NZS Capital's Growth Equity strategy demonstrated exceptional performance in the second quarter of 2025, achieving a notable 19.39% net return. This robust outcome significantly surpassed the Morningstar Global Target Market Exposure Index, which recorded an 11.41% return during the same period. The firm attributes its success to a meticulously constructed portfolio that blends stable, high-quality core assets with dynamic, disruptive growth prospects, a strategy designed to thrive amidst market fluctuations. The strong showing was primarily fueled by strategic investments in information technology and industrial sectors, alongside a focus on companies poised for significant innovation.

The second quarter of 2025 was characterized by significant market volatility, beginning with a sharp decline followed by a vigorous recovery. Despite these turbulent conditions, NZS Capital's portfolio exhibited remarkable resilience and delivered positive returns. The firm's strategic approach, which emphasizes balancing core, stable holdings with high-potential, disruptive companies, proved effective in navigating the unpredictable market landscape. This dual focus allows NZS Capital to leverage opportunities that arise during periods of uncertainty, as evidenced by their ability to capitalize on market dips to acquire attractive assets.

Key sectors contributing to the portfolio's robust absolute returns included Information Technology, Industrials, and Communication Services. Amphenol emerged as a top performer, demonstrating resilience through unexpectedly strong first-quarter earnings, primarily driven by surging demand for data center components. This long-standing holding for NZS Capital exemplifies the success of their investment philosophy, as Amphenol's entrepreneurial and decentralized operational model has historically enabled it to thrive in dynamic environments. Other significant contributors included Taiwan Semiconductor, Cadence, NVIDIA, and Cloudflare. While no sectors negatively impacted returns, Materials, Real Estate, and Health Care offered more modest contributions.

During the quarter, NZS Capital strategically augmented existing positions in companies like Arm Holdings, NVIDIA, Danaher, Cadence, and Marvell. Furthermore, new positions were initiated in Ingersoll Rand, Quanta Services, and SailPoint, with the latter re-entering the portfolio following its re-IPO. These additions were carefully selected to align with NZS Capital's investment framework, capitalizing on market volatility to secure favorable entry points. The firm also reallocated capital by divesting from Copart and Microsoft, opting for more compelling investment opportunities that better fit their current strategic outlook.

NZS Capital's investment philosophy is rooted in viewing global markets as complex adaptive systems rather than predictable linear ones. This perspective acknowledges the inherent unpredictability of markets, characterized by frequent disruptions and significant shifts, where dominant players often accrue disproportionate benefits. This worldview informs their unique portfolio construction, which prioritizes a diverse range of outcomes over precise, narrow forecasts. The resilient component of their portfolio consists of 15-20 high-quality businesses, each representing over 2.25% of holdings, selected for their alignment with secular growth trends, adaptability to change, and reasonable valuations. Complementing this, the 'optionality tail' comprises around 40 disruptive businesses, each less than 1.75% of holdings, chosen for their higher potential for asymmetry and broader range of possible outcomes. This two-pronged approach aims to mitigate downside risk while maximizing exposure to significant upside potential.

A prime example of NZS Capital's investment strategy is Toast, a company that integrates vertical market software with payment processing for the restaurant industry. Toast initially gained traction as a cloud-based point-of-sale system and has since evolved into a comprehensive operating platform for restaurants. NZS Capital recognized Toast's potential as an optionality position, initiating an investment in mid-2022 after the company's valuation significantly declined post-IPO. Toast's model, characterized by its focus on an underserved digital market, its 'innovator's playbook' approach (starting with SMBs and expanding to larger enterprises), and its data-driven product development (e.g., Toast Capital), aligns perfectly with NZS Capital's criteria for disruptive investments. The company's unique local go-to-market strategy, fostering strong network effects in specific markets, further reinforces its competitive advantage and potential for sustained growth.

The company's commitment to profitability has also surpassed initial projections, moving from near breakeven to achieving non-GAAP EBITDA margins in the low 30% range. This improvement underscores strong cost management and the advantages of scaling within their 'flywheel markets.' Toast's proven ability to penetrate larger enterprise markets, marked by significant partnerships with major hospitality brands, signals substantial out-of-the-money optionality. This strategic expansion, combined with ongoing investment in its core platform, hospitality, enterprise, and international growth, positions Toast for continued success, with future profitability expected to exceed 40%, mirroring top-tier vertical market software firms.

The quarter's impressive results underscore the effectiveness of NZS Capital's investment methodology in volatile markets. Their disciplined approach to portfolio construction, emphasizing both resilience and optionality, allowed them to generate substantial returns and strategically redeploy capital into emerging opportunities. The firm's candid acknowledgement of market unpredictability, embracing elements of 'luck' and 'fortune,' highlights a pragmatic investment philosophy focused on positioning for advantageous outcomes rather than relying on precise predictions. As the market continues to evolve, NZS Capital remains committed to this adaptive strategy, fostering sustained growth for their investors through careful selection and management of dynamic assets.