Insights

The Portfolio Managers discuss the key forces shaping the investment landscape, the Fund’s positioning amid higher interest rates, and select mid-cap growth opportunities.

What were some of the key forces that shaped the investment landscape in the third quarter of 2026?

Persistent inflation, tighter monetary policy, and geopolitical tensions contributed to a volatile investment landscape during the third quarter. The Federal Reserve raised interest rates in September as inflation remained elevated, adding pressure to interest-rate-sensitive areas of the economy, including housing, as well as lower-income consumers. In contrast, investment in artificial intelligence (AI) infrastructure remained strong.

Tensions in the Middle East also pressured energy markets and heightened concerns around energy security. Against that backdrop, Technology and Energy were areas where we continued to find mid-cap growth opportunities, while companies negatively exposed to higher rates and weaker consumer spending faced greater headwinds.

How is the Fund positioned for the current market environment?

As of the end of the third quarter, compared to the Russell Midcap Index, the Fund was positioned as follows.

• An overweight in the Technology sector, specifically semiconductors. We continue to find companies we believe will benefit from artificial intelligence (AI) and data center investment.
• An overweight position in the Energy sector through holdings including Phillips 66, a refiner and pipeline operator; Texas Pacific Land Corporation, which earns royalties from oil and gas production and provides water-related services; and Talen Energy, an independent power producer.
• An underweight in the Financials sector. We believe higher interest rates could create headwinds for the sector. Higher borrowing costs can reduce demand for loans, increase the risk of credit losses, and raise funding costs for banks.

Market volatility has also provided opportunities to add to high-conviction holdings. For example, we added to our Talen Energy position following recent weakness because we believe the long-term outlook for power demand and data center development remains strong.

Overall, we continue to focus on select companies with durable competitive advantages and strong fundamentals. We believe a concentrated portfolio allows us to be selective while targeting high-quality companies that could benefit from long-term trends.

How has the conflict in the Middle East affected your outlook for Energy stocks?

The geopolitical tensions have reinforced our positive long-term outlook for certain Energy companies. Even if tensions ease and oil prices decline from current levels, strategic petroleum reserves in the U.S. remain well below capacity and will take time to replenish. Many oil-importing countries in Asia face similar energy security concerns.

We believe these dynamics should continue to support demand for Energy companies over the coming year. One holding positioned to benefit is Phillips 66, which operates refineries and pipelines and can benefit from favorable refining conditions.