Bristol Gate U.S. Dividend Growth Equity
Mandate commentary
Q3 2025
Highlights
① The S&P 500 (TR) posted its fifth straight positive month in September. The U.S. Federal Reserve delivered on a widely expected 25 basis point (quarter percentage point) rate cut, with the likelihood of further cuts higher than previously expected.
② Balancing geopolitical uncertainty with positive economic fundamentals.
③ Broad diversification remains the best way to handle mixed market conditions.
Mandate overview
AI continued to shine, with Broadcom and Oracle the post-earnings standouts, while Nvidia said demand signals from hyperscalers (large (cloud computing companies) and sovereigns remain strong. This AI theme has led to an incredible concentration of returns in the index: JP Morgan identified 41 companies across three buckets (hyperscalers, data centres and utilities), which have provided 75% of the S&P 500s return since the launch of OpenAI’s ChatGPT in November 2022. Retail sales data surprised to the upside, with some positive read-through for services spending. Despite early month concerns about the labour market softening, initial claims fell to the lowest level in two months in late September. In addition, positive macro surprise momentum remained elevated throughout the month.
The Bristol Gate U.S. Equity Strategy did not participate positively in the quarter, lacking meaningful exposure to the AI/TMT (technology, media and telecommunications) dominance or the value-based sectoral tailwinds from a U.S. Federal Reserve policy rate cut.
Mandate: Lagged the S&P 500 TR Index.
Performance contributors
Security selection in health care and an underweight in consumer staples and real estate were relative return contributors.
On an absolute basis, leading contributors to the portfolio’s returns included Broadcom, Thermo Fisher Scientific and GE Aerospace.
Performance detractors
Both sector allocation and security selection were negative contributors from a relative return perspective, with the latter more heavily weighing on results.
From an allocation perspective, being overweight in health care and financials and underweight in technology were the largest relative detractors.
Carrier, Accenture and Intuit were the main detractors from an absolute perspective.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | Since INC. (NOV. 14, 2016) |
BRISTOL GATE U.S. DIVIDEND GROWTH EQUITY | -0.11%
| 12.87%
| 0.95%
| 17.50%
| 11.35%
| 13.02%
|
Mandate repositioning
In early July we trimmed Broadcom and GE Aerospace, and reallocated proceeds to UnitedHealth as part of our systematic quarterly rebalancing process. All three stocks were among our best performers during the quarter.
Following quarter end, we built a position in Amphenol (APH) while exiting Marsh & McLennan (MMC). Amphenol is a leading global designer, manufacturer and marketer of high-technology interconnect, sensor and antenna solutions. We believe APH is a high-quality, defensible franchise.
Marsh & McLennan was sold due to recent market dynamics in both its insurance brokerage and consulting businesses.
Market overview: signs of optimism emerge, despite the noise during "Liberation Day" fallout
The third quarter delivered broad gains across asset classes, with market performance largely overriding a backdrop of cautious sentiment. Investors looked past persistent trade policy headlines, increasingly treating the U.S. administration's tariff policy as noise rather than a core risk. The primary catalysts for the positive performance were a subtle shift toward lower-interest-rate expectations and resilient corporate earnings.
Signals from the U.S. Federal Reserve of imminent rate cuts were followed by a quarter percentage cut in September. Government bond yields eased into the quarter's end, supporting bond prices, while corporate bonds outperformed government bonds.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
Looking ahead, the normalization of inflation is a key development, providing central banks with the flexibility to begin an easing cycle over the next six to 12 months. This anticipated shift toward more accommodative monetary policy is expected to lower borrowing costs, creating a supportive foundation for economic activity.
This should help the macroeconomic environment sustain corporate strength. Earnings are projected to remain robust, building on a consistent trend of exceeding expectations. Resilient corporate profitability continues to be a primary driver of market performance.
The combination of impending rate cuts and durable earnings growth establishes a constructive outlook for equities. This environment reinforces the principle that focusing on underlying fundamentals, rather than reacting to short-term market volatility, is a prudent strategy for capturing future growth potential.
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