During the third quarter of 2025, global equity markets experienced a period of growth, primarily buoyed by a continued optimistic outlook on artificial intelligence (AI), anticipated reductions in central bank interest rates, and robust corporate financial results. This positive trend, however, was largely concentrated within a select group of companies poised to benefit significantly from AI advancements. In this dynamic environment, the fund maintained its strategic focus on identifying and investing in enterprises characterized by strong, sustainable competitive advantages and adept leadership, while diligently managing balance sheet risks. Notably, the portfolio expanded with new investments in Coca-Cola Europacific Partners, Contemporary Amperex Technology, and WEC Energy. Despite these strategic moves, the fund's performance lagged its benchmark, a result mainly attributed to its positions in the information technology and financials sectors, which did not keep pace with the broader market's gains during the quarter.
The market's enthusiasm for artificial intelligence continued to shape equity performance, with a limited number of companies reaping the majority of the benefits. These market leaders are typically at the forefront of significant capital investments aimed at expanding data center infrastructure, a key component for AI development and deployment. This trend highlights the ongoing concentration of market gains in a few dominant players, driven by the transformative potential of AI technology.
The fund strategically adjusted its portfolio to align with evolving market conditions. New investments were made in Coca-Cola Europacific Partners (CCEP), Contemporary Amperex Technology (CTATF), and WEC Energy. CCEP is recognized for its integral role within the Coca-Cola ecosystem and its strong management, indicating confidence in its operational stability and market position. CTATF is anticipated to capitalize on the expansion of electric vehicles and grid-scale battery solutions, owing to its competitive cost structure and innovative capabilities. WEC Energy represents a commitment to companies with resilient business models and sustainable growth prospects.
However, the fund's performance during the quarter revealed some challenges. Its underweight positions and relative underperformance in the information technology and financials sectors were significant contributors to its overall lag against the benchmark. These sectors, while generally strong, experienced movements that did not favor the fund's specific holdings as much as other market segments. This highlights the delicate balance required in portfolio allocation, especially in rapidly shifting market landscapes.
Looking ahead, the influence of AI trends remains a critical factor for top holdings within the fund, including major tech companies like Microsoft, Amazon, Meta, and Alphabet. While AI continues to fuel optimism and growth, the substantial capital expenditures by these companies to build out AI infrastructure are impacting their free cash flow. This necessitates a careful evaluation of the trade-off between aggressive growth pursuit and maintaining financial discipline. The fund continues to navigate these complexities, aiming to balance long-term growth opportunities with prudent risk management and strategic asset allocation.
