the pertinent questions being around price and the size of the stake that Schibsted will maintain, but we believe this to be a successful outcome. The deal will allow Schibsted to garner a control premium (albeit an unknown one at this stage) and removes some of the friction of an in-specie distribution. Most importantly, it will simplify the group structure and shine a light on the undervaluation of the stub assets. On the other hand, this raises the risk of capital (mis)allocation – something we will continue to discuss with Schibsted management. We are also frank about the low value the market will likely ascribe to Schibsted's remaining unlisted stake in Adevinta. However, we very much concede that the return on this position has the potential to be highly attractive, with significant low hanging fruit from non-core asset sales (OLX Brazil plus Italy and maybe Spain); improving monetisation rates at Mobile and Leboncoin which currently under-earn relative to global peers and the economic utility they provide; and improving margins with tighter cost control (particularly at HQ which runs to the tune of ~€250m p.a.). Over time this value creation will shine through in Schibsted's NAV growth, with a future crystallisation of value likely allowing for capital returns. Schibsted remains cheaply valued at a 34% discount to NAV and with the stub trading at 6.7x NTM EBITDA. Further news on Adevinta will be the key catalyst to drive both NAV and discounts. We remain excited about prospective returns.

BSD Analysis:
AVI Global Trust maintains a bullish stance on Schibsted, viewing the Blackrock/Permira proposal to take Adevinta private as validation of their investment thesis. The manager initiated the position in summer 2022, attracted by Schibsted's extreme undervaluation with its 33% Adevinta stake overwhelming enterprise value. The investment case centers on three key pillars: high-quality online classified businesses with network effects and pricing power, an inefficient group structure creating a wide NAV discount, and clear catalysts for value unlock. The proposed Adevinta privatization addresses the structural issues by allowing Schibsted to crystallize value at a control premium while simplifying the corporate structure. Despite concerns about capital allocation and the market's likely low valuation of the remaining unlisted Adevinta stake, AVI sees significant upside from non-core asset sales, improved monetization at Mobile and Leboncoin, and margin expansion through cost control. At a 34% NAV discount and 6.7x NTM EBITDA for the stub, the manager believes the risk-reward remains compelling with Adevinta developments serving as the primary catalyst.

Pitch Summary:
We also initiated a position in Arch Capital Group Ltd., a Bermuda-based insurance company. We believe Arch is a superior operator in the insurance industry, which is benefiting from favorable pricing trends and higher interest rates. While the insurance industry is notoriously cyclical with volatile earnings that vary based on market conditions and storm activity, Arch has produced exceptional results over many years. Since the company's recapitalization in 2001, book value per share has grown 16 times or at a 14% annualized rate (these rise to 18 times and a 15% annualized growth rate excluding unrealized losses on the investment portfolio related to higher interest rates). Arch is a diversified provider of property & casualty (P&C) insurance, reinsurance, and mortgage insurance. The company focuses on underwriting specialty lines where knowledge and expertise provide a competitive edge. The diversity of Arch's operations gives it the flexibility to shift its business mix to target the most profitable product lines as market conditions change. Management allocates capital to the most attractive opportunities while following a cycle management strategy that encourages underwriting teams to grow during favorable market conditions and remain cautious in the soft period of the underwriting cycle. By employing this cycle management strategy, Arch acts like a value investor in the insurance industry. We observed this underwriting discipline during the most recent soft market when Arch's P&C net premiums written were essentially flat from 2014 to 2018 and return on equity was around 10%, thereby limiting the company's exposure to inadequately priced business and ensuring that it had ample capacity available when opportunities emerged. Today, P&C market conditions are much more favorable as premium rates have risen faster than claims costs. Arch has leaned into the hard market by growing P&C net premiums written by 34% year-to-date, while increasing ROE to over 21%. According to management, this faster growth and higher profitability would not have been possible without the greater use of data analytics that categorize and prioritize new business submissions to increase win rates and improve employee productivity. Arch is led by an experienced management team with a long track record of success. Marc Grandisson was appointed CEO in 2018 but has been with the company since 2001. Marc and his team have been excellent stewards of capital. They maintain a strong balance sheet with moderate financial leverage, a low-risk investment portfolio, and a conservative reserving policy whereby reserves have developed favorably every year since 2003. Executive compensation is primarily based on ROE targets, which supports the goal of book value per share growth and aligns executive compensation with shareholder returns. Compensation for underwriters is based on ROE for all business written over the last 10 years, which contrasts with typical industry compensation practices based on short-term premium growth and market share. Management has been opportunistic on share repurchases and M&A. Since Arch acquired mortgage insurer United Guaranty for $3.3 billion in 2016, the mortgage segment has generated $5.4 billion of underwriting income. Management's cautious approach toward duration and credit risk for the company's investment portfolio has enabled Arch to benefit from higher interest rates with net investment income more than doubling on a year-to-date basis. We believe Arch is attractively valued at 2 times book value and 11 times forward earnings. We expect book value per share to more than double over the next five years through a combination of sustained underwriting profits, higher investment income, and a reversal of unrealized losses on the fixed income portfolio. Even assuming a modest decline in the book value multiple, this should drive mid-teens share price returns over the long term.

BSD Analysis:
The manager presents a comprehensive bull case for Arch Capital based on superior underwriting discipline and favorable market positioning. Arch has delivered exceptional long-term performance with book value per share growing 16 times since 2001 recapitalization, demonstrating consistent value creation. The company's cycle management strategy acts like value investing in insurance, maintaining discipline during soft markets and aggressively growing during hard markets. Current P&C conditions are highly favorable with premium rates rising faster than claims costs, enabling 34% growth in net premiums written and ROE exceeding 21%. Management's data analytics capabilities enhance underwriting efficiency and win rates. The experienced leadership team under CEO Marc Grandisson maintains conservative capital allocation with strong balance sheet management and shareholder-aligned compensation structures. Higher interest rates benefit investment income while the mortgage segment continues generating substantial underwriting profits. At 2x book value and 11x forward earnings, the manager sees attractive valuation with expectations for book value per share to more than double over five years, driving mid-teens returns.

Pitch Summary:
We initiated a position in Morningstar, Inc., a leading provider of financial data and software for the investment industry. The company owns valuable data assets that are widely used by investors, fund managers, and consultants. We believe that Morningstar will benefit from rising demand for its proprietary financial information and significantly expand margins back to historical levels after completing a recent investment cycle. Morningstar owns several unique data products that span both public and private markets. Key products include Morningstar Category, Morningstar Style Box, and Morningstar Rating, which are the de factor standards for mutual fund classification and ratings. Pitchbook aggregates data on privately held companies, such as valuations, fundraising rounds, ownership, and debt. Morningstar generates over 70% of its revenue from license-based products that are sold on a subscription basis. These products generate recurring revenues with high margins and pricing power. Aside from subscriptions, Morningstar also generates revenue from products with variable fees that are charged on a transactional basis or as a percentage of client assets. Prior to our purchase, Morningstar shares had underperformed as operating margins had dipped into the low teens from their historic 20% to 25% range. This was caused by revenue declines in some of the more cyclical products as well as significant expense growth as the company increased headcount. This investment cycle appears to be over as management has slowed hiring and signaled their intention to improve operating efficiency. We believe that a slower pace of expense growth combined with a normalization in cyclical product sales will boost profit margins and drive rapid earnings growth. We took advantage of recent share price weakness to purchase this high-quality financial data business with earnings that should grow durably over a multi-year period.

BSD Analysis:
The manager initiated a position in Morningstar based on the company's valuable data assets and margin recovery potential. Morningstar owns industry-standard products like Morningstar Category, Style Box, and Rating systems, along with Pitchbook's private market data, creating significant competitive moats. The company generates over 70% of revenue from subscription-based products with high margins and pricing power. Operating margins temporarily declined from historical 20-25% levels to low teens due to cyclical revenue weakness and increased headcount during an investment cycle. Management has signaled the end of this investment phase by slowing hiring and focusing on operational efficiency. The manager expects margin expansion and rapid earnings growth as expense growth moderates and cyclical products normalize. This represents an opportunistic purchase of a high-quality financial data franchise during a temporary margin trough, with expectations for durable multi-year earnings growth.

Pitch Summary:
Tradeweb Markets Inc. operates electronic marketplaces for trading bonds, derivatives, and other financial instruments. Shares rose during the quarter as trading activity picked up nicely after a slower start to the year, with the company poised to return to double-digit revenue growth. Interest rate trading volume grew 31% in the third quarter, up from 9% growth in the prior quarter. Credit trading volume also accelerated with significant market share gains in U.S. corporate bonds. We believe Tradeweb can achieve solid growth in a variety of macroeconomic conditions and expect market share gains in U.S. Treasuries, interest rate swaps, and U.S. corporate bonds to drive long-term upside. We continue to own the stock due to Tradeweb's strong network effects, long track record of innovation, and significant growth opportunities from the ongoing electronification of the capital markets.

BSD Analysis:
The manager presents a strong bull case for Tradeweb based on accelerating trading volumes and market share expansion. The company demonstrated significant momentum with interest rate trading volume growing 31% in Q3, up from 9% in the prior quarter, while gaining substantial market share in U.S. corporate bonds. Management expects a return to double-digit revenue growth as trading activity normalizes. The manager emphasizes Tradeweb's competitive advantages including strong network effects and a proven innovation track record. The investment thesis centers on the secular trend toward electronification of capital markets, providing multiple growth avenues across U.S. Treasuries, interest rate swaps, and corporate bonds. This reflects confidence in Tradeweb's ability to capture market share gains while benefiting from structural shifts in fixed income trading infrastructure.

Pitch Summary:
Intuit Inc. is the leading provider of accounting software for small businesses and tax preparation software for individuals and tax professionals. Shares increased after the company reported financial results that exceeded Street expectations, with 13% revenue growth and 22% EPS growth in the recently completed fiscal year. Management provided favorable guidance for the next fiscal year that demonstrated confidence in the business momentum despite macroeconomic uncertainty. Intuit is benefiting from the sale of higher-value services and is well positioned to capitalize on increasing adoption of artificial intelligence given the company's vast datasets. We continue to own the stock due to Intuit's strong competitive position and numerous growth opportunities.

BSD Analysis:
The manager maintains a bullish stance on Intuit based on strong fundamental performance and strategic positioning. The company delivered impressive results with 13% revenue growth and 22% EPS growth, exceeding Street expectations while providing confident forward guidance despite macro uncertainty. Intuit is successfully monetizing higher-value services and appears well-positioned to leverage artificial intelligence capabilities through its extensive data assets. The manager emphasizes Intuit's dominant market position in small business accounting and tax preparation software, viewing these as durable competitive advantages. The combination of strong execution, favorable guidance, and AI-driven growth opportunities supports the fund's continued ownership. This represents confidence in Intuit's ability to maintain market leadership while expanding into higher-margin services and emerging technologies.

Pitch Summary:
Apollo Global Management, Inc. is an alternative asset manager and insurance company. Shares contributed in the quarter. Distress in the banking system from higher interest rates and deposit outflows, coupled with higher capital requirements, has caused banks to retreat from certain lending markets, which, in turn, has led to the growth of private credit. Apollo's captive insurance business, Athene, has seen significant inflows as the demand for annuities continued to increase, and Apollo has used the retirement assets sourced by Athene to provide private lending solutions at higher yields than the public credit market. Given strong growth in its insurance business, Apollo will likely exceed full-year guidance and should continue to benefit from the aforementioned trends. Apollo has a large opportunity to continue taking share from the public credit markets, and we remain bullish about its long-term prospects.

BSD Analysis:
The manager presents a compelling bull case for Apollo Global Management centered on the company's strategic positioning in private credit markets. Apollo is benefiting from banking sector distress that has created lending market opportunities, while its Athene insurance business generates significant capital inflows from growing annuity demand. The company's integrated model allows it to deploy retirement assets into higher-yielding private lending solutions, creating a competitive advantage over traditional public credit markets. Management expects Apollo to exceed full-year guidance driven by strong insurance business growth. The fund manager sees substantial long-term upside as Apollo continues gaining market share from public credit markets. This thesis reflects confidence in Apollo's ability to capitalize on structural shifts in the lending landscape while leveraging its captive insurance platform for sustained growth.

Pitch Summary:
Our biggest add in the quarter was Wix.com Ltd. Wix provides a cloud-based software to help micro-businesses build and maintain websites. We have been investors in Wix since 2017, and despite decelerating sales growth due demand pulling forward during the early days of COVID, which has impacted the share price, we believe the company is making significant progress towards profitability and expanding its opportunity in the partners (professional website development) segment. After years of penalizing near-term profitability with investments in sales and marketing, the company is now taking advantage of its leading brand name to acquire incremental users mostly organically, which enabled it to improve non-GAAP operating margins by 21% year-over-year to 18% for the most recently reported quarter. During its Investor Day, the company further guided to FCF margin targets of 19% in 2024 and 25% in 2025, which we believe could prove conservative as the mix of revenues shifts over time to the partners segment, which is structurally more profitable than the do-it-yourself segment. This is namely because Wix only needs to acquire a partner once, while the partner serves as an external sales force for Wix, creating a highly effective subscriber acquisition channel. Additionally, businesses that hire partners tend to have less churn, have higher business volumes, and adopt additional modules from Wix to drive higher revenue per subscription. While the advancements in AI remain a risk to be cognizant of, we believe Wix will benefit from AI. The company has been investing in AI for over five years now. AI lowers the hurdles for starting new businesses and designing websites (through Wix's AI site generator) makes existing businesses more successful over time. We believe that Wix trades at an attractive valuation with an FCF yield of over 5%, despite profitability being penalized due to reinvestments back into the partners segment, which investors value below zero (masking the profitability of the do-it-yourself segment). As the partners segment becomes profitable over the next few years, we believe Wix's overall FCF will move much higher.

BSD Analysis:
The manager presents a compelling turnaround story for Wix, highlighting the company's transition from growth-at-all-costs to profitable expansion. The key thesis revolves around the shift toward the partners segment, which offers superior unit economics through lower customer acquisition costs and higher retention rates. Operating margin improvement of 21% year-over-year to 18% demonstrates operational leverage, with management guiding to 25% FCF margins by 2025. The partners model creates a scalable acquisition channel where Wix acquires partners once who then serve as external sales forces. The manager views AI as a tailwind rather than threat, given Wix's five-year investment in AI capabilities that lower barriers to website creation. At over 5% FCF yield, the valuation appears attractive, especially considering the market's apparent undervaluation of the partners segment's profitability potential.

Pitch Summary:
Coupang is a leading Korean e-commerce company founded in 2010. It went public in March of 2021, and we have been investors in this Fund since the IPO. After spending half a day with management, touring the company's fulfillment center, asking questions, and learning more about the reasons behind the remarkable success the company has achieved over the last 13 years, we decided we wanted to own it in this Fund as well. When we originally invested in Coupang, our thesis was constructed around the company's wide product selection, low prices, and unrivaled convenience thanks to its investments in an end-to-end infrastructure that covers over 70% of Korea's population, enabling over 99% of orders to be delivered within one day or less, rather than the industry norm of two to three days, driving customer satisfaction, which translates to higher customer retention rates and lifetime value. We thought that Coupang would continue to gain market share in the U.S. $500 billion-plus Korean retail market, while expanding its offerings into additional categories, expanding its ecosystem via a third-party marketplace, and continuing to invest in infrastructure density to further capture inefficiencies, enhancing the customer experience, and improving profit margins. The company has since outperformed our expectations, growing its market share to 25% (#1 in the industry), despite not being a first mover, while building an unrivaled user experience with 99.8% of products delivered the next day (with the majority of them by dawn) and becoming profitable significantly faster than we expected. Our biggest takeaway from the visit was that despite all of Coupang's success, there is still a long runway of growth ahead. For example, while most of the facility we visited is operated with pickers going to shelves to pick up items for orders, there was one room in which shelves drove themselves to pickers on the back of autonomous robots, which increased picker productivity by 3x. Additionally, while Coupang has been striving to reduce its reliance on distributors, which enables them to expand margins while lowering prices for consumers, a significant opportunity remains for further reduction. Lastly, we got plenty of examples of out-of-the-box thinking (no pun intended) from the company's singulation process (improves the picking process by reducing the constraint to search for items order by order), decreasing use of boxes (80% of shipments are now boxless), enabling grocery delivery without cold-chain logistics (thanks to end-to-end supply-chain efficiency), or how Coupang is able to fill trucks so that each carries more than 2x the parcels a UPS or a FedEx truck can, despite being half the size. The 4% free-cash-flow (FCF) yield, which is also negatively impacted by the significant reinvestments the company is making into its emerging offerings, also contributed to our decision to add to our Coupang position upon returning to New York.

BSD Analysis:
The manager presents a compelling bull case for Coupang based on operational excellence and market dominance in Korean e-commerce. The company has achieved remarkable logistics efficiency with 99.8% next-day delivery and captured 25% market share despite being a late entrant. The investment thesis centers on Coupang's end-to-end infrastructure advantage, which enables superior customer experience while reducing costs through innovations like autonomous robotics (3x productivity gains) and boxless shipping (80% of deliveries). The company's ability to achieve profitability faster than expected while maintaining growth demonstrates strong unit economics. Management's focus on reducing distributor reliance should drive margin expansion while lowering consumer prices, creating a virtuous cycle. The 4% FCF yield appears attractive given the company's reinvestment in emerging offerings and long growth runway ahead.

Pitch Summary:
Ocean Wilsons Holdings Limited is a Bermuda-based investment company with two principal subsidiaries, Ocean Wilsons Investments Limited (OWIL) and Wilson Sons Limited. The group wholly owns OWIL, which owns a collection of investment funds, and holds 56.58% of Wilson, Sons (PORT3 BS), one of the largest providers of maritime services in Brazil. Ocean Wilson trades at a considerable discount to its sum-of-the-parts, which isn't unusual for a holding company. However, we believe the announcement of a strategic review of its controlling stake in Brazilian listed Wilson, Sons ("WSON") has the potential to unlock the discount and could lead to considerable upside. Furthermore, we believe the underlying fundamentals for WSON are improving. We see the potential for more than 100% upside in a liquidation scenario. Given the shareholder structure and recent events, we believe the probability of a liquidation has increased. OWIL includes a diversified set of funds. Investment allocation seems reasonable but not exciting. The five-year annualized gross portfolio return is 4.9% which is translated to 3.7% post management and performance fees. They have clearly not done very well over the past years. Our only comment is that most of it is relatively liquid and probably a bit less volatile than the market. We could think of a lot of better uses for this money. As at the end of the second quarter the portfolio was valued at roughly $300 million. WSON is one of the largest providers of maritime services in Brazil with activities including towage, container terminals, offshore oil and gas support services, small vessel construction, logistics and ship agency. WSON is the leading tugboat operator in the consolidated oligopolistic Brazilian market. Moreover, it operates Rio Grande and Salvador container terminals, the only dedicated container terminals in their respective regions. WSON also operates the Santo André logistic center, two leading shipyards of strategic importance located in Brazil's largest port of Santos, and various offshore support bases. Finally, the company holds a 50% stake in an offshore support vessel company that despite recent challenges, is experiencing significantly improved utilization and increasing daily rates. Our base case valuation is based on OCN investment portfolio reported figure at 30th June 2023 plus the market value of WSON stake, which we find reasonable based on both our cash flow forecasts and peer multiples. Based on the latest reported value, the investment portfolio is worth approximately $300 million (£6.9 per share), on which we apply a 25% haircut to adjust for illiquidity and a possible market fluctuation. On top of that, the market values WSON stake at $723 million at BRL 13.9 per share (£16.6 per share). Hence Ocean Wilson appears to trade at a 56% discount to NAV on a Sum-Of-Parts value of £21,9 per share. At this price level, investors buy a dominant and well-run towage and port facility business in Brazil and a well-diversified portfolio at >50% discount. In the meantime, OCN provides a growing 6% dividend yield to compensate investors while waiting for the market to recognize or the management to unlock the full value.

BSD Analysis:
Palm Harbour Capital presents a compelling sum-of-the-parts arbitrage opportunity in Ocean Wilsons Holdings, trading at a 56% discount to NAV of £21.9 per share. The manager's thesis centers on value unlock through a strategic review of the controlling stake in Wilson Sons, Brazil's leading maritime services provider with dominant positions in tugboat operations and container terminals. The underlying Wilson Sons business operates in an oligopolistic market with improving fundamentals, including rising utilization rates and daily rates in offshore support vessels. Ocean Wilsons' investment portfolio, valued at $300 million, provides additional diversification despite mediocre historical returns of 3.7% post-fees. The manager sees potential for over 100% upside in a liquidation scenario, with increased probability given recent shareholder structure changes. The 6% dividend yield provides attractive income while waiting for value realization. This classic holding company discount play offers exposure to Brazil's strategic maritime infrastructure at a significant discount.

Pitch Summary:
Amazon.com (Amazon) commands a leading share of both US ecommerce and global public cloud (a market they pioneered). Despite years of strong growth, both industries still look to be in relatively early stages of growth and should continue to benefit from long-term tailwinds. Globally, ecommerce accounts for about 19% of total retail sales, while cloud computing captures around 10% of the $5 trillion IT market. Despite its strong price performance year to date, Amazon still trades well below its pandemic peak. We believe that Amazon's business is fundamentally stronger than it was prior to the pandemic and that the current price does not reflect our expectations for significant revenue and earnings growth going forward. The pandemic restrictions caused an immediate 4.6% increase in ecommerce's share of US retail sales over the first quarter of 2020. Prior to that it took almost 5 years for ecommerce's share to grow by 4.6%. The return to normalcy saw physical stores regain some share, although more recently the long-term secular trend appears to have resumed its steady ascent with room for material future growth. In dollar terms US ecommerce sales increased by more than 82% over the three-year period from 2019-2022 to $1.04 trillion. Amazon's US share of ecommerce is believed to be in the mid to high 30% range, with Walmart as the next closest competitor at mid-single digits. We believe Amazon has long since established structural advantages in scale, speed, and selection, which have been reinforced through recent actions. Amazon effectively doubled its US fulfilment footprint between 2020-2022, and its last mile delivery network is now the size of UPS. The ensuing shift of spending back to physical stores highlighted inefficiencies in its extraordinary expansion, resulting in North American operating losses for the first time in almost two decades. Management subsequently overhauled its fulfilment network to a regional approach, which appears to be yielding results through material reductions in miles travelled and number of touches on delivered packages. Concurrently North American operating margins turned positive through the first half of 2023. Recent announcements of "Buy with Prime" and "Supply Chain by Amazon" are expected to increase volume handled through its network, with increased utilization ultimately benefitting margins. We believe that Amazon.com's leading ecommerce share provides a structural advantage through massive amounts of transaction data which it uses to forecast demand on a regional basis. By warehousing in demand goods closer to the consumer, it is able to continuously improve delivery speeds, evidenced by Amazon delivering over half of Prime Member orders within the same or next day throughout the top 60 US metro areas in the last quarter. And the volume of same or next day deliveries has quadrupled vs. 2019. Third-party sellers have grown to account for 60% of Amazon.com's unit sales, which enables the marketplace to offer an unparalleled selection of goods. While many people associate retailing with a low margin business, this is not the case with Amazon's third-party business. On its own, third-party seller services is an attractive fee-based business, however it has also facilitated the growth of a lucrative advertising business primarily via sponsored ad placements purchased by third-party sellers. With advertising revenues exceeding $40bn, Amazon is now the 3rd largest advertising platform in the US, behind Google and Meta. Since visits to Amazon.com are typically conducted with the express intent to shop we believe the company is well positioned to capture additional advertising spending in the future—at much higher margins than retail sales. International expansion of retail operations is also set to resume this year. Although expansion markets are expected to be lossmaking for many years, management's focus on operational efficiencies and continued growth in third-party sales and advertising is likely to eventually yield attractive aggregate profits. While recent anti-trust action against Amazon creates some uncertainty, we see each of the above components contributing to overall growth and, importantly, improved profitability over our investment horizon. We have historically been sceptical about the continued pricing power of cloud services more generally. Our view on pricing power has however changed. In the previous commentary we addressed the disruptive potential of AI as a result of the advent of foundation models, the development of which is reliant upon access to vast quantities of data and specialized computing infrastructure (with significant computational power and storage). ChatGPT was reportedly trained on a purpose-built supercomputer built by Microsoft for OpenAI that featured more than 285,000 CPU cores and 10,000 GPUs. Demand for computing power is expected to grow as the underlying models become larger and more complex, and as requirements for security and data privacy (particularly the risk of comingling proprietary data) grow. We believe a limited number of companies currently have the capability to develop and deploy the required infrastructure at sufficient scale. Cloud Service Providers (CSPs) appear to be well positioned to benefit over the coming years. The widespread adoption of AI foundation models is expected to accelerate the adoption of cloud services and substantially delay any long-term pricing pressure for these services. AI is unlikely to become a winner take all industry. There are likely to be multiple use cases for AI foundation models across a myriad of customers, with demand for both specific and general applications at differing scales, utilizing a variety of different models. The development of these models is both resource and capital intensive. Many companies are therefore expected to procure AI-as-a-Service rather than pursue in-house development of their own models. Major benefits of cloud computing include simplicity and elasticity. Consumers are able to rapidly scale services as needed, reducing their need to purchase, deploy, and manage their own IT infrastructure. Many of the services offered by CSPs are effectively commoditized (compute, storage, and memory). CSPs therefore seek to provide additional services—particularly application development—on their platforms, in order to increase switching costs. Specialized AI development is likely to materially contribute to CSP's customer "stickiness". AWS has the leading market share of CSPs, with the most customers and a comprehensive product suite. Given recent macroeconomic concerns Amazon has been assisting customers in streamlining their AWS usage, ultimately saving customers money. In the short term this has caused a deceleration in the growth rate at AWS. Remarkably growth has continued in low double-digit percentage terms despite this customer behaviour, indicating ongoing net customer acquisitions and continued workload growth. Ultimately, we don't believe the current macro-economic uncertainty impairs the long-term outlook for cloud growth. Cloud computing has revolutionized the world of IT and despite its significant growth over the last decade, its penetration relative to on-premise IT spend remains low. We believe we are still in the very early stages of cloud adoption—and the dramatic advances in AI are likely to accelerate this shift. AWS is positioning to benefit from AI at three distinct levels: 1) Compute layer—which is necessary to train foundation models and run inference. Amazon is deploying leading edge hardware, as well as proprietary chips for more cost-effective services; 2) Foundation models as a service— Amazon Bedrock provides a fully managed service that offers Amazon developed and third-party models to enable customers to choose the model that best suits their use case (which can be customized with their proprietary data in a secure and confidential way); 3) An AI Application marketplace—featuring Amazon developed and third-party products. Customers are likely to range from large enterprises developing models and applications in house (therefore using compute or foundation models as a service), to small businesses looking to benefit from deploying third-party AI applications. We believe the marketplace model is likely to generate attractive margins for AWS going forward. AWS is already a very attractive business having generated an average operating margin of almost 29% over the past 5 years—with revenues more than tripling over this period. With an expected meaningful recovery of margins in its traditional online retail business, a continued shift towards higher margin third-party marketplace sales, continued growth in advertising and an expected reacceleration in cloud services revenue we are finding Amazon to be very attractively priced. Management continue to have a long-term focus as they search for and invest in new business opportunities.

BSD Analysis:
Contrarius presents a compelling bull case for Amazon based on the company's dominant positions in e-commerce and cloud computing, both markets still in early growth stages. The manager highlights Amazon's structural advantages in e-commerce, including a mid-to-high 30% US market share, superior logistics capabilities, and data-driven demand forecasting that enables same-day delivery for over half of Prime orders. The thesis emphasizes Amazon's evolution toward higher-margin revenue streams, particularly third-party seller services and advertising, which has made Amazon the third-largest US advertising platform with over $40 billion in revenues. On the cloud side, Contrarius sees AWS benefiting significantly from the AI revolution, positioning the company across three layers: compute infrastructure, foundation models as a service, and an AI application marketplace. Despite recent AWS growth deceleration due to customer cost optimization, the manager views this as temporary and expects reacceleration driven by AI adoption. The investment case centers on Amazon trading below pandemic peaks despite fundamentally stronger business fundamentals and multiple margin expansion opportunities across both retail and cloud segments.

Pitch Summary:
We want to show the kind of optionality that exists in the portfolio by profiling one of our positions that is starting to work very well. We believe it still has a lot of upside even from these levels. Lavras Gold is a publicly traded (LGC: VC or LGCFF) exploration company that has a 22,424 hectar property in Southern Brazil. The property was part of Amarillo Gold, a prior successful portfolio company that was sold in November 2021 to Hochschild Mining PLC for a 75% profit. When Hochschild bought Amarillo, they did not purchase the assets at the Lavras property. We were able to negotiate a spin-off that distributed Lavras shares to all the Amarillo shareholders. This spin left Lavras with C$10 million in cash and an NSR royalty on new exploration at Hochschild/Amarillo's Mara Rosa property. Lepard was a Director of Amarillo and is now a Director of Lavras. Additionally, our Fund was able to purchase a large block of shares from one of the Amarillo shareholders that did not want to receive the Lavras shares. These shares were purchased for C$0.34 per share. EMA holds 4.2 million Lavras shares. EMA is the second largest holder of Lavras behind Eric Sprott who holds 20 % of the shares. The IPO market valuation of Lavras was US$10.3 million. Rather low considering the Company had a 43-101 compliant resource of 969,00 ounces, a cash balance of C$10 million, and an NSR royalty that we estimate has between C$2 and C$10 million of value. What is amazing to us is that through this bear market the stock had trades as low as C$0.185 per share and on several days closed at C$0.20 per share. At C$0.20 per share (last traded there on July 20, 2023), the market cap of the Company was US$6 million. We always thought the exploration potential at Lavras was outstanding and we were very fortunate to select Mike Durose, an experienced professional geologist, as the CEO. The Lavras project was first mined by the Portugese in the 1780's. The project came to be owned by Rio Tinto and they did some work but ultimately lost interest and sold the property to Amarillo in 2006. With nearly one million ounces of 43-101 gold at modest grades (the Butia deposit is 490,898 ounces at 0.92 gpt and Cerrito is 478,475 @ 0.71 gpt) located near the surface the Company was setting up to develop a nice open pit mine. Open pit drill stories like Lavras typically sell today for between $25 and $35 per ounce of gold in the ground. Lavras existing deposit of one million ounces times these figures would produce a market cap of US$25-35 million. - a far higher valuation than July's US$6 million market cap. NOTE: for reference, these figures are bear market figures. In healthier market conditions, companies with solid 43-101 deposits have been acquired for between $100 and $250 per ounce in the ground. But this was just the beginning of the story. The geology of the Lavras property is unique and this is why the Amarillo management team had always maintained that this was a hidden gem. Lavras is located in a caldera which is the large depression that occurs when a volcano erupts and then contracts, leaving a circular shape. Geologists know that these events can lead to a lot of mineralization and this 600-million-year-old volcano was very visible from aerial photos. It is also very large, measuring roughly 10 km square. Much smaller calderas have produced large quantities of gold. In addition to the two known deposits, the property contains 23 other known targets and 9 of them have been explored. In that process, the Company has been able to discover some very high-grade intercepts (43.6 gpt over 4 meters), suggesting that the property hosts a lot more than the two surface deposits that they have drilled out. These results suggest that the 1 million ounces in their current 43-101 are just the beginning. Nevertheless, the equity markets did not give the Company much credit for these results and as recently as September 2023 the market capitalization was still roughly US $7 million. In part, this reflected the fact that Lavras was running low on cash and the market knew a financing was imminent. So why did Lavras' stock rip higher? The Company very intelligently developed a geological theory, did a step out hole to test it, and lighting struck. The Fazendo do Posto discovery hole in August turned out to be a game changer. In one hole the Company drilled 340 meters at 1.1 gpt for a total of 374 gram meters (340 x 1.1). For a frame of reference: 50 gram meters is good, over 100 is excellent and 374 is world class. The stock price immediately went from C$0.25 to a peak of C$1.75 per share, or 7x. Recall that we own 4.2 million shares at an average cost of C$0.34. So, our position with a cost of $923,000, or roughly 3% of the portfolio, is now marked at US$5.4 million. Seeing the chart above, one might have the natural reaction of "SELL" that thing. Two problems, first, as a Board Member that is difficult. Secondly, and more importantly, that actually is not the right decision on a risk reward basis. Allow us to explain. Presently, the valuation of Lavras is US$55 million. The future value of Lavras will be determined by the drill results. An important geological consideration is that the gold is hosted in alkaline rocks. Alkaline structures are rare and hold some of the largest gold deposits in the world. Mines with similar alkaline characteristics are: Porgera Caldera (4km sq.) holds 35 million ounces of gold, Cripple Creek Caldera (6km sq.) holds 29 million ounces, Lihir Caldera (20km long) holds 41 million ounces of gold, and Vatukola Caldera (7 km sq.) holds 7 million ounces of gold. Lavras' CEO, Mike Durose thinks the rocks at Lavras look very much like the Acadia alkaline deposit in Australia. This deposit hosts 37 million ounces of gold and 7.5 million tonnes of copper. What is Lavras really worth? Our view is that this new discovery implies that there are easily 2 million ounces of gold in this deposit and potentially much more. At the low end of the ounce per share pricing ($25 per ounce), the current US$55 million market cap is already supported. However, it seems highly likely to us that there could be 3 or 4 million ounces here. It is also possible that a bull market in gold will make ounces in the ground worth between $50 and $100 which is more of the historical norm. So, the math is attractive: If Lavras finds 3 million ounces and it is valued at $75 per ounce the total market cap would be $225 million or 4x today's price. (pre-dilutive financings). The dream of course is that it turns into a large alkaline deposit. If this is the case, it could easily be 5 million ounces or more which could drive a 10-20x increase in the stock. For a frame of reference in 2022 a deposit that was 5 million ounces (Great Bear Mining) in Canada was sold to Kinross for $1.2 Billion ($240 per ounce). We do not know what the final outcome will be at Lavras, but we are comfortable that we can achieve a double from this valuation and potentially quite a bit more. Therefore, it is too early to sell. The Company just completed an equity financing at $1.35 per share, raising C$13.7 million. At the current market price of C$1.45 per share, the total market capitalization of the Company is US$55 million. This equity raise will fund the running of two drills for all of calendar 2024 and a little beyond. In this time frame, Lavras will get a sense of how large the Fazendo do Posto discovery is. Good results here could have a meaningful impact on the stock. The reason for this long outline of Lavras is that we have a portfolio full of companies, some of which have Lavras like qualities. When they work, they really work. Presently we own 25 drill stories like Lavras representing 11% of the portfolio (excluding Lavras which is now ~15% of the portfolio). The remaining companies are producers and developers and have serious upside optionality. We generally look for drill stories to have 20x potential and for producers and developers to have 5-10x potential. When we get the next bull market in the price of gold the portfolio has a lot of upside.

BSD Analysis:
Equity Management Associates presents a compelling bull case for Lavras Gold Corp., a Brazilian gold exploration company that has delivered exceptional returns following a major discovery. The fund's thesis centers on the company's unique geological setting within a 600-million-year-old volcanic caldera, which historically produces large gold deposits. The recent Fazendo do Posto discovery hole yielded world-class results of 374 gram meters (340m at 1.1 gpt), driving the stock from C$0.25 to C$1.75. With a current market cap of US$55 million and proven resources of nearly 1 million ounces, the company trades at attractive valuations compared to industry benchmarks of $25-35 per ounce in bear markets. The fund believes the discovery indicates potential for 2-4 million ounces, with alkaline geology similar to deposits hosting 35+ million ounces globally. Recent financing of C$13.7 million provides two years of drilling capital to define the resource size. The fund maintains a 15% portfolio position despite the 7x appreciation, citing potential for further multiples expansion as drilling progresses and gold markets recover.

Pitch Summary:
RenaissanceRe (RenRe)—a 2% position in International—is a company that we believe is better than most at assessing and pricing extreme risks. We know RenRe well, having owned it in the Orbis Funds as far back as 2005 and on other occasions over the years. The company pioneered the CAT risk insurance business in the wake of Hurricane Andrew in 1992. It was also one of the first to take climate modelling seriously, building their in-house capability from the ground up. To this day, most insurers outsource climate modelling to third parties. Today, RenRe offers a lot more than CAT risk insurance, but underwriting complex risk remains at the core of its culture and value proposition for customers. The current Chief Executive Officer, Kevin O'Donnell, has been with the company for 30 years and was previously the Chief Underwriting Officer. Compensation across the company is heavily geared towards underwriting results and growth in book value—a metric that can be impaired if underwriting is poor. When coupled with high levels of management stock ownership, RenRe is remarkably well aligned with shareholders. That's generally a good sign for any company, but it becomes even more important when your entire business model involves exposing shareholder equity to risk. RenRe's strong underwriting capability is also an important attraction for customers. It allows RenRe to offer pricing that is both profitable and responsive to customer needs. As a result, the company often gets one of the first calls when new coverage is needed and has built a strong network of relationships with major insurers over the years. This creates a powerful "flywheel" effect. Thanks to its underwriting skill, RenRe has earned a healthy mid-teens return on equity over its history. This has allowed the company to reinvest in high-quality people, strengthening its underwriting capabilities, and in turn attracting even more business and higher profits, and so on. RenRe shares are currently trading at a valuation of 1.5 times their net asset value, which suggests that the market anticipates the annual return on equity—currently above 20% compared to a historical average in the mid-teens—to remain above the normal average for only a year or two from today. To us, this appears too pessimistic given the industry dynamics discussed above. We think the shares offer good value and there is room for the cycle to surprise investors by lasting longer than expected. From a portfolio standpoint, RenRe also brings an important element of diversification as the insurance cycle is largely uncorrelated to the economy.

BSD Analysis:
Orbis presents a compelling bull case for RenaissanceRe based on superior underwriting capabilities and favorable industry dynamics. The manager highlights RenRe's pioneering role in catastrophe risk insurance and proprietary climate modeling capabilities that differentiate it from competitors who outsource this critical function. The company's strong alignment of interests through compensation tied to underwriting results and high management ownership creates a culture focused on disciplined risk assessment. RenRe's competitive moat is reinforced by its "flywheel" effect, where superior underwriting attracts more business, enabling reinvestment in talent and capabilities. The current hard market in insurance, driven by climate change and geopolitical risks, may be more sustainable than historical cycles due to structural supply-demand imbalances. At 1.5x book value with ROE above 20% versus historical mid-teens, Orbis believes the market is too pessimistic about cycle duration. The investment also provides valuable portfolio diversification given insurance cycles' low correlation with broader economic trends.

Pitch Summary:
Credit Suisse Group (Switzerland) was the top detractor for the fiscal year. We were shareholders in Credit Suisse for more than two decades. Before the global financial crisis, we sold most of our shares due to significant share price appreciation, and then we rebuilt that position in the wake of the financial crisis. That holding period was troubled and full of controversy. Credit Suisse's investment bank experienced repeated lapses in risk management concurrent with its attempts to compete with more scaled peers. Despite this, we (in hindsight, incorrectly) remained focused on our sum-of-the-parts valuation and gained comfort in the strong performance of the company's wealth management, asset management and Swiss Universal Bank businesses as they continued to generate better than average returns. We believed that the three better businesses represented good value and that the investment bank was repairable. Despite numerous attempts by multiple leadership teams at Credit Suisse, our thesis was proven wrong. Finally, after the last investment banking restructuring plan and capital raise released last October, we determined it was time to reevaluate our investment thesis as we do whenever there is a fundamental change in one of our holdings. The plan provided no insight into the proceeds from the asset sales or into the costs of restructuring the investment bank. As such, we concluded that an accurate business valuation was indeterminable and compounded by inevitable years of cash outflows. In addition, Credit Suisse's key wealth management franchise experienced elevated client withdrawals, and the risk of reputational damage to its wealth franchise brand had intensified. Ultimately, we decided to exit our position in the fall of 2022 and completed our exit in early March of this year.

BSD Analysis:
The manager provides a candid post-mortem on a failed long-term investment in Credit Suisse, acknowledging fundamental thesis errors. Despite holding the position for over two decades and believing in the value of the wealth management, asset management, and Swiss Universal Bank divisions, repeated investment banking failures proved insurmountable. The manager's sum-of-the-parts valuation approach failed to account for the systemic risk posed by the troubled investment bank. Multiple restructuring attempts under various leadership teams could not repair the investment banking division's risk management culture. The October 2022 restructuring plan lacked transparency on asset sale proceeds and restructuring costs, making accurate valuation impossible. Elevated client withdrawals from the core wealth management franchise and intensifying reputational damage created a negative feedback loop. The manager's decision to exit in fall 2022 proved prescient given Credit Suisse's subsequent collapse and UBS acquisition. This case study highlights the importance of recognizing when fundamental business deterioration makes a position uninvestable regardless of apparent valuation attractiveness.

Pitch Summary:
Alphabet (U.S.) was the top contributor for the fiscal year. Alphabet reported multiple strong sets of earnings releases over the past year, and its results generally exceeded consensus estimates across key metrics. Most recently, search revenue growth accelerated from 5% to 6.5% sequentially in the second quarter, a notable development given lingering economic uncertainty and broader advertising weakness. Cloud growth remained at 30%, stable versus the previous quarter, despite continued headwinds from customers optimizing cloud usage. Margin progression also continued, and cloud margins reached 5%. CFO Ruth Porat emphasized that the largest impact from the company's cost-saving initiatives will not be felt until 2024. YouTube continues to prioritize its Shorts segment, which is experiencing strong viewership growth. Although this is a near-term revenue headwind, we believe Shorts' monetization will accelerate over time. Addressing the year's hottest topic, CEO Sundar Pichai said Alphabet is an "AI-first company" that is "extremely well-positioned as AI reaches an inflection point." At Alphabet's annual developer conference in May, it showcased an impressive array of new AI-powered consumer tools to be rolled out over the course of the year. Investors reacted positively to these presentations, which highlighted the company's impressive innovations in AI technologies. Overall, we believe the company is positioned well to reap the benefits of the scale of its search business and years of its investment into AI capabilities. We also appreciate that the company is undergoing a transformation on how it views cost discipline and efficiency.

BSD Analysis:
The manager presents a compelling bull case for Alphabet based on accelerating core business momentum and AI leadership positioning. Search revenue growth accelerated to 6.5% despite challenging advertising conditions, demonstrating the resilience of Google's dominant search franchise. Cloud business maintained robust 30% growth with improving margins reaching 5%, indicating successful scaling in the competitive cloud market. The manager views YouTube Shorts' current revenue headwind as temporary, expecting monetization acceleration as the platform matures. Alphabet's AI positioning appears particularly strong, with CEO Pichai positioning the company as "AI-first" at a critical inflection point. The developer conference showcased impressive AI innovations that could drive future growth. Cost discipline improvements under CFO Ruth Porat should provide additional earnings leverage in 2024. The combination of search dominance, cloud growth, AI leadership, and improved operational efficiency creates multiple growth drivers. The manager appreciates management's enhanced focus on cost discipline while maintaining investment in strategic AI capabilities.

Pitch Summary:
CNH Industrial (Italy), which designs, manufactures, and distributes agricultural and construction equipment, was the top detractor for the quarter. CNH Industrial's share price fell following its second-quarter results, as agriculture equipment sales rose 5% in local currency, a slowdown from the prior quarter. This performance fell below market expectations due to destocking activity in Brazil and some production ramp-up issues for its new Patriot sprayer. We believe the production issues are temporary while the destocking actions will better position the business for the midterm. Pricing power remains quite strong and increased by roughly 7%, and precision agricultural sales grew by 21%. While the market was overly focused on near-term demand and sales growth, the agriculture equipment division produced its highest quarterly margin ever at 16.8%—an encouraging development that supports our view of the company's long-term profitability. Further, the much smaller construction business delivered strong results, including its own quarterly margin record. Management maintained guidance for the rest of the company's current fiscal year and indicated it expects to exceed the 2024 targets laid out at a capital markets day in 2022. We recently met with CEO Scott Wine at the company's offices. He expressed confidence in the company's ability to drive much better through-cycle financial performance while avoiding the company's previous mistakes. He also believes the company's share price is materially undervalued, and although he would prefer to invest in the business, he sees an opportunity to increase returns to shareholders via share repurchases. We believe CNH Industrial remains a solid business in an attractive industry that is run by a much-improved management team.

BSD Analysis:
Despite near-term headwinds, the manager maintains a bullish stance on CNH Industrial based on strong underlying fundamentals and margin expansion. The agriculture equipment division achieved record quarterly margins of 16.8%, demonstrating operational excellence and pricing power with 7% price increases. Precision agriculture sales surged 21%, highlighting the company's positioning in higher-value technology segments. The manager views current production issues and Brazilian destocking as temporary factors that will improve medium-term positioning. Management's confidence in exceeding 2024 targets and CEO Scott Wine's assessment of material undervaluation support the investment thesis. The construction business also delivered record margins, showing broad-based operational improvement. With strong pricing power, margin expansion, and improved management execution under Wine's leadership, the manager sees significant value despite recent share price weakness. The combination of cyclical recovery potential and structural margin improvements creates an attractive risk-reward profile.

Pitch Summary:
Charter Communications (U.S.), a telecommunications and mass media company, was the top contributor to the Fund's performance for the quarter. Second-quarter broadband subscriptions for Charter Communications grew by 77,000 sequentially, beating consensus expectations of 13,000 and roughly doubling its growth year-over-year. Unit growth outperformed peers, even after adjusting for Charter's rural initiative, which contributed 26,000 subscriptions. Charter's mobile net adds were strong at 648,000, and net adds have been over 600,000 each of the last three quarters since Charter launched Spectrum One, which includes one free mobile line for 12 months. Adjusted earnings growth was roughly flat, but we expect it to accelerate over time as the company's financials are no longer negatively impacted by its investments in marketing personnel and the promo roll-off dynamic begins. While faster unit growth does depress adjusted earnings in the near term, we believe Charter's strategy will prove valuable to long-term shareholders.

BSD Analysis:
The manager presents a bullish thesis on Charter Communications based on strong operational momentum across key metrics. The company significantly outperformed broadband subscriber expectations with 77,000 net adds versus consensus of 13,000, demonstrating superior execution in a competitive market. Mobile subscriber growth remains robust at 648,000 net adds, driven by the successful Spectrum One bundle offering. While near-term earnings growth is muted due to strategic investments in marketing and promotional dynamics, the manager expects acceleration as these headwinds subside. The rural expansion initiative contributed meaningfully to growth, suggesting successful market share gains in underserved areas. The manager views current earnings pressure as temporary, with the underlying subscriber momentum positioning Charter for long-term value creation. This operational outperformance relative to peers supports the bullish investment case.