Seeking Alphaยท2025-10-28 00:00Core Insights - Global equity markets experienced a rally in Q3 2025, driven by enthusiasm for generative AI and strong capital flows into semiconductors, with the MSCI All Country World Index reaching record highs and returning 7.7% [7][8] - The U.S. equities outperformed due to robust economic growth and earnings, while emerging markets, particularly China, saw significant gains fueled by AI optimism and supportive government policies [8][9] - The investment strategy focused on quality growth faced challenges as the market favored high-beta growth stocks, leading to underperformance relative to broader indexes [8][16] Market Performance - The Polen Global Growth Composite Portfolio returned 3.0% gross of fees and 2.7% net of fees in Q3 2025, underperforming the MSCI All Country World Index [17] - Top contributors to the portfolio's performance included Oracle, Shopify, and Alphabet, while the largest detractors were Paycom, SAP, and Adyen [17][18] Investment Activity - New positions were established in NVIDIA, Broadcom, TSMC, Boston Scientific, and Uber, while positions in ADP, Airbnb, Accenture, and Thermo Fisher Scientific were eliminated to optimize portfolio positioning [22][23] - The decision to invest in semiconductor companies was influenced by the increasing demand for AI-related hardware, with NVIDIA expected to generate earnings growth of approximately 20% per year [25][26] Economic Context - The U.S. economy grew at a revised annual rate of 3.8% in Q2 2025, driven by technology capital expenditures and AI-related spending, despite concerns over a softening labor market [10][13] - The Federal Reserve lowered interest rates by 25 basis points for the first time in 2025, indicating a shift in focus towards employment [13] Sector Analysis - Defensive sectors like healthcare and consumer staples lagged as the market bifurcated into 'AI winners or losers,' with high-beta growth companies dominating returns [15][16] - The hyperscaler management teams indicated significant increases in future capital expenditures, particularly for AI-related projects, reflecting strong demand in the sector [14] Company-Specific Highlights - Oracle reported a 359% increase in remaining performance obligations, highlighting the demand for cloud computing and AI infrastructure [11][12] - Boston Scientific is expected to grow earnings in the mid-teens over the next 3-5 years, driven by its innovative medical products [29] - Uber anticipates nearly $200 billion in booking transactions for 2025, with a projected earnings growth of around 20% per annum over the next five years [30]