Leadership broadened during the quarter as performance shifted away from mega-cap technology companies toward more economically sensitive and value-oriented sectors. Rising interest rates contributed to this dynamic, as higher discount rates tend to place pressure on longer-duration growth stocks. Smaller capitalization companies also outperformed larger peers. The outperformance of value stocks and small caps may signal renewed investor interest in areas of the market that have lagged in recent years.

Looking ahead, earnings growth remains a constructive foundation for equities. Current forecasts call for approximately 13% earnings growth for the first quarter of 2026, supported by resilient consumer demand and continued corporate investment. Companies are increasingly focused on deploying artificial intelligence to enhance productivity, improve decision-making, and expand operating margins. We are seeing early evidence that AI adoption is enabling companies to streamline processes, reduce costs, and strengthen competitive positioning.

Periods of uncertainty often create opportunities for long-term investors willing to maintain discipline and a focus on fundamentals. As valuations adjust and expectations reset, companies with durable competitive advantages, strong balance sheets, and consistent earnings growth potential are often positioned to benefit most.

At Riverbridge, our investment philosophy remains centered on identifying high-quality businesses capable of compounding earnings across a variety of economic environments. We believe that companies demonstrating pricing power, strong customer relationships, and mission-critical offerings are best equipped to navigate periods of volatility. Importantly, many of our portfolio companies are not only implementing AI within their own operations, but also providing products and services that help their customers improve productivity and efficiency.

While geopolitical developments can influence short-term market movements, long-term equity returns have historically been driven by innovation, productivity gains, and earnings growth. We remain confident that maintaining a disciplined investment approach focused on durable growth businesses positions our portfolios well for the years ahead.