Polaris Global Equity Fund (MAQ0838AU) Report & Performance

• The Fund returned 3.66%, net of fees, in July 2023, compared with a return for the Benchmark of 2.09%, as value stocks outpaced their growth counterparts amid a rebound in Financials and Materials and relative slowdown in outsized technology sector gains.

• The Energy, Financials and Materials sectors led the market higher in July, amid a strong month for value investing. The largest relative sector contributors for the Fund included holdings in Financials, such as Webster Financial and Popular, and holdings in Materials, including Smurfit Kappa, Lundin Mining and Yara. Notable relative detractors included holdings in Communication Services, led by Interpublic Group.

• Webster Financial and Smurfit Kappa were among the top individual contributors in July. Despite seeing pressure on net interest margins and slight adjustments on guidance, Webster had robust growth in both loans and deposits. Investors were optimistic about the stock, positing even further improvement in the second half of 2023. Smurfit Kappa posted record first quarter earnings, driven by easing of input costs and resilient pricing levels, setting a positive outlook for the remainder of the year. The company is now setting its sights on wider expansion efforts in North Africa, after the launch of its first plant in Morocco. The market became bullish on Smurfit Kappa’s business cycle on the back of restocking demand projections over the next twelve months.

• Teleperformance and Interpublic Group were among the top individual detractors in July. Teleperformance scaled back guidance on top-line expectations for the second consecutive quarter. Margins held up, but the company noted a pullback in client spending, as focus rotated to leaner operations and lower fixed costs. Interpublic Group reversed full-year organic revenue guidance from 2-4% to 1-2%. The advertising holding companies saw spending drop among its notable technology and telecommunications clients, overshadowing net new business gains among other industry players.

• During the month, Polaris completed the final sale of Brookline Bancorp. Brookline had one of the highest loan-to-deposit ratios in the portfolio and, due to recent acquisitions, had more commercial real estate exposure than Polaris deemed appropriate. Polaris’ recent addition of Cullen Frost provided the opportunity to sell Brookline while maintaining the portfolio’s exposure to banks.

• The Fund returned -2.13%, net of fees, in May 2023, compared with a return for the Benchmark of 1.18%, as investor enthusiasm for technology drove further disparity between growth and value performance year-to-date.

• The growth-oriented IT sector saw the only significant gains in May; most index sectors, led by Energy and Materials, moved lower. For the Fund, the largest relative detractors were an underweight to IT and holdings in Consumer Discretionary, such as Sally Beauty Holdings and Crocs. Relative contributors included underweights to Consumer Staples, Utilities and Real Estate.

• SK Hynix and MKS Instruments were among the top individual contributors in May. SK Hynix benefited from a number of tailwinds, including new investment powering the AI infrastructure buildout, troughing of the semiconductor cycle and market share leverage, as competitor Micron was banned as a supplier to the Chinese government. Despite a ransomware attack in February, MKS reported better than anticipated first quarter results with decent revenues from its electronics, packaging, and specialty industrial divisions. MKS also announced progress in the integration of Atotech, a chemical consumables company acquired in July 2021.

• Tyson Foods and Sally Beauty Holdings were among the top individual detractors in May. Tyson struggled with high input costs, primarily labour, that could not be fully offset with higher prices. While the company’s prepared foods business remained steady, its pork, chicken and beef businesses came under pressure. US beauty supply/hair colour retailer Sally Beauty reported modestly positive sales growth but lower margins, as wages increased for in-store employees. Sally Beauty’s high-touch sales expertise is a competitive differentiator making these investments necessary. Concerns about weakening consumer spending also weighed on shares.

• During the month, Polaris completed the initial purchases of Cullen/Frost Bankers, Tecnoglass, Teleperformance, and TotalEnergies. San Antonio-based Cullen/Frost is a leading independent bank in Texas. Founded in 1868, the bank has had 29 straight years of dividend increases. Its conservative culture is evidenced by its low loan-to-deposit ratio and ample liquidity, positioning itself for further profitable growth as peers pull back on lending. Tecnoglass is a US-listed Colombian architectural glass supplier for commercial and residential construction, primarily servicing the attractive US southeast market, including Florida and Texas. The company has a sizeable cost advantage on labour and energy, resulting in significant market share gains and sector-leading margins. Teleperformance is a global leader in customer interaction management, serving thousands of customers in 170 markets globally. Healthcare and financial services are their two largest verticals. TotalEnergies is adeptly navigating the transition from a traditional oil and gas company to an integrated energy company, comprising an upstream business that branches out into an LNG business with global reach and an enviable renewable energy portfolio. TotalEnergies recognised the opportunity to transition earlier than peers and is well positioned to serve the growing needs of the electric economy.

The Fund returned 1.68%, net of fees, in April 2023, compared with a return for the Benchmark of 3.16%, with a benign month for global markets reflecting an environment of countervailing forces, including persistent inflation, tightening liquidity, and ongoing geopolitical risks, alongside a resilient labour market and surprisingly good corporate earnings.

• A rising market tide lifted all sectors in April, with Health Care and Financials contributing most to index returns. For the Fund, the largest relative detractors were holdings in Energy, led by Marathon Petroleum, and holdings in Health Care, which lagged the rise of the broader sector. These results were partially offset by holdings in Consumer Discretionary, including Bellway and Taylor Wimpey.

• Sallie Mae (SLM), Bellway and Vinci were among the top individual contributors in April. SLM reported a strong first quarter, following a disappointing Q4 where weakening credit trends led to an outsized provision. Credit performance has improved, loan growth was 12% and the company’s floating rate assets resulted in margin expansion. The UK housing market has seen a slight improvement as the spring selling season has progressed with prices remaining relatively steady, and in this environment, Bellway confirmed guidance for the full year with the expectation of lower volumes, but within market expectations. While most of the attention for Vinci is focused on their toll road concession business, the strength of its construction and electrical contracting segments was a positive surprise in the first quarter.

• Marathon Petroleum and Northern Trust were among the top individual detractors in April. Marathon Petroleum is producing record earnings due to wide refining margins, but concern about weaker gasoline and diesel demand led to profit taking by investors. Results at Northern Trust were pressured by expense growth and the expectation that its net interest margin will be pressured by higher deposit costs.

• There were no initial purchases or final sales within the portfolio during the month.

• The Fund returned 2.52%, net of fees, in February 2023, compared with a return for the Benchmark of 2.09%, as the US Federal Reserve signalled its intention to keep interest rates higher for longer.

• Cyclical sectors including IT, Industrials and Financials supported the market in February, while Real Estate, Energy and Utilities lagged. The largest relative contributors to the Fund were holdings in Industrials, including SKF and Allison Transmission, and in Communication Services, led by Publicis Groupe. Holdings in IT, such as Intel and Samsung Electronics, and an underweight to the sector were the largest relative detractors.

• Publicis Groupe and SKF were among the top individual contributors in February. French advertising company Publicis released fullyear earnings, highlighting 2022 organic growth backed by its productive Epsilon and Sapient divisions. Seemingly resistant to macroeconomic concerns, the company laid out upbeat full year 2023 organic growth guidance, pointing to continued client investment in non-traditional marketing venues, such as data, technology, and digital transformation. Swedish bearing and seal manufacturer SKF reported strong fourth quarter 2022 results, signalling that the company caught up on the cost curve and is set to benefit from organic growth on pricing, mix, and volume. The company noted solid industrial and auto sector demand, specifically highlighting their ball bearing applications in the burgeoning electric vehicle (EV) marketplace.

• Lundin Mining and SLM were among the top individual detractors in February. Lundin Mining declined in lockstep with the overall mining industry. The downward trend was further aggravated by news that the Canadian firm’s copper reserves decreased, excluding the recently acquired Josemaria Resources project. SLM, a provider of education loans, reported lacklustre earnings with higherthan-expected provisions, elevated net charge-offs and a weak 2023 outlook.

• There were no initial purchases or final sales within the portfolio during the month.

The Fund returned -3.18%, net of fees, in December 2022, compared with a return for the Benchmark of -5.49%, with geopolitical conflicts and inflation proving to be the most pressing economic risks during the month.

Defensive sectors including Utilities and Consumer Staples outperformed in a month in which all market sectors moved lower. For the Fund, the largest relative contributors were holdings in Consumer Discretionary, including Crocs and Sally Beauty Holdings, and in IT, including OpenText and MKS Instruments, as well as an underweight to the latter. Holdings in Financials, led by Webster Financial, International Bancshares and M&T Bank, and an underweight to Utilities were the largest relative detractors.

Horizon Therapeutics and Crocs were among the top individual contributors in December. Shares in Horizon gained after Amgen announced its intent to acquire the company. The deal is valued at US$27.8 billion, which represented a 48% premium to Horizon’s stock price closing on 29 November 2022. Shoe and sportswear retailers, including Crocs, benefitted from NIKE’s upbeat guidance referencing better inventory controls. Concerns about post-pandemic sales and higher shipping costs have weighed on Crocs’ share price in recent months, yet the company’s most recent earnings report outlined robust sales both domestically and abroad.

Webster Financial, International Bancshares and M&T Bank were among the top individual detractors in December. Each company was among a handful of US banks that languished on lower-than-expected net interest margins and banking fees, while costs increased.

During the month, Polaris completed the initial purchases of MKS Instruments and Northern Trust, and the final sale of Brother Industries. MKS Instruments is a semiconductor equipment manufacturer dominant in material and photonic solutions. Northern Trust is a US trust and custodian bank with a sizeable wealth and investment management business. Brother Industries, a Japanese print manufacturer, was sold following supply chain challenges and slower retail/home ink sales as professionals transitioned back to commercial offices.

The Fund returned 4.62%, net of fees, in November 2022, compared with a return for the Benchmark of 2.02%, with investor risk appetite returning despite a weakening European economy and consumers across the world feeling the pinch of high inflation.

Most market sectors, with the exception of Energy, moved higher in November. For the Fund, the largest relative contributors were holdings in Consumer Discretionary, such as Crocs and Next, and in Health Care, including United Therapeutics and newly purchased Horizon Therapeutics. Holdings in Financials, led by Capital One Financial, were the largest relative detractors, partially offset by an overweight to the sector.

Crocs and Weichai Power were among the top individual contributors in November. Crocs recovered strongly following a significant de-rating due to concerns that pandemic tailwinds for their unique shoes had waned. While growth in core Crocs brand is slowing from its rapid pace, the recent acquisition of Hey Dude, a casual, lightweight shoe, is expected to drive the company’s next leg of growth. Chinese diesel engine manufacturer Weichai rallied after releasing its Q3 results and benefitted from investor expectations that orders for heavy duty trucks in China have reached a cyclical low.

Brother Industries and Sally Beauty Holdings were among the top individual detractors in November. Shares in Japanese printer manufacturer Brother Industries were weaker as supply chain challenges impacted profits and demand for consumable ink fell. The weakness in ink demand can be attributed to the work-from-home phenomenon moderating to some extent. Quarterly same-store sales at haircare product retailer Sally Beauty were flat, with the company citing “inflationary pressures and supply chain headwinds”. The company plans to close about 10% of their Sally Beauty locations as they continue to shift to the omnichannel retail model.

During the month, Polaris completed the initial purchases of Horizon Therapeutics and Interpublic Group. Global biotechnology company Horizon manufactures Tepezza, targeting thyroid eye disease, and Krystexxa for the treatment for gout. Tepezza is already a multi-billion-dollar product and Krystexxa has the potential to be meaningful as well. Interpublic, which provides advertising and marketing services, has historically been too expensive for Polaris’ value discipline, but recent significant share price falls presented a good entry point.