Osterweis Virtual Roundtable Replay

Chris Zand: Hello and thank you all for joining us today for the Osterweis Virtual Roundtable, our annual gathering with leaders of the firm where we discuss recent market activity and trends, our portfolio positioning, and our outlook for the remainder of 2025. I'm Chris Zand and we're happy to connect with you all today. 2025 has been a surprisingly strong and volatile year in the markets despite many legislative and policy changes from Washington. As we near the fourth quarter, there are many market shifts to consider. Some of the questions we'll be focusing on today include: Can the economy continue to expand despite everything that's been happening? How will the impact of tariffs turn out as we move into the back half of this year and 2026? How strong is the labor market? And where is Fed policy headed in terms of rate cuts? We'll also get an update on the firm, speak with each investment team about portfolio positioning, and discuss where we are in the AI cycle.

Lastly, I'll be touching on a few planning considerations ahead of year-end and we'll finish with our audience Q&A. So with that backdrop, let's get things started with the discussion of the macro economy. Joining me for this discussion are chief investment officers John Osterweis and Carl Kaufman. John, let's start with your thoughts on what's happened so far in 2025. It's been an unusual year featuring disruptive policy changes from Washington, uncertainty regarding trade, and increased volatility. Yet despite all of this, markets have mostly shrugged off the news and traded higher. What do you think is going on?

John Osterweis: Well, Chris, nice to be with you and nice to be with you everybody in the audience. You're absolutely right, 2025 has been an unusual and very interesting year. As you might recall, when Trump took office, the market had been in a multi-month rally, largely driven by the fact that people expected him to be a pro-business president and that his policies would stimulate economic growth. Then in March, Trump announced reciprocal tariffs on all our trading partners. The tariff levels were significantly higher than anybody expected, that triggered a violent selloff as investors were spooked by the prospects of an economic slowdown and higher inflation. And perhaps maybe even more importantly, it also made people aware that this administration would not be conducting business as usual.

Over the past eight months, we've seen several other unorthodox maneuvers by the administration that have kept investors on their toes. Aggressive trade policies being one, immigration policies that have been much more restrictive than anticipated, a pressure campaign focused on the Federal Reserve Board, and now lastly, a large unexpected fee on H-1B visas. All of these actions, to say the least, were unusual and unprecedented. But what the market has come to realize is that Trump often starts with a very extreme position and then dials it back. And so the market has termed this the "TACO trade," TACO meaning Trump always chickens out. And so the administration will come out with something very unexpected or more extreme than was expected. The market will trade down and then other investors will step in and say, "Look, it's not going to end up this way. That's just the opening bid." And so the market has managed to focus on economic fundamentals and plow forward.

Chris Zand: Thanks, John. Very helpful. Now, the strong market has also been a bit surprising given how little time the economy has had to adapt to so many changes. Why do you think the markets have been so resilient this year?

John Osterweis: I think fundamentally the market has focused on economic fundamentals, which have remained quite strong. Corporate earnings have met or exceeded expectations. Unemployment has remained low near about 4%. This has obviously supported consumer sentiment, which is important because as you all know, the consumer is about two-thirds of the economy. Inflation hasn't come down to the targeted 2%, but it's been holding fairly steady around 3%. And don't forget, there's been massive investment in AI, which has boosted the economy and been a real tailwind for the market. And finally, the Fed was expected to cut interest rates and has started to cut with a 25 basis point cut just shortly before this meeting. So the big economic picture is positive and the market has, as I mentioned with the TACO trade basically, to some extent, ignored some of these more extreme policy announcements coming out of Washington.

Chris Zand: Thank you, John. Market fundamentals have been strong, which is reassuring. Now, before we continue, let's pause here and ask our audience the first polling question of the day, which is directly related to this topic. Given the significant policy changes that have been implemented so far this year, are you feeling better or worse about the economy? And while we wait for the answers to come in, John, I'd like to ask you about the labor market. It's been a source of strength all year, but recently we started to see some cracks. What's your take on the job situation?

John Osterweis: No question. The labor market has been slowing, however, unemployment is still hovering near 4%, which is a low number historically. But in September, the BLS report showed only 22,000 new jobs nationwide, which is weak. Part of the answer for this is that aggressive immigration policies have reduced the potential size of the available labor force. So maybe we don't need to create as many jobs as we would've otherwise, but the trend is down and it's something we're watching like a hawk.

Chris Zand: Thanks, John. Very helpful. Let's take a moment now and look at the poll results. It looks like the majority of our viewers today feel worse, not clear about objectives and not sure that the policies will help. Very interesting perspective. I think another reason the markets have actually remained mostly bullish is that tariffs have not created much in the way of inflation, which is also a bit surprising. Why do you think the impact, John, on prices has been so muted?

John Osterweis: Well, I think it's a matter of timing. First off, people did expect tariffs to be implemented, and as a result, many businesses ordered in advance and had an inventory of lower-priced pre-tariff goods. So a lot of what's been sold to-date have been these lower-priced goods. On the other hand, businesses have a choice. They can either eat the cost of the tariffs or they can pass them on. And I think ultimately the tariff costs will be passed on and therefore inflation is likely to remain elevated until we anniversary the tariffs. So I would expect no decline in inflation at this point and maybe even a little upward pressure as these costs get passed through. But again, this is one of these things we have to monitor closely.

Chris Zand: Great, John. Thank you for the perspective. Since we're on the topic of inflation, why don't we hear what the audience thinks about inflation this year? You can see we've put up now our second polling question. Have you noticed prices going up so far in 2025? And while we wait for the results to come in, Carl, I'd like to bring you into the conversation. It'd be great to get your perspective on 2025. Do you have anything you would add to what John has said?

Carl Kaufman: Thanks, Chris, and thanks everybody for being here. I don't have a lot to add. John I think summed it up very well. It's certainly been an interesting year and we're seeing similar behavior in the fixed income market that John is seeing in the equity markets. Specifically, sentiment has been more bullish than we expected and we'll just have to wait and see how long this lasts.

Chris Zand: Thanks, Carl. Okay, let's take a look at the polling results on inflation. Definitely seems that the majority of our audience have seen prices go up either definitely or somewhat, which would suggest that the inflation numbers we've been seeing published may be a bit understated, something clearly we'll need to monitor closely. Clearly, inflation is central to what the Fed is trying to do, so let's talk about that a bit more now. Carl, we've seen the administration on a pressure campaign to influence the Fed's Board of Governors more recently. What's your take on that situation?

Carl Kaufman: Well, clearly an independent Fed is very important to the system. I think that it may take a while to get total control of the Fed, but for now, I'm not that happy with what's going on. We have, as you saw, one of his recent appointees was an outlier, and Powell's term expires in May of next year, so we'll just have to wait and see. But it's not good for the currency. It's not good for borrowing costs.

Chris Zand: Thanks, Carl. Yes, it is a very interesting situation. Let's wrap up our macro discussion now by getting your thoughts, both of your thoughts actually on where you think things might be headed given what we've already discussed.

John Osterweis: Well, I can go first. I would say I'm cautious because there are a lot of unknowns at this point. As I mentioned, the underlying economic fundamentals remain solid, and that underpins obviously the bull case for the market. But at the same time, we haven't seen the full impact of the tariffs, and so the course of inflation remains a question, and obviously higher costs could dampen consumption. So we don't quite know what those dynamics are going to be. Thirdly, we have to be cognizant of the fact that equity valuations are stretched, they're above average, and at some point they could come back down. On the other hand, the Fed just started a cycle of interest rate cuts, and so that actually could boost or bolster equity valuations. So a lot of unknowns. We're monitoring them all, and as my partners will talk about in greater length, we are very, very disciplined and focused on owning only high-quality companies, so leave it at that.

Chris Zand: Excellent. Thank you, John. Carl, your thoughts?

Carl Kaufman: Yeah, I agree with John. Mostly in our world, clearly credit spreads are our best indicator of market sentiment, kind of like valuations are for equities and high yield spreads are, and investment grade spreads are near the lows. In addition, most of the strategists on Wall Street are bullish right now as they seem to be discounting the risks and focusing on the positives. We think the balance is a little more delicate than that. We're not quite of the same opinion and optimism, but that's the way we bond guys are, I guess.

Chris Zand: Perfect. Thank you, Carl. It sounds like you're both a little cautious, especially given how far we've come this year. Thank you again for your thoughts. At this time, I'd like to change gears and introduce our Co-Chief Executive Officer, co-CEO, Cathy Halberstadt. Cathy, thanks for joining us today. I was hoping we could start off with a quick update on the firm.

Cathy Halberstadt: Thanks, Chris. I'm happy to talk about that. But first, thank you for joining us today. We know you all have busy schedules, so we certainly appreciate you spending some time with us. As for the firm, I'm pleased to share that things are steady here at Osterweis, which is how we like it. We continue to grow but at a deliberate pace. We now have 66 employees, mostly here in San Francisco, but also some located around the country. We remain deeply engaged in our communities supporting a wide range of charitable organizations and even lending our own hands with firm-sponsored volunteering events every quarter. Our assets under management are currently at eight billion, which reflects our longstanding relationships with and our commitment to you, our clients.

We've added a few new employees, including some that directly support the Private Client group. Jens Myrner has joined our Private Client team, who some of you may already know. And last year we added Jasmine Shen, who will be speaking later, to our Core Equity investment team. We have also been expanding our investment offerings specifically for the benefit of our private clients. We now provide access to a curated list of alternative investments, which are only available to qualified investors, not the general public. And we've also added option-writing capabilities to support our clients with concentrated equity positions, and this allows them to generate income while also providing downside protection.

Chris Zand: Thank you for that helpful update, Cathy. Can you talk a bit about our investments in technology?

Cathy Halberstadt: Absolutely. One of our top areas of investment within technology is cybersecurity. The unfortunate truth is that there are a lot of bad actors out there targeting high net worth individuals, so we really make it our priority to safeguard your personal information. And we have security protocols in place that help ensure the integrity of our client accounts, including regular engagement with custodians, systematic reviews of all transactions to ensure accuracy of reporting, and constant evaluation of security measures to protect against these scammers and fraudsters. Lastly, I would like to take a moment to remind each of you to be vigilant with your own data. There is only so much we can do, so please be extra careful when you are doing anything online that is related to your own financial information. If you have any questions about protecting your data, please reach out to us for best practices.

Chris Zand: That's great, Cathy. Thank you. Before we wrap up, any final thoughts?

Cathy Halberstadt: Thanks, Chris. I do want to reiterate how truly privileged we are to serve our clients. It is so rewarding to help you achieve your financial goals. Osterweis was advising individuals before we launched our first mutual fund or took on any institutional relationships, and some of our very first clients are still with us today as are their kids and grandkids. It's really all part of our longstanding commitment to being full-service, high-touch advisors for our clients for decades to come.

Chris Zand: Thanks, Cathy. That's a wonderful note to end on, and thank you again for taking the time today.

Cathy Halberstadt: My pleasure. Thanks, Chris.

Chris Zand: Excellent. Okay, now we're going to go ahead and shift gears again and take a closer look at each of our investment strategies. We'll begin with the Core Equity team, which includes John Osterweis as well as Co-Chief Investment Officers Nael Fakhry and Greg Hermanski, and Portfolio Analyst Jasmine Shen. John, I think it makes sense to start off right where we left off during our earlier conversation. Can you give us a sense of how we're currently positioning our equity portfolio?

John Osterweis: Sure, sure. We, as you know, are dealing with a lot of unknowns, and so we're very focused on very high quality companies that we think have the ability to grow despite whatever goes on in the overall economy. Some of these are more offensive, others are more defensive, but what they have in common is high quality, a lot of moats, ability to raise prices usually, and in many cases growing dividends. So the longer-term perspective, these are companies that you want to have in your portfolio. I will let my colleagues go into great depth on this.

Chris Zand: Excellent. Thank you, John. Nael, maybe you can expand on those thoughts and talk a little bit about some of the key characteristics we look for in a portfolio company.

Nael Fakhry: Sure. As this slide shows, the way we think about investing, you've probably heard us talk about this in the past, is we apply a quality growth framework. And what we mean by that is company has to have three key attributes. First, it has to have a durable competitive advantage, and that can be anything from barriers to entry because of regulation. It could be network effects, could be scale, but it has to be something that we understand at a really granular level that protects the business. Second, the business has to have an opportunity to reinvest in order to drive future growth. And that rate of growth typically has to be, in our view, at or above the rate of GDP growth. And that means that often there's some sort of structural tailwind in the company's sector or industry that's enabling that growth. And last, the company has to have really good governance so that it focuses on the long term.

And what we find is that when a company exhibits those attributes, it tends to generate growing free cash flow per share, and that's really the lifeblood of value creation for shareholders. And that growing free cash flow can be used for a number of things, including, as John alluded to a second ago, growing dividends. So if we think we own a portfolio, concentrated portfolio of companies that fit our quality growth framework, we buy them at attractive valuations. They should do well in most environments, even in choppy ones where they can actually take share from their competitors who are on their heels and dealing with all kinds of other issues.

Chris Zand: Thanks, Nael. Both you and John talked a bit about growing dividends. Could you talk a little bit more about how this factors into our investment approach?

Nael Fakhry: Yeah. The reality is about 80% of our companies at any one time are going to be paying growing dividends. And it's an important theme, but an important distinction to make is that we're not seeking yield. We don't look for companies that pay a high dividend relative to their share price. We view the growing dividend really as a signal of the quality growth framework that I just talked about, and that actually reinforces the quality growth framework. And what I mean by that is if a company is paying a growing dividend and commits to it, then it likely has a durable competitive advantage that enables it to generate super normal profits and thus it can pay a dividend. It likely can grow its cash flow over time, hence it reinvest in an opportunity that enables its cash flow to grow and thus the dividend can actually grow. And it likely has good governance that's long-term oriented, hence the company can commit to that long-term growing dividend. And a bunch of our companies across our portfolios I think carry those attributes.

So you could look at a company like Microsoft, very dynamic software business that's been around since 1975. They initiated a dividend in 2003 and have grown it almost every single year since then. Google, which we've owned for something like 12 or 13 years, never paid a dividend. We knew it could and it finally initiated one last year and now is committed to a growing dividend, which we view very positively. Or Brown & Brown, this is an insurance broker. It's been paying a growing dividend for over 30 years every single year. And in every case, the dividend is not the main attraction. Again, it's a signal and we think that if we can find companies that can be profitable enough to pay a growing dividend but still aggressively reinvest to drive future growth, that's where we want to be.

Chris Zand: That's great, Nael. Very helpful. Thank you. Let's pivot now and talk a bit about AI. It's an area we've been doing a lot of work in and have several AI-related positions within the portfolio. Greg, could you catch us up on the area?

Greg Hermanski: Sure, Chris. There's a couple of important developments that we've seen in AI over the last year. One of them has been the development and the reduction of the cost of running AI. Earlier this year, DeepSeek released their third version of their AI model and it showed new processes for building AI models that can drive down the cost of training and inference. In addition, we're seeing every year semiconductor companies introduce new chips that dramatically increase the power and the capacity of their chips, and that's leading to huge amounts of increase in the compute capacity for the industry. So the result is that we're seeing the cost of running a query fall dramatically. Since ChatGPT was introduced, it stayed on 99%. The second development that we've seen has been a broad-based adoption of what are called reasoning models.

Now, these models, they can break down complex tasks into smaller steps, explain each step, check for possible answers, review the rationale, and then go back and look for better answers and then provide their conclusion or responses. This iterative thinking requires significantly more processing capacity, but it results in models that are significantly more powerful and effective. So, given the lower cost of compute, businesses have been increasing their use of these more effective reasoning models, and that's driving up the total demand for the amount of compute power that's being used in the industry. And the result is that there's been a dramatic increase in the amount of CapEx that's being spent. It's primarily been spent by the hyperscalers, and that's to support both their internal demand and outside customer demand.

So maybe the best way to illustrate the state of the industry right now, it was seen in a recent reported order that OpenAI placed with Oracle, which was to rent $300 billion of compute capacity over the next five years. Probably the most amazing thing about this is that OpenAI is estimated this year to generate around 14 billion of revenue. So to reach those levels of demand that's implied, there needs to be incredible growth over the next few years for OpenAI services. And so we look at this and we see a huge gap between the current demand and the implied future demand. So we're watching very closely for how things are going to play out over the next few months and years.

Chris Zand: Thanks, Greg. The progress is truly fascinating. I have a follow-up AI question for Jasmine, but before I ask that, I'd like to bring around our next polling question, which has to do with AI. How often do you use AI either at home or at work? And while we're waiting for those results, Jasmine, I was hoping you could talk about a few of our AI investments.

Jasmine Shen: Sure. It's nice to be with you today, Chris. We're actually invested across a number of segments within the AI ecosystem. So if you visualize a pyramid in your head, at the bottom of the pyramid, we have the semiconductor vendors like Broadcom and NVIDIA who are respective leaders in the custom ASIC chips and the GPU space. On top of that, we own the three hyperscalers, Microsoft, Alphabet, and Amazon, who are deploying huge capital buying these chips and providing critical cloud infrastructure to its customers. Then on the software application layer, we're invested in software companies like Intuit and Salesforce, whom we think will eventually emerge as AI winners in the space due to their incumbency advantage and robust product roadmaps. Lastly, we'll be remiss not to mention Synopsys, who is a critical vendor in the chip design and development space and Applied Materials, which is a leading U.S. semi-cap equipment vendor. All of them has parts of their business that will also benefit from the secular growth in AI.

Chris Zand: Thanks, Jasmine. Very helpful. Let's take a moment now and take a look at our poll results before we switch to the next panel. Based on these results, it looks like there's a pretty big range out there. Some people using it regularly and others not so much. In any case, it does help to explain why there's so much investment in this space. I'd like to thank the core equity team now for all their great insights and change gears and turn to fixed income. For this conversation, I'll be joined by Carl Kaufman, who we spoke with earlier, and Craig Manchuck, a PM, our portfolio manager on the strategic income team. Carl, thanks for coming back, and Craig, it's good to have you with us. Carl, we were talking earlier about the macro environment, but I didn't get a chance to ask you about the credit cycle. Can you talk a little bit about where things stand at the moment?

Carl Kaufman: Sure. I should start by saying that when we think about the credit cycle, we think of two separate questions. The first one is where are we right now? And the second, and more important one is, how long will the current conditions last and what happens next? For the first question, the current conditions are remarkably benign. As we discussed earlier, even though the macroeconomic picture is a little murky, the fundamentals are still basically strong. As a result, fixed income investors have been willing to accept lower credit spreads for both high yield and investment grade bonds for a while now. Unfortunately, the second question, how long will these conditions last? Much harder to assess. In general, when spreads get this low and investors get this complacent, it can be a sign that trouble may be lurking. On the other hand, this market has been defying odds for so long, withstanding trade wars, real wars, chaos at the Fed, chaos in Washington, that we really don't know when it will change directionor what will cause it to change direction. Usually it's something that no one expects but in retrospect should have expected.

Chris Zand: Interesting, Carl. Seems like a very delicate backdrop and that we might actually be near an inflection point. Could you talk a bit about how we're positioning fixed income investments currently?

Carl Kaufman: Absolutely. You might think that we like a benign environment as it means default risk is low, and in a sense we do because default, it has been low. But the truth is that conditions like these, we generally prefer to proceed cautiously after big run-ups in the market like this. If you think about how bonds work, you can appreciate that you're buying something that matures in six to seven years. The credit conditions today are not particularly relevant. The real question is what shape is the company going to be in in six to seven years? If you look back six, seven years prior to today, I mean you had Covid, you had interest rates getting raised. A lot can happen in five to six years.

As a result, we're pretty defensive right now, and the way we do that in fixed income is we buy a lot more shorter maturities that have a timeframe that we can actually make a very good educated guess as to how conditions will be for those companies. We have an unusually large allocation to bonds maturing in less than one year. Fortunately, the short end of the curve is still paying us between four and 5%, so being defensive is not costing us that much versus say four and half, five, five and a half percent in investment grade and six and a half to 7% in high yield. Of course, we do have some longer-term names in the portfolio, but I would say that the biggest proportion that we're focusing on right now is the shorter part of the curve.

Chris Zand: Thanks for painting that picture, Carl. Very helpful. Now a bit of a more nuanced question. We have a flexible approach to fixed income investing, and I was hoping you could take a moment to explain exactly how that works in practice.

Carl Kaufman: Sure. The official term for our approach is "unconstrained," which means we have the flexibility to invest in whatever part of the market we feel is most attractive given the current conditions and future expected conditions. Our goal has always been to deliver the highest returns at the lowest possible risk, and that's why flexibility is so important. We can adjust our portfolio however we feel is most appropriate based on economic and market environments. As I just mentioned, right now we're overweight at the short end of the curve, but when conditions change and the bond market has a hiccup, we can use our liquidity to pivot fairly quickly to lock in attractive longer term yields. This is quite different from most managers who are benchmark oriented, who are required to stick with the same sector or approach even when conditions are unfavorable for that approach.

Chris Zand: Thanks, Carl. Very helpful. Craig, I'd like to turn to you now. Can you tell us one of the maybe high yield names in the portfolio? Carl mentioned high yield has been an area of focus for the team for a while now, so it'd be great to hear about a security that really exemplifies that in this area of the bond market.

Craig Manchuck: Sure, Chris, thanks and nice being with you today. One of our core positions and a name that we've owned for a very long time is a company called Unisys. We've actually owned several iterations of the bonds and our holding in the position goes back 17 or 18 years, so it's a business we know very well. Unisys is a technology company. Years ago it was called Sperry Rand, and at that point they made a large mainframe computer called the UNIVAC. But over the years, the business has evolved and modernized and is doing quite well now. However, given the long history as many of these older companies do, they have pension obligations, and pension obligations are often seen negatively by bond market participants and they count them as additional debt. So we like the management team here and they've done a good job with that pension over time, but as they came to market recently to refinance us out of an older bond issue, they decided they wanted to tackle some of the underfunded pension liability.

The market didn't view that all that favorably, so they ended up having to pay what we call a penalty rate of 10 and five-eighths, which was quite above market coupon on the bond. We thought it was a great opportunity to make it a large position, and so we were able to buy a very large position in it and we're very happy with it. Because as the market misunderstood what they were doing, we knew quite well where they were going with this, and the bonds have subsequently traded up to about 106. So now we hold the bond that's trading with an above market coupon and trading up six points in the market. So it's just another aspect of what our strategy is, which is looking at deep due diligence, long-standing relationships with companies where we get to know management teams, and finding bargains that other managers often miss.

Chris Zand: Thanks, Craig. That's a really helpful example. Now, another type of bond we invest in are convertible bonds, which is a bit of a niche market and requires special expertise. Can you expand a bit on that area?

Craig Manchuck: Sure. So we have actually a very unusual structure in that both Carl and I have 30 plus years in the convertible bond market. So he and I actually met many, many years ago when we were working in that business, and it's very unusual because it's a niche market to have two fixed income portfolio managers with that kind of experience. So it's really quite a substantial advantage for us when we're looking for new opportunities. Convertibles are securities that can act at times like equity or at other times they can act like debt, all depends on how the underlying equity is performing. And we oftentimes invest in both types. But more recently we've been finding interesting opportunities in what we call "busted convertibles," which are the more debt-like instruments. Many of the technology companies that have come to market in recent years issued convertibles when their stock prices had appreciated pretty substantially.

We had passed on a number of them at the issue because we felt like the stocks were not going to make significant returns for us. And as time has gone by, we were correct. So many of these securities, the stocks have fallen and we've now got some busted bonds. And one of the names that we like in that area is Airbnb. Very large company. They issued a very large convertible bond when the stock was near the high and the stock fell, so now it's busted. But we were able to buy these bonds with a very short maturity at a 5.3% yield. Company's got $12 billion in the balance sheet, only $2 billion in convertible debt outstanding. So we don't worry about them having to actually come to market to refinance us.

They could easily pay these bonds off with cash on the balance sheet, and we think this is actually a very favorable risk-reward profile for us. Very low volatility, high degree of certainty on repayment. And because we're one of the few fixed income firms that actually will buy convertibles, we actually have a lot of the salespeople in the convertible universe who know of us and will call us and show us these opportunities first. So it really gives us a leg up over a bunch of the other shops out there.

Chris Zand: That's great, Craig. It sounds like we're a buyer of convenience for busted convertibles. Maybe you could zoom out for a moment and talk a bit about sector allocation. Are there certain areas we tend to gravitate towards?

Craig Manchuck: Yes. We like to stay away from industries that are commoditized, and we prefer industries that are less sensitive to the macro economy. So we've avoided areas like energy and shipping, oil and gas production is highly cyclical and we're not experts in that space, so we tend to stay away and it's served us well. We like differentiated businesses that are integral to the economy. One of our favorite sectors is food services and specifically food distributors. They deliver groceries to supermarkets, colleges, universities, restaurants. They have predictable costs, stable revenues, products are always in demand, people always need to eat. Another area we like is aerospace and specifically the aircraft lessors and the major carriers. There's a shortage of new aircraft out there, so the people who have existing fairly new aircraft have very, very valuable assets, and they're in demand.

We focus on the users of the planes for which there is the most demand, and therefore we feel like there's always going to be some backup plan here in case the market backs off. We're also in some other niche businesses that are overlooked by other managers that may be smaller or slightly off the run. One of them in particular is a company that manufactures physical credit and debit cards and something that we've talked about a lot in the past because there are not a lot of companies out there doing it, so there are not a lot of other analysts following this sector. It's not a financial company, it's a manufacturing company, and they're literally making the plastic and metal cards out there where we have a very large installed base, cards expire and mature and need to get reissued. So we don't really need to worry too much about them as a finance company, we focus on their ability just to continue to reprint cards every time people come back and need a new card. So that makes us very comfortable in this little niche.

Chris Zand: Thanks, Craig. Very helpful. Appreciate your insights. Carl, one last question for you before we wrap up. You published a paper a few months ago that talked about the evolution of credit markets over the years and you made a somewhat bold claim that high yield bonds now trade more like investment grade. And that private credit, a new and rapidly growing area of the fixed income market, is the new junk bond market. Would you mind maybe providing a little more context?

Carl Kaufman: That's a pretty good summary of the paper. Once upon a time back in the early '80s, there were only two categories of corporate bonds, investment grade and non-investment grade. And the non-investment grade was full of rather sketchy companies that couldn't finance the investment grade market, so it got the moniker junk bonds. Fixed income markets have grown exponentially since then and now we feel there are four categories of bonds. There's investment grade, as you all know is high quality companies. There's high yield, which is what traditionally was known as junk. There's a new category that came that matured about 20 years ago, which is leveraged loans. The banks have been disintermediated by the market in offering loans to sub-investment grade companies, partly because of capital restrictions following '07, '08, and partly because the market has price-insensitive buyers of these loans, namely the collateralized loan obligation suppliers, CLOs, for those of you who are familiar with it.

And now there's a new one that has cropped up, which is, as Chris mentioned, private credit. It's the shiny new toy. And these are companies that cannot finance in either the loan market easily or the high yield market because they're either smaller, not high quality enough, and they choose to finance there. So if you look at the past 20 years or so, the high yield market, the highest quality portion of the high yield market, the double B rated bonds are now 55% of the market. Twenty years ago they were 40%. Triple Cs are about 10%. They used to be 17 plus percent of the market. So the market is much higher quality than it was. So even when you're looking at spreads and comparing them to what they were the last time they were close to this type, if you were to recompose the index so to speak and see what spreads would look like if we had the same composition that we did back then, they'd be about 50, 60 basis points higher. So the market looks richer, but it really isn't. So the point I make is that you were starting to see much higher defaults in the private credit space and in leveraged loans.

Chris Zand: Fascinating. Well, thank you for that summary, Carl. That wraps up our conversation on fixed income. And now we're onto our final investment panel of the day. I'm delighted to introduce Jim Callinan, Chief Investment Officer and Lead Portfolio Manager for our U.S.-focused small cap growth strategy, and Matt Unger, portfolio manager on Jim's team. Why don't we kick the conversation off with a summary of some basics? Jim, can you tell us how you define small cap growth? The name sounds self-explanatory, but I know you have your own perspective on what it means.

Jim Callinan: Thank you, Chris, and welcome to this conversation. You're right, there isn't a standard definition. Small cap growth is actually a combination of two different types of stocks, small cap stocks and growth stocks. It's probably easiest to start by defining what "small" means. Although there is no official cutoff, most investors think of small caps as companies between one and six billion in market cap. To put that into context, Nvidia, currently the biggest company in the world at over four trillion, and Microsoft and Apple are both over three trillion, as such, where we look for ideas is highly differentiated from our internal large cap core strategy.

Growth, however, is a little bit trickier to define because there are so many possible metrics to consider, but conceptually it's simple. A growth stock is any stock that is expected to grow faster than the stock market overall. We tend to focus on top-line revenue growth as our main criteria, but of course we look at other statistics too, including margin expansion and valuation. Also, we generally avoid businesses that are not profitable even if they're growing revenues at a healthy clip.

Chris Zand: Thanks, Jim. Very helpful. So with that backdrop, can you discuss how the team approaches the space and what specifically you look for?

Jim Callinan: Of course. Our strategic objectives are straightforward. We are focused on building a portfolio of smaller, rapidly growing companies. And we generally run a high conviction portfolio, which means we rarely have over 40 positions at any one time. As a rule, we will not invest in a company unless our analysis indicates that it has a minimum of a hundred percent potential upside during our holding period. Our investment horizon is usually looking out three to five years. And we generally focus on companies growing revenue ranging from 10% to 50%, which allows us to construct a portfolio consistently with an average revenue growth of about 30%, and this has been consistent in the 17 years of our strategy's results.

Chris Zand: Interesting.

Jim Callinan: Our typical company is usually a little under the radar screen or not fully developed as a company or not really discovered yet by Wall Street. We look for quality businesses with long runways for organic sales expansion.

Chris Zand: So Jim, does that mean finding opportunities with such high growth targets easier or harder?

Jim Callinan: It's probably a little bit of both to be honest. We have some proprietary screening tools that we've developed over the years that help us create our watch list. These really focus on three or four sales variables, some profitability variables as well as valuation variables. And these screens definitely limit the number of companies that we need to monitor, because most companies do not clear our hurdles. Remember, we have about 200 names on this list that we monitor, but only 40 make the portfolio. But once a company makes it to our list, we have to figure out what's driving its growth. We prefer companies that are innovators and/or disruptors. Historically, these have been our best performers. We try to figure out where the revenue is coming from, a sustainable source or whether it's more of a fad. For example, in other words, we need to know the difference between the next Beanie Baby, eBay, and the next Google, because they're both likely to be on our watch list because of the fast fundamentals that they have in the short run. But it's our job to find the really long-term growers.

Chris Zand: So how do you do that exactly? What attributes do you look for to determine whether a company's growth rate truly is sustainable?

Jim Callinan: It's not easy, and there's always people who are oppositional to what you believe, so we really try to focus on companies that are experiencing secular growth. Secular growth occurs when something fundamentally changes within a sector or industry, creating a new wave of demand. A good example of secular growth was when flip phones moved to smartphones and on-premise computing moved to the cloud. And more recently with the AI boom, we are going to create a huge secular growth wave of startups and IPOs benefiting and using AI to create businesses. Of course, most of these companies are doing something more subtle than that, but the key is to analyze the business model and determine the magnitude and the duration of this secular opportunity.

Chris Zand: That makes a lot of sense, Jim. Thank you. Could you give an example of a recent secular growth company that's worked particularly well in the portfolio?

Jim Callinan: Sure. I'll let Matt take this one.

Matt Unger: Thanks, Jim. A great example of an innovative company that used to be part of the portfolio is Axon Enterprises. You've probably never heard of the company, but you're probably familiar with their flagship product, the Taser gun used by police officers. So they really pioneered this market years ago, but the company's gone through this incredible business transformation over the last five years. So they got into body cameras, really pioneered growth for that market and set up a SaaS platform to house all the information from the body cameras that they could go ahead and sell to municipalities. This allowed them to generate high-margin recurring revenue, so it was real helpful to the business model. And then more recently they've added some AI solutions, so the information from the body cameras, you can go ahead and use that to create automated reports. So police officers generally have to spend a lot of time on paperwork and writing things up.

So being able to do this in an automated way is really helpful from a productivity perspective. So it's an example of a company that continues to innovate, really make their product stickier, expand the moat around their business, and they really have no viable competition to speak of. Unfortunately, or fortunately, the company did so well that earlier this year we had to part ways because it became a $50 billion market cap. But this is the type of example of something that really motivates us every day going out and trying to find these disruptive companies that could be the next big thing.

Chris Zand: Thanks, Matt. That's a great example. Jim, I'd like to get your take as well on the macro environment for small caps today. How do things look from your perspective, and are you seeing things in the same way we heard from our earlier panelists?

Jim Callinan: I can go first. We basically agree with everything that John and Carl have said earlier in their macro panel on what's happening in the Trump world. I would add that the speculation in Bitcoin, gold, AI, quantum computing, data center, anything on data center spending has run rampant. And it basically is started by Trump's TACO position deep into the second quarter. Not only has the risk of tariffs increased the general level of economic uncertainty, but opportunities in healthcare, which is one of our big areas of investment, have become a little harder to find. Remember, the Big Beautiful Bill includes huge budget cuts to Medicaid while Secretary Kennedy and DOGE have implemented major cuts to NIH, CDC. This has created a variable ceiling on revenue growth for some of our companies that we were previously attractive to us.

Chris Zand: Thanks, Jim. Very helpful. Matt, I know you focus primarily on industrial and health care sectors. Can you talk about some of the opportunities you've been seeing recently?

Matt Unger: Yeah, so an industrial company we're excited about is called CECO Environmental, and they manufacture equipment to treat wastewater as well as remove contaminants in manufacturing and power plants. It's a small company. They got a new CEO back in 2020, and he really wanted to change the sales culture of the firm, so he tells the story of when he first got there. The sales people, they would just take orders, they wouldn't make outgoing calls. So there's a lot of low hanging fruit. As a result, they've been able to 5x their pipeline and new business, their backlogs 3xed. And they've seen a recent inflection in orders, a lot of that's driven by power infrastructure investment. So we think there's going to be a nice inflection in sales and profits over the next six to 12 months.

And then in health care, we really like Guardant Health. They really pioneered the concept of a liquid biopsy to treat cancer. And that involves, it allows oncologists to derive the genomic profile of a tumor using blood versus historically you've had to use a tissue biopsy. So there's an obvious convenience advantage there, and then they've come out with a new product over the last year called Shield for colon cancer screening. So there's about 30 million Americans that should be getting screened for colon cancer, but they aren't because they don't want to undergo colonoscopy or use Cologuard. So this is a nice alternative for them because again, it just requires a simple blood draw. So management's really bullish on this product and we agree with them and think it can be a billion-dollar franchise in 2030.

Chris Zand: Thanks, Matt. Both sound really interesting. We're about to wrap up this portion of our discussion. Jim, any closing thoughts you'd like to add?

Jim Callinan: Yeah, just want to let everyone know that we are of course monitoring the AI space for opportunities in small cap. Historically, when there's been a big build out in technology like this, the Internet, the cloud, et cetera, small caps have become a later beneficiary. Right now, the hyperscalers are grabbing all the headlines. They're experiencing the rapid growth, but we anticipate it will hit our market sometime in the next year or so. There's an area of AI called inferencing, is when they stop building the big training models which are going on now. Inferencing will be the app that we will participate in. We're already participating in these apps with semiconductor companies that basically enable inferencing like Credo Technology and other companies, and a company called SiTime, which allows for training.

Also, there's another great opportunity, which has remained and even gotten wider. The gap between small cap and large cap performance is approaching historical levels, which certainly suggests a reversion to the mean is well overdue. So to summarize, Chris, we are feeling bullish.

Chris Zand: Wonderful. Thank you, Jim. I'd like to thank you both for your insights. Okay. At this point, we'll be heading into our Q&A portion of the presentation shortly, but before we do, I'd like to spend a few minutes discussing several wealth planning topics to keep in mind as we near the end of 2025. First, the One Big Beautiful Bill or OBBBA brought about several important outcomes for investors to keep in mind. One of the most significant being the extension of the current income tax rates and brackets, which were set to expire at the end of this year. This means taxpayers will not see tax rate increases next year. Now you can still lower expected taxes by maximizing retirement contributions, bundling itemized deductions, deducting qualified business expenses, and timing income and/or asset sales. If you have a required minimum distribution from retirement accounts, you can also consider qualified charitable deductions, which allow you to satisfy your RMD tax-free by making charitable gifts.

As always, please let us know if you have any questions about any of these items. Another important update under the OBBBA focuses on the deduction for state and local taxes, or SALT. The OBBBA has increased the limit to $40,000, up from $10,000 for 2025, and has also added new deductions for tips, overtime, auto loan interests, and a new deduction just for seniors. Now, there are phase-outs based on income and tax filing status, so please be sure to consult your CPA regarding any of these developments. On the education-related front, the OBBBA has also provided greater flexibility for 529 plan owners. For example, qualified expenses for non-tuition-related elementary, secondary, and private school expenses are now allowed, as are expenses for acquiring and maintaining professional credentials. In 2026, you can also use 529 plan assets to pay up to $20,000 worth of elementary or secondary tuition costs.

On the charitable front, now may be a good time to revise or accelerate your charitable giving plans as the OBBBA places new limitations on charitable deductions. Charitable donations made this year can still receive more favorable tax treatment as compared to future years. Another important outcome of the OBBBA legislation has to do with the lifetime gift exemption, which represents the total amount of money you can leave anyone during your lifetime or at death, aside from your spouse, without incurring estate or gift taxes. Instead of reverting to seven million in 2026, the exemption will now increase to $15 million per person with annual inflation adjustments thereafter. If you had previously exhausted your lifetime gift exemption, this development adds another one million to your tax-free estate starting next year. If you're looking for ways to give beyond the available exemptions, ask us about grantor annuity trust or GRATs, which offer an additional avenue for gifting wealth tax-free.

2025 has certainly been a year of market volatility, changes in U.S. economic policies, and new tax and spending legislation, which highlights the importance for regular reviews of your personal and financial goals. Taking a holistic approach to manning wealth is more crucial than ever, and whether your focus is on retirement, investing in your passions, or ensuring your legacy, Osterweis can help organize and prioritize planning decisions to keep you on track and ensure your objectives are aligned with your financial resources. So with that, let's now go ahead and turn to the Q&A section. Feel free to enter any questions into our Q&A at the bottom of your Zoom screen or you can raise your hand, and we can call on you to ask your question directly. There were several questions that were submitted ahead of time, so I'm going to begin with those. This question is open to all our panelists. How concerned are you with President Trump's focus on centralizing power within the executive branch? Is the integrity of our economy at risk, from your perspective?

John Osterweis: Maybe I'll start with that since it's probably the most loaded question anybody could ask. I'm not sure that we focus on the centralizing of power in the executive branch per se, because it's very hard to give you an answer to that. But rather what we try to focus on are the specific areas where the administration is making a change or a shift. So one would be tariffs, and the one thing we know about tariffs is they are inherently inflationary, and so we can monitor that. We can see what the effect of that is. The second area where they're exerting control is over the media. I don't know what the effect of that is on the overall economy. I just don't have a way of answering that. The third is very tight immigration policies.

Well, that could be inflationary if it means that needed labor force does not come into this country, that would put upward pressure on wages here, which would generally be inflationary. The changes in health care. Jim mentioned some of the impact that would have. And finally, the attempted greater control over the Fed. Carl talked about that. I mean, that does have some real implications that could be quite broad and quite general in terms of where our currency trades, where interest rates go, et cetera. So I think rather than look at the move towards more centralized power, look at the specific policies and see what their impact is one by one.

Chris Zand: Thanks, John. Very helpful. Here's the next question for the panel. It has to do with climate change. Is climate change a concern and are there any insights you can share regarding companies that Osterweis is invested in and how they're dealing with climate change?

Nael Fakhry: I would say that it's definitely something, it depends on the company. It's definitely something that we think about. So at the moment in the core strategy, we don't have any energy exposure and it's something that we think about in terms of the structural headwinds to energy. The other, the flip side of it is that we are making investments that we think should benefit from the growing awareness of climate change and dealing with it. So an example would be American Water Works, which is the largest water and wastewater treatment business. Water is becoming a more and more scarce resource, and they're investing, they're the largest water utility in the country, and they're investing in the infrastructure to ensure clean and safe water that's widely accessible. So I think as a broad theme, it's definitely something that we're aware of and whether a company is or isn't and the impacts could have on that industry is an important consideration.

Chris Zand: Thanks, Nael. I'm going to move on to our next question. What are your thoughts on conflicts happening around the world? We have the conflict in Ukraine, another in Gaza, and what specific actions is Osterweis taking in preparation of a potentially wider global conflict?

Carl Kaufman: I'll go with that one. They're not good. I think Nael may want to speak to what they're doing in terms of investment in defense contractors. Because as you know, most of the aid that we give is not checks written, but military goods and arms that are made by U.S. companies. So unfortunately it does have a salutary effect on those companies bottom lines. But major conflicts like this around the world are not good for, they're not good for trade, generally speaking, they're not good for commodity prices generally speaking. As you know, Ukraine was about 40% of Europe's wheat production. I mean, they're still producing, but at a much lower level. And energy is another one that gets impacted, has not been impacted as much yet. But we're starting to see a rise in the price of oil as Ukraine hits Russian refining capacity. We'll have to wait and see. There's things you can control and things you cannot control, and we're doing the best we can.

Jim Callinan: Yeah, I think one of the things that's been highlighted about the Ukrainian conflict is the importance of, you can always find a silver lining, and I think what's happened is we as a country are going to be forced to retool our defense programs. We were very aerial and very oceanic, and now all these conflicts have been are really focusing on drones. So anything having to do with drones in the stock market I think is highly attractive and very interesting because even Ukraine has basically been able to fend off the Russians with drones. And drones are also working its way into Axon products. They have a huge drone division that they have. So anyway, I think that's a terrible thing to have conflicts, but conflicts also point out opportunity in redoing the defense. We've been defending Europe for 40 or 50 years with traditional forces without much technology change except for aerospace.

Nael Fakhry: I would just add that I think the way we think about it is, maybe this is just trying to end on an optimistic note, but the reality is that conflict is unfortunately, it's just a reality. And the thing not to do is to panic in these moments. Think about we survived, Europe survived World War II, the U.S. did. I mean Japan was rebuilt. And so these conflicts are real, but the economy survive and obviously we don't want some cataclysmic conflict. That'd be a really big problem. But the way we think about investing, because it's not something you can just completely ignore, is that you want companies that are really, really relevant no matter what. I think our consideration around investing in China takes into account that there could be a conflict at some point.

So we take that very seriously. Whereas we're willing to invest closer to home, whether it's Western Europe or Canada, when we're thinking about investing outside the United States. And then we want to invest in companies that are relevant no matter what. They will be necessary and they're not purely discretionary.

Chris Zand: Great. Thanks everyone. Very helpful. Next question, please share your perspective of the market rally widening to areas beyond the tech sector.

Greg Hermanski: I could start by just saying that there's a number of different areas in the economy that we're negatively impacted by Covid, and it's continued to have an impact on those companies. That's happened within health care, like life science, diagnostics companies. It's happened within certain industrial areas and it's happened within transportation. We also saw a huge negative impact on the aerospace companies and we've seen some of those businesses starting to come back. So we own Boeing and Airbus and those companies have started to recover, and there's an opportunity for some of these other areas that have been negatively impacted by Covid to see their businesses start to come back and growth start to return and profitability increase. And that would probably help to drive the market rally a little more broader.

Matt Unger: Yeah, I would just add that it's fairly broad. I mean, one of the things with S&P 500 is obviously so concentrated in technology, but if you look at a more broader index, like small caps, Industrials has actually been a very good sector this year, driven by data centers has really helped a lot of those companies as well as the investment in infrastructure. Then, as Jim talked about, defense and drones and then tech's obviously been good. Biotech's actually been a really good sector this year, partly because it was under-owned, but you started to see the phase two, phase three hit rates improve a little bit.

There's been a little bit of an M&A and then interest rates cuts. So it's really been Consumer and the other areas of health care that have been left out. So it's been pretty bifurcated and that's what you get in very thematic markets. And ever since Trump got elected, the market's been very thematic. I mean, AI has been around before that, but a lot of the new themes are due to that. So yeah, I'd say it's broader than just tech, but there's definitely some sectors that have been left out.

Chris Zand: Great. Thank you everyone. We've received a few questions on the AI subject, so I'm going to go there next. The first one, how do you find AI development impacting the economy? And two, investment and trade forecasting.

Greg Hermanski: I guess I can start on that one. That's a broad question. But what we've seen so far with AI is we've seen certain areas that have actually seen a lot of productivity improvement. So software coding is dramatically positively impacting the productivity of software companies. We've also seen digital advertising positively impacted hyperscalers, have done really well. And what we've seen in those cases is an increase in the growth rate of the companies and increase of the profit margins of the companies. And as a result, they've been investing more and more in AI, which is positively impacting areas like semiconductors, data center building, power companies, utility companies. So we're seeing a positive impact from the investments and from the productivity. Some people have estimated that between now and the end of the decade, that that spending on AI could increase five times. If that comes with an increase in productivity, that could have a pretty dramatic impact on the economy in a positive way.

Chris Zand: Thanks, Greg. And how about the second half of that question? How is AI affecting investments and trading?

Nael Fakhry: Yeah, I think what we're trying, I know there's another question to the same effect in terms of what we're doing to use AI. Well, I guess one, we internally have an AI committee that includes a bunch of different people within the firm. It's not just on the investment team. And I'm sure Cathy can speak more to that. But in terms of investing, what we're doing is we're trying, to Greg's point, trying to increase productivity. We have tools that we already use and then obviously there are the large large language models that we are trying to use to basically enhance our productivity, our research process. And I think others are doing the same. In terms of the impact it's having on trading and in terms of AI funds, I think it's frankly still early. And Carl often points out that human judgment can't be totally replicated for better or for worse. So we'll see what the impact is going to be in terms of funds that launch.

Greg Hermanski: And I would also note that we're focused on investing in companies that have opportunities to grow fundamentally. So secular growth where you can drive revenue growth, you can drive free capital growth, but do it year after year after year because of their market advantages. And so we're not looking for one-time trading idiosyncrasies that we can take advantage of, but we're looking at investing in businesses that have a long path of growth ahead of them.

Cathy Halberstadt: And Chris, if I may just add from the non-investment side, I would say that this AI committee that we've created internally is in the evaluation experimental stage where we have some pilot programs in testing to see how we can use it on our operational side just to be more efficient.

Chris Zand: Great. Thank you all. Very helpful. The next question I'm going to turn to is related to health care. Individual health insurance premiums reportedly are due for a large increase. How would this increase impact market spending and other economic functions? How do you plan to respond?

Carl Kaufman: When have they not been due for a large increase? Clearly, I think that it's part of what's normally going on. We've had a reprieve in the last few years as a corporation anyway. I'm just speaking from our experience. But last year we did see a pretty decent increase in our premium, mostly due to experience. I think clearly people don't want to do without health insurance, so it probably will take away from other parts of the economic spending at the margin. I'll let anybody else comment.

Jasmine Shen: Just a quick comment here. I guess I cover the insurance companies for the team. One, to Carl's point, I think health care inflation has always been an issue in the economy, but I think what happened this year was actually the government taking away some of the subsidy programs that traditionally was in place for the Medicaid and the marketplace and exchange markets. So that will disproportionately impact mainly the lower income and the immigrant population. And if you think about that population, what I think you'll likely see the increase in the uninsured percentage, percentage of people uninsured, the uninsured population, especially the healthy part, the healthy people will likely just drop their insurance because of this rising cost. While the senior or the more sick population will not be able to drop that insurance, so you'll likely see a more disproportionate impact on their spending, especially for that part of the population.

Matt Unger: Yeah, I was just going to add that it's obviously inflationary then if you have, as Jasmine mentioned, less insured, it's going to be tough for hospitals because they're going to have to eat some of those costs, so that can affect their capital spending and whatnot.

Carl Kaufman: I will also point out that the way the BLS measures inflation for health care is what Medicare pays. So it may not actually flow through to the reported inflation numbers. It's a quirk in the way they account for inflation for health care.

Chris Zand: Wonderful. Thank you all. Another question we got has to do on the planning side about GRAT or grantor retained annuity trust. Are these still available? I thought they may have ended years ago. And the answer is yes, GRATs are still available. The attractiveness of preparing a GRAT does tie back to interest rates. They haven't been utilized as often more recently since rates have been a bit higher, but as we see the Fed cut rates, the annuity rate on a GRAT will likely come down, making them more attractive again. So stay tuned for developments in that area. And our last question is a question regarding asset allocation between domestic and foreign markets. The question notes that foreign markets have seemed to have done better this year compared to domestic markets, and Osterweis does have some foreign holdings, but obviously an emphasis on domestic holdings. For the panel, how are we thinking about that and do we expect any changes?

Carl Kaufman: From the fixed income point of view, we do have some foreign holdings as well. I think the rallies you've seen in Europe and in Asia are due to the U.S. making them stand on their own. Europe definitely driven by increased defense spending. The thought is that that will stimulate economies there. That has yet to happen. So I think the markets are ahead of the curve there. From here, I wouldn't be as enthusiastic about the markets, but I think they might've been cheap relative to U.S. markets and it just needed that little boost to get them going. So we're not going to chase those. And in Asia, the big market there is China, and as you know, they regulate their market, so they're not going to let you get too many profits before they do something to stop that, which they have done in the past. I'll let the equity team comment about their allocations.

Nael Fakhry: Yeah, I just say on the core equity side, we're definitely open to, and we own some foreign companies and we will continue to, but it's really bottoms up. And we always want to really understand our companies, really understand the markets they operate in. And we also structurally like the U.S., in spite of all the volatility recently because of the population growth, because of the governance practices here, it is frankly just much more oriented in favor of companies and that favors shareholders. Greg, I think you were going to say something.

Greg Hermanski: Well, I was just going to say that we've always looked at foreign companies and we've continued this year. There's been several companies that we've looked at and are continuing to look at, so I wouldn't be surprised if we do add to our foreign allocations. But like Nael was saying, it's really bottoms up. We're trying to find great companies that we want to own, and the U.S. is a great market.

John Osterweis: I think to wrap up on that, historically we've looked at foreign companies where we could buy a comparable company overseas at a much cheaper price than its domestic counterpart, and that's been a very successful strategy. But we haven't attacked foreign markets saying, well, we need to be in Egypt this month, or we need to be in Poland, or we need to be, that kind of macro call we've avoided. It's really been trying to find similar or better companies overseas at a much cheaper price.

Matt Unger: I was just going to add that I think one of the reasons that foreign markets in Europe did so well earlier this year is just because there was so much craziness here just caused capital flow out of the U.S. both in the bond markets and in equity markets around Liberation Day and whatnot. So obviously because of the TACO trade, that stuff has calmed down. Capital's seem to come back or at least stop leaving. So I think that was one of the dynamics at play as well.

Chris Zand: Great points. Thank you all for your insights. That was our last question for the Q&A section of today's program. I'd like to thank all of our panelists for joining us today and their insights. And I'd like to thank all of you for tuning in for our Annual Roundtable. A replay of today's presentation will be made available in a few days. And as always, if you have any specific questions, either about today's conversations or your own specific portfolios, please reach out directly to us. We thank you for joining us and wish you a wonderful afternoon. Thank you.