Third-Quarter 2025 Thematic Growth Update

Market Overview - The stock market experienced a strong third quarter, with new all-time highs for the S&P 500 and NASDAQ 100, primarily driven by mega-cap technology stocks like NVIDIA [1] - There are emerging signs of investor caution regarding the heavy capital expenditures (CapEx) by these mega-cap companies, which may negatively impact market sentiment [1] Performance Metrics - As of the end of the third quarter, the Mott Capital Management Thematic Growth Strategy gained 5.68% year to date, while the S&P 500 Total Return Index rose 14.83% during the same period [2][3] - The annualized performance since inception for the Mott Capital Management Thematic Growth Strategy is 10.17%, compared to 14.92% for the S&P 500 Total Return Index [3] Capital Expenditure Concerns - Mega-cap companies such as Microsoft, Alphabet, and Amazon have significantly increased their CapEx spending to invest in artificial intelligence (AI), raising concerns about the sustainability of their cash flow due to ongoing high capital commitments [3][6] - The fear is that the spending on AI could become a continuous process, driven by the growing demands for computing power and energy [3] Portfolio Adjustments - The company has been trimming positions in overweight stocks with large CapEx budgets, including a reduction in Alphabet's position to a 5% weighting [6] - This strategy allows for flexibility to invest in new businesses and rotate into underperforming market segments that may benefit from AI in different ways [8] Investment in Grail - Grail, spun off from Illumina, has shown positive test results in blood-based cancer detection tests, leading to an increased position in the portfolio to 5% [9] - Grail's current market value is around $3 billion, significantly lower than the $8 billion Illumina paid for it in 2021, reflecting market recognition of Grail's need to pursue product development independently [10] Cash Position and Future Outlook - Approximately 25% of the portfolio remains in cash, indicating that the company is not planning to sell additional positions unless unforeseen circumstances arise [10] - The company is open to adding new positions if suitable opportunities present themselves [10]