In the third quarter of 2025, the U.S. equity market experienced a robust period, characterized by widespread gains and several indices reaching unprecedented levels. This positive momentum contributed significantly to strong year-to-date performance across various market segments. A notable trend observed was the superior performance of growth-oriented stocks compared to value stocks within the large-capitalization sector. However, this dynamic was inverted in the mid and small-capitalization segments, where value stocks showed stronger returns. Our portfolio's sector allocation remained largely aligned with the benchmark, with only minor deviations, specifically a modest overweighting in information technology and communication services. This approach underscores our investment philosophy, which prioritizes companies demonstrating tangible business improvements over those solely exhibiting high growth figures.
The investment philosophy driving our strategy centers on identifying U.S. companies, primarily larger ones, that are actively improving their business models and operations. This is distinct from simply targeting companies with the highest absolute growth rates. We firmly believe that such companies, through their continuous enhancements and strategic adjustments, are better positioned to generate sustainable value over the long term. This focus on business improvement allows us to invest in a diverse set of companies that may not always be in the spotlight for explosive growth but are diligently building stronger foundations and enhancing their competitive positions.
During the third quarter, this strategic focus proved beneficial in navigating the diverse performance landscapes across different market capitalizations. While large-cap growth stocks led their value counterparts, the nuanced performance in mid and small caps reinforced the importance of our selective approach. By analyzing underlying business improvements, we aim to capture value creation regardless of prevailing market fads or broad growth metrics. Our methodical sector allocation, with minor adjustments in high-conviction areas like information technology and communication services, reflects a balanced yet opportunistic stance. This enables us to participate in market upside while mitigating risks associated with overconcentration or chasing ephemeral growth trends.
Our commitment to this growth philosophy, defined by business improvement, continues to guide our investment decisions. We remain dedicated to a rigorous selection process that seeks out companies capable of delivering enduring value to our shareholders. This diligent approach, focusing on the fundamental health and evolutionary trajectory of businesses, is critical for sustained success in dynamic market environments.