Polen 5Perspectives Small Growth: Theme Exposure, Risk-Adjusted Return, and Q4 2025 Attribution

The portfolio's concentrated thematic bets faced a headwind in the final quarter. For Q4 2025, the Polen 5Perspectives Small Growth Composite Portfolio returned -1.3% gross and -1.5% net of fees, a notable underperformance against its 1.2% benchmark return. This marks a clear cyclical shift, following the portfolio's strong consecutive double digit returns in 2Q and 3Q.

The divergence was driven by a specific set of holdings. The top contributors were Bloom Energy, GeneDx, and Argan, which likely benefited from persistent themes in clean energy and healthcare innovation. However, the key detractors were Stride, Corcept Therapeutics, and Ramaco Resources. This lineup suggests the portfolio's core exposure to certain growth narratives-perhaps in education technology or niche biotech-was not aligned with the broader market's leadership in Q4.

The context is critical. While the portfolio's themes were still active, the overall small-cap growth market was broadening. As the evidence notes, within the small cap asset class, performance continued to broaden out beyond the AI theme, and Biotech in particular was a standout performer this quarter. This created a portfolio-specific risk: even if the portfolio's individual holdings were sound, their relative weakness against a more diversified market rally pulled down the overall return. The shift highlights the volatility inherent in concentrated thematic strategies when market leadership rotates.

Portfolio Construction and Risk Profile

The portfolio's recent volatility stems directly from its structural design. With 72 securities in its portfolio and a top 10 concentration of 36.9% of assets, it is a focused, non-diversified strategy. This concentration is a double-edged sword. It allows for deep thematic conviction but significantly increases idiosyncratic risk-the risk that a few individual holdings can move the needle for the entire portfolio. The Q4 underperformance, driven by a handful of detractors, is a textbook example of this risk materializing.

Operational costs also weigh on net returns. The fund carries a 1.00% expense ratio and a portfolio turnover of 54%. For a small-cap growth fund, this level of turnover is relatively high, indicating active management of positions. While turnover can be a tool for capturing alpha, it also generates transaction costs and capital gains taxes, which erode the net return investors receive. In a quarter where gross performance was negative, these fees represent a direct drag on the final outcome.

The portfolio's process, the "5Perspectives" framework, aims to identify earnings inflection points before the market does. This is a systematic strategy designed to find alpha. However, the recent market leadership in Q4-particularly in broader biotech and other themes not fully captured by the portfolio's top holdings-suggests a potential misalignment. The process is forward-looking, but its success depends on correctly anticipating which secular trends will dominate in a given cycle. The portfolio's underperformance indicates that its five lenses may have overlooked the specific inflection points that drove the broader small-cap growth rally last quarter.

In sum, the portfolio's risk profile is defined by concentrated exposure, active management costs, and a process that, while disciplined, is not immune to being wrong about the timing or nature of market leadership. This setup creates the potential for outsized gains when the strategy is right, but also the vulnerability to significant drawdowns when it is not.

Thematic Strategy vs. Market Environment

The portfolio's stated investment thesis is a direct bet on specific, high-growth secular trends. The fund aims to generate superior returns by investing in companies positioned for accelerating earnings growth driven by enduring secular trends. The "5Perspectives" framework is built around identifying inflection points in themes like AI, Genomics, Electrification, and Aerospace. This is a classic systematic strategy, designed to capture alpha by anticipating which long-term forces will drive corporate profits.

However, the market environment in Q4 2025 created a mismatch. While the portfolio's themes were still active, the broader small-cap growth rally broadened out beyond its core focus. Evidence shows that within the small cap asset class, performance continued to broaden out beyond the AI theme, and Biotech in particular was a standout performer this quarter. This divergence is critical. The portfolio's top contributors-Bloom Energy, GeneDx, and Argan-suggest it had exposure to clean energy and healthcare, but the standout biotech leadership likely favored a different subset of companies than those held. The key detractors, including Corcept Therapeutics, further highlight a potential misalignment with the dominant biotech narrative of the quarter.

This tactical misstep is a symptom of a deeper, longer-term question. The fund's long-term annualized return of -1.1% over five years raises concerns about the consistency of its alpha generation. A negative return over such a period suggests that the portfolio's thematic bets, while occasionally successful, have not reliably outperformed the market after costs. The high expense ratio and active turnover add friction to this effort. In a quarter where the market's leadership shifted, the concentrated portfolio was unable to adapt quickly enough, resulting in a notable underperformance.

From a portfolio construction perspective, this interaction underscores the risk of a thematic strategy when market leadership rotates. The fund's disciplined focus on specific secular trends is a strength for capturing long-term growth, but it becomes a liability when the market's immediate drivers are elsewhere. The recent volatility and underperformance are a reminder that even well-structured thematic strategies are subject to significant drawdowns when their chosen themes fall out of favor. For a risk-adjusted return perspective, this raises the question of whether the fund's active bets are generating sufficient compensation for the concentrated, non-diversified risk it takes.

Catalysts and Forward-Looking Risks

The portfolio's path to generating risk-adjusted returns hinges on a specific market setup. Its concentrated, thematic strategy faces a clear binary risk: continued broadening of the small-cap market would likely pressure its holdings, while a return to more thematic leadership could unlock its alpha potential. The fund's recent management tenure adds a layer of execution risk to this dynamic.

The primary risk is that the market's recent broadening trend persists. As seen in Q4, when performance continued to broaden out beyond the AI theme, the portfolio's focused bets were left behind. This environment favors a more diversified approach, where the portfolio's high concentration in a few themes becomes a liability. The risk is not just underperformance, but a potential widening of drawdowns if the market's leadership remains diffuse, as the portfolio lacks the diversification to hedge against sector-specific weakness.

The key catalyst for the strategy is a reversion to a more thematic market. The fund's "5Perspectives" framework is built for this scenario, aiming to identify inflection points in a company's earnings power before the market does. If themes like Electrification or AI regain dominance, the portfolio's deep dives into these secular trends could generate alpha. Its focus on companies with accelerating earnings growth, as stated in its strategy overview, would be rewarded if the market re-enters a phase where thematic narratives drive returns.

However, this catalyst is contingent on a stable and experienced management team. The fund's average management tenure of 0.50 years introduces significant execution risk. In a market that is rapidly rotating between themes, the portfolio's ability to adapt its positioning quickly and decisively will be critical. A short tenure means the team is still building its track record and may lack the institutional memory to navigate a complex transition. This creates a vulnerability: the strategy's success depends on the team's ability to correctly identify the next inflection point, but their limited time together increases the uncertainty of that execution.

The bottom line for risk-adjusted returns is a tension between concentrated conviction and market volatility. The portfolio is positioned for a specific, high-conviction view of the future. If that view is validated, it has the potential for strong returns. But if the market continues to broaden, or if the new management team falters during a transition, the portfolio's high concentration and active costs could lead to further underperformance. The setup demands patience for thematic leadership, but the fund's short management tenure means the clock is ticking.