Small/Mid Cap Growth Quarterly Commentary

Quarterly Review and Commentary

U.S. equity markets closed the quarter at all-time highs. Performance was powered by reduced interest rate pressure and easing inflation. Equity leadership broadened beyond the Magnificent seven during the quarter as value stocks outperformed growth and small- and mid-cap stocks outpaced their larger peers. SMID Growth outperformed its primary benchmark for the quarter. The biggest contributors were Information Technology holdings and our underweight to Energy. The biggest detractors in the quarter were Industrials and lack of exposure to the Materials sector.

According to a recent Deutsche Bank (DB) report that examined why long-term U.S. economic and equity results have been so strong, of the 25 largest U.S. companies by market capitalization, 12 were founded in the past 50 years. Six of these have created over $1 trillion in market value. Our research shows that more than 40 U.S. companies started in the last half-century now have market capitalizations of at least $100 billion—surprisingly, Europe had none.

The benefits from this wealth creation to the U.S. are massive: more jobs, rising tax revenue, increased productivity, growing retirement assets, plus the new products and services introduced. The ingenuity, innovation, and entrepreneurial spirit that built these companies helped our economy prosper despite headwinds created by unproductive government policies and unsustainable deficit spending. We remain confident that the U.S. will spawn another generation of companies over the next fifty years that will help sustain our global economic and equity market leadership.

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Semiconductors - Prudent Exposure to a Cutting-Edge Industry

The world runs on semiconductors. Manufacturing these tiny electronic circuits is of the utmost importance to driving innovation across every sector of the economy. We have a long history of investing in semiconductors across all four of our strategies. We research and invest in a broad range of businesses, including chip manufacturers, power management, circuit customization, software design, and wafer manufacturing equipment and services. Companies that deliver compelling solutions in these areas should continue to produce robust profits over the long term.

Investing in the semiconductor industry comes with a myriad of risks. Most prominently, the industry is prone to periodic boom-bust cycles. Currently, the industry is in a boom phase due to surging AI demand, which has elevated valuations. We believe this is a short-term risk we can manage through our valuation discipline, position sizing, and portfolio diversification considerations. As with all our investments, we seek persistent growth and work hard to identify select businesses whose fundamental performance is less sensitive to the cyclical nature of the broader industry.

Importantly, we worry about the systemic threats to free trade and markets. To a larger extent than most industries, semiconductors rely on open borders and friendly competition to overcome the technical challenges of future chips. While we judge a total shutdown of semiconductor trade as a remote possibility, the existential problems it will cause influence our investment decisions.

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Portfolio Activity

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Purchases

We purchased Casey's General Stores (CASY), a leading convenience store operator in the U.S., following the announced agreement to acquire family-owned Fikes Wholesale and CEFCO Convenience Stores. The proposed acquisition will expand CASY’s footprint into the attractive Texas and adjacent markets. We originally purchased CASY in our Concentrated Large Growth strategy because we believe the company’s growth algorithm—using its scale to consolidate a highly fragmented industry—can sustain the creation of shareholder value in a low-risk manner. The Fikes acquisition validates our thesis and further solidifies our conviction in the long-term outlook for the business.

SPS Commerce (SPSC) sells cloud-based supply chain management software that connects the world’s largest network of retailers, suppliers, and transportation providers. SPSC’s products automate time-intensive, complex manual processes for its customers. The company profitably generates recurring revenues that, combined with a record of expanding its customer base and increasing wallet share, make it a strong fit with our criteria for a TIP-Quality business. We believe the company is positioned for continued growth in an attractive industry that is still in the early stages of modernization.

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Sales

We sold BioMarin Pharmaceuticals (BMRN) during the quarter because its highest potential growth drivers, Voxzogo—a drug that treats a genetic disorder that causes dwarfism—is facing increasing competition. Pivotal data released during the quarter showed that a competitor’s drug can generate similar benefits with a more convenient administration cycle. Clinician feedback led us to reduce expectations for Voxzogo’s market share if the competitive drug is commercialized. As a result, we reinvested client capital in businesses with more attractive risk and reward profiles.

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Best and Worst Performers in the Quarter

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Why Invest In Torray Small/Mid-Cap Growth Strategy?

Disclosures

This commentary is for informational purposes only and should not be viewed as a recommendation to buy or sell any security. There is no guarantee that the views expressed will come to pass. Torray Investment Partners LLC is an independent registered investment adviser. Registration of an investment adviser does not imply any level of skill of training. Past performance is not indicative of future results. For additional information about Torray Investment Partners LLC, including fees and services, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).