2Q 2026 Investor Letter | Mott Capital Thematic Growth

The S&P 500 rallied in the second quarter, led by semiconductor stocks amid optimism about artificial intelligence growth. Memory-chip companies were standouts, helping push the index’s year-to-date total return, including dividends, to 10.2% through June 30. Unfortunately, the Mott Capital Management Thematic Growth Strategy underperformed, declining 4.7% through June 30, inclusive of dividends and net of fees.

This marked another in a string of quarters when the strategy underperformed. In my view, the underperformance has largely been tied to exuberance in semiconductor and AI-related stocks. We benefited significantly when the market was more focused on data centers and cloud providers during the first phase of the AI investment theme. But the narrative changed. As a result, what worked well for us in 2023 and parts of 2024 has not worked as well recently.

However, with most of the companies in the portfolio having reported results, the underlying businesses continue to perform well and, for the most part, show strong year-over-year growth trends. Microsoft, Alphabet, and Amazon are all spending tremendous amounts of money to maintain and expand their positions in AI infrastructure and data center markets. They also continue to build out their own suites of products. Microsoft Azure and Amazon Web Services continue to grow exceptionally well, with Azure growth at more than 40% year over year and AWS growth at more than 35%.

Other companies continue to show growth as well. Illumina shares rose sharply after the company reported better-than-expected second-quarter results and raised its full-year outlook. Meanwhile, Intuitive Surgical shares fell sharply after the company reported solid results but issued softer-than-expected procedure-growth guidance. Grail has bounced back from its sharp decline in the first quarter, as the market begins to digest the path forward for Galleri, the company’s cancer screening test. Additionally, it recently announced that the FDA will hold an adcom meeting for the test in late September. If the meeting goes well and the panel votes in favor of Galleri, it could open a path to not only FDA approval but potential entry for Medicare payments, which would be a big win for the company.

Additionally, our two largest holdings, Visa and Mastercard, have finally begun to perform well after a weak first half of the year. I continue to believe that these two companies are critical components of the global payment system and help power e-commerce. Regardless of trends in AI, I believe they will remain valuable and important in the future. Payments are becoming increasingly digital, and purchases made using debit and credit cards should continue to grow well into the future; AI may only help enhance that as more transactions move away from traditional methods.

During the quarter, I bought shares of Intuit, ServiceNow, and Cboe Global Markets for the strategy. These are companies I have watched for years while waiting for an opportunity to buy them because they have strong businesses and play integral roles in their industries. Intuit and ServiceNow operate software-as-a-service business models that deliver high growth rates and strong margins. Both are industry leaders with pricing power and, in my view, are not easily displaced by integration of AI. If implemented effectively, I also believe AI could support further growth, as customers may pay for access to data feeds and tools that improve information flow and efficiency.

Cboe Global Markets is a leading options exchange operator in the United States. Options trading has expanded rapidly in recent years in US financial markets, and Cboe is the leader in the market. I believe options trading will continue to grow and play an increasingly important role in financial markets.

Overall, when an investment thesis does not work—as was the case with Zoetis in late 2025 and Boston Scientific in 2026—and the stock price is falling while the business appears to be struggling, it makes sense to sell and move on. However, when there is nothing fundamentally wrong with a company and the business continues to show steady growth and maintain its margins, I believe it pays to be patient and see whether the market eventually comes back to the stock.

In the case of Boston Scientific, we sold this stock this quarter after the company reported its second weak quarter in a row. One weak quarter can happen to any company, but two consecutive weak quarters can change the investment thesis. At that point, it is often best to cut one’s losses and move on. Unfortunately, those losses hurt near-term performance. Markets move so quickly these days that they often do not provide much time to determine whether a lasting negative business trend is developing.

Overall, I believe many of our investments are positioned in the right areas, while some are simply out of favor. That can change quickly. If bullishness surrounding AI falters or cools, capital could rotate back into some of the companies we own. Additionally, I believe the new additions I have brought into the portfolio will help to revive some upward momentum. As a result, our cash position has fallen to between 10% and 15% of the overall portfolio, and it may in fact continue to fall over time, especially if the market continues to offer me opportunities to buy fresh ideas that can offer long-term growth prospects at valuations that match the risk.

While I still think the S&P 500 and NASDAQ 100 as a whole may be somewhat overvalued, and the concentration risk in AI and semiconductor names is extremely high, I don’t believe the entire market is overvalued. In fact, I think there are a lot of good stocks out there that are worth owning and have the traits we look for in companies but have simply been forgotten because of the market’s hyper-focus on AI. So, I see no reason not to take advantage of that and will continue to do so.

Until next time,

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

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Michael Kramer
Founder
Mott Capital Management, LLC

Annualized Performance

N.A. – Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year.
† Performance reflects the non-annualized performance from 8/1/2014 to 12/31/2014.
** For periods with less than 36 months of composite performance, no 3-year ex-post standard deviation measurement is available.

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The Thematic Growth Composite is a blend strategy of different market capitalizations, which is approximately divided equally among three sectors. The Core Growth sector includes large multi-national companies, the Growth Sector includes mid- to large-cap companies, and the Aggressive Growth sector includes small- to mid-cap companies. The strategy is concentrated, and typically includes approximately 10-20 positions, and 5% cash. The portfolio may hold fewer positions in times of market uncertainty, when raising cash as a hedge. The strategy only invests in stocks, ADRs, and ETFs denominated in USD. The Thematic Growth Composite was created June 2015. The inception date of the strategy is August 1, 2014. Prior to 12/31/2025, the composite was called the All-Cap Growth Composite.

The S&P 500 is a free-float capitalization-weighted index of 500 large-cap common stocks actively traded in the United States. The index is shown as a general market indicator and may not reflect the same exposures as the composite.

The investment management fee schedule for the composite is 2% on the first $250,000, 1.5% on the next $750,000, and 1.0% on the remainder. Actual investment advisory fees incurred by clients may vary. Further information regarding investment advisory fees is described in Part II of the firm’s Form ADV.

Past performance is not indicative of future results. The U.S. Dollar is the currency used to express performance. Performance shown represents total returns that include income, realized and unrealized gains and losses. Net of fee performance was calculated using actual fees. Composite performance is presented net of foreign withholding taxes on dividends, interest income, and capital gains. Withholding taxes may vary according to the investor’s domicile. Policies for valuing portfolios, calculating performance, and preparing GIPS reports are available upon request. The annual composite dispersion presented is an asset-weighted standard deviation calculated using net returns of accounts in the composite the entire year. The 3-Year Standard Deviation represents the annualized standard deviation of actual net composite and benchmark returns, using the rolling 36-months ended each year-end.