Polen Focus Growth Portfolio Q1 2025 Commentary

2025-04-23 09:10:00 ET

Summary

• The Russell 1000 Growth Index entered 2025 following its best two-year stretch ever (+90%), driven by enthusiasm surrounding AI infrastructure.
• In the first quarter of 2025, the Polen Focus Growth Portfolio returned -6.1%.
• As 2025 began, index concentration and elevated valuations reflected a frothy equity market that had stormed back from a difficult 2022, fueled by the excitement of generative AI.

Summary

• The Russell 1000 Growth Index (the “Index”) entered 2025 following its best two-year stretch ever (+90%), driven by enthusiasm surrounding AI infrastructure. Election-related optimism fueled an additional 7% rally in late 2024. However, semiconductors—a key AI beneficiary—declined 19%, while the “Magnificent 7” (Mag 7) fell 15%. Elevated valuations and Index concentration amplified market volatility amid rising uncertainty.
• Against this challenging backdrop, the Polen Focus Growth Composite Portfolio (“the Portfolio”) outperformed the Russell 1000 Growth Index and underperformed the S&P 500 Index.
• Top relative contributors were Abbott Laboratories, Tesla (not owned), and NVIDIA (not owned). Top absolute contributors were Abbott Laboratories, Visa, and Eli Lilly.
• The largest relative detractors were Meta Platforms (not owned), ServiceNow, and Oracle. Top absolute detractors were Amazon, Alphabet, and Oracle.
• We initiated new positions in Starbucks and Aon and eliminated our position in Novo Nordisk. We added to our positions in Eli Lilly, Zoetis, and Oracle, and trimmed positions in Netflix, ServiceNow, Alphabet, and Apple.
• The Trump administration tariffs disrupted global trade, sparked inflation concerns, and weakened consumer and business confidence. Despite potential second-order effects on goods and services demand, we believe the Portfolio’s resilience—rooted in its emphasis on software- and services-oriented companies with attractive pricing power, recurring revenues, and competitive advantages—helps to mitigate direct exposure to tariff-related headwinds.
• Despite the year-to-date selloff, we remain optimistic about the Portfolio’s positioning and stand ready to capitalize on market opportunities. Our disciplined approach, focused on competitively advantaged, resilient businesses, enables consistent earnings compounding, even amid uncertain markets. By avoiding hype cycles and prioritizing quality, our 36-year track record of success reinforces our confidence in driving future performance.

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