- References
- Previous efficiency shouldn’t be indicative of future outcomes. The efficiency proven is for the Ithaka US Progress Technique Composite. All totally discretionary taxable and non-taxable accounts are added to the composite following the primary quarter wherein their ending market values equal or exceed $0.5 million. Outcomes of particular person accounts might range from the composite relying on account dimension, timing of transactions and market circumstances prevailing on the time of the transaction. The gross-of-fee efficiency doesn’t mirror the cost of administration charges and different bills which are incurred within the administration of an account. The web-of-fee efficiency consists of the cost of such charges and bills. Gross-of-fee efficiency and net-of-fee efficiency each embody the reinvestment of all distributions, dividends and different revenue.
- The data supplied on this report shouldn’t be thought of a advice to buy or promote any explicit safety. There is no such thing as a assurance that any securities mentioned herein will stay in an account’s portfolio on the time you obtain this report or that securities bought haven’t been repurchased. The securities mentioned don’t symbolize an account’s whole portfolio and within the mixture might symbolize solely a small proportion of an account’s portfolio holdings. It shouldn’t be assumed that any of the securities transactions or holdings mentioned had been or will show to be worthwhile, or that the funding suggestions or selections Ithaka makes sooner or later can be worthwhile or will equal the funding efficiency of the securities mentioned herein. Investing in securities entails threat and should end in lack of principal.
Philip Steury/iStock through Getty Pictures
Market Evaluate and Outlook
The broader U.S. fairness markets concluded the primary quarter in destructive territory, with a deep divergence between sectors and funding kinds. The Dow Jones Industrial Common led the main indices, falling ~3.6% within the quarter, adopted by the S&P 500 falling 4.6% and the extra growthy Nasdaq falling 7.1%. Within the giant cap area, the Russell 1000 Progress Index fell ~9.8%. This considerably lagged the worth aspect of the index, which gained 1.6% for the quarter as buyers adopted a extra defensive posture. The defensive bent was as a result of a mixture of geopolitical shocks and a shift in financial coverage expectations.
On the geopolitical entrance, the navy battle in Iran despatched West Texas Intermediate crude oil costs hovering, from ~$65/bbl in March to over $100/bbl by quarter finish. This reignited inflation fears and disrupted the disinflation narrative of the previous few months, which may be clearly seen in short-term inflation expectations rising to three.4%, up 40bps m/m. This shock brought on the Federal Reserve to take care of a cautious stance, opting to maintain rates of interest regular at 3.50%-3.75% and signaling that hopes for a number of price cuts in 2026 had been untimely. Offsetting these headwinds had been AI infrastructure spending and a resilient labor market, which when mixed with nonetheless sturdy shopper spending produced 4th quarter earnings development of ~14% for the S&P 500, the fifth consecutive quarter of double-digit development. Regardless of broad earnings development, the overarching theme of the market continues to be AI “scorching” vs the whole lot else, “not.” (see the under chart on VC funding development).
AI Corporations Raised $242 Billion of Enterprise Capital in Q1 2026
International funding to AI by quarter
Supply: Crunchbase
As we glance to the remainder of the 12 months, crucial secular theme impacting markets will proceed to be AI diffusion, infrastructure limits, and the power for the big mannequin suppliers to lift incremental funding capital. Sitting right here at present, market contributors have a restricted scope of knowledge to help broad-based, worthwhile diffusion. Administration groups are pointing to constructive ROIs, however returns haven’t but change into significant sufficient to considerably speed up income or earnings development at giant firms. Regardless of this, the 5 largest hyperscalers are plowing forward with gargantuan investments, with the 2026 AI particular capex price range clocking in at ~$500B. As these large projections settle, the main focus is popping to a essential query: can the AI provide chain truly fulfill this stage of development?
Past the AI commerce, buyers are starting to issue within the 2026 midterm elections and the upcoming shift in Federal Reserve management. Following his current nomination, Kevin Warsh is predicted to start his time period as Fed Chair this Might, pending Senate affirmation. Add the above to the continued navy battle in Iran and it appears seemingly that market volatility will proceed to check buyers’ nerves till we get some readability on the myriad issues enumerated above. Amidst this evolving macro, micro, and political backdrop, our funding self-discipline stays steadfast. We proceed to deal with long-term wealth creation by sustaining concentrated positions in companies with a excessive chance of compounding financial worth. Our core standards stay unchanged: we search firms led by prudent administration groups, supported by sturdy secular tailwinds, and constructed upon advantaged enterprise fashions with superior unit economics in giant increasing markets.
1Q26 Efficiency
In a decisively destructive market, Ithaka’s portfolio lagged the R1000G through the quarter, trailing the index by 570bps (-15.5% to -9.8%, gross of charges). Inventory choice detracted 540 bps to relative efficiency, with a 30bp destructive impression from sector allocation. The portfolio demonstrated weak breadth and depth with solely 10 of the 31 shares held for the complete quarter, representing 30% of the names and 36% of the full weighting, outperforming the benchmark.
On the sector stage, Ithaka generated constructive relative returns in two of the six sectors the place we preserve lively publicity: Supplies and Processing and Client Discretionary. Outperformance in supplies was as a result of our sole holding posting a robust basic quarter and benefitting from pleasure surrounding the AI infrastructure commerce. Our outperformance within the Client section was as a result of one holding that misplaced a bid to finish a big merger, with the market sending shares aggressively larger on the information. Our largest space of underperformance was Know-how the place the underperformance was pervasive, with solely 5 of the 17 positions held for the complete quarter outperforming the benchmark. The most important contributors to weak returns in Know-how had been software program names, the place there continues to be worry that these shares stand to be essentially the most harm by AI consuming the world. Financials was the second-largest supply of underperformance, the place our two holdings that function next-generation monetary platforms, which provide prospects the power to buy shares, bonds, and cryptocurrencies, confronted stress because of the risk-off atmosphere. Inside Well being Care, three of our 4 period-end holdings underperformed the benchmark. The weak point was concentrated in our MedTech holdings, the place the sector has fallen out of favor thus compressing valuations. Lastly, in Producer Durables, our underperformance mirrored a number of compression in our sole holding however the corporate persevering with to ship robust basic momentum.
Contributors and Detractors
Prime Contributors
Howmet
Howmet is a number one world supplier of superior engineered options, specializing within the precision manufacturing of mission-critical elements for the aerospace, protection, and industrial transportation sectors. Its various portfolio consists of high-performance turbine airfoils for jet engines, superior fastening programs, and complicated structural elements crafted from proprietary titanium and nickel-based superalloys. The corporate generates income by long-term contracts for unique tools gross sales to main producers like Boeing (BA) and Airbus, supplemented by a profitable, high-margin aftermarket enterprise for engine spares (~20% of revenues). Howmet’s inventory climbed within the first quarter following a robust February earnings report that beat Road expectations on each the highest and backside line, with administration additionally offering upbeat full-year steerage. The beat was primarily pushed by surging demand within the industrial aerospace and fuel turbine markets, with analysts additionally applauding the strategic $1.8 billion acquisition of Consolidated Aerospace Manufacturing, a number one world designer of precision fasteners, fluid fittings, and different extremely complicated, extremely engineered merchandise for the aerospace and protection market.
Netflix
Netflix is the worldwide chief in subscription-based streaming, delivering an unlimited library of movies, tv collection, documentaries, and cellular video games to over 325 million members throughout greater than 190 nations. The corporate generates income primarily by tiered month-to-month subscription charges, providing each ad-supported and premium ad-free plans, whereas more and more diversifying its revenue by promoting gross sales, content material licensing, and dwell occasions. Its aggressive moat is anchored by its large world scale, proprietary data-driven algorithms that maximize consumer retention, and a multibillion-dollar annual funding in Netflix Originals that usually seize the zeitgeist, resulting in viral advertising and unique model loyalty. Netflix’s inventory rose within the quarter following administration bowing out of the proposed $83B merger with Warner Bros. Discovery (WBD). Consequently, Netflix plans to make use of the funds raised in anticipation of the merger, in addition to the $2.8B breakup charge paid by Paramount (PARA), to purchase again firm inventory and additional put money into natural content material property.
Veeva Programs
Since its inception, Veeva Programs has grown to change into the main SaaS supplier of cloud options for the worldwide life sciences {industry}. Veeva’s industry-specific cloud options present information, software program, and providers to deal with a broad vary of wants, together with multi-channel buyer relationship administration, content material administration, grasp information administration, and buyer information administration. Veeva’s merchandise assist its prospects deliver merchandise to market sooner whereas sustaining compliance with authorities laws. Veeva’s outperformance within the quarter was as a result of constructive inventory value efficiency previous to Ithaka exiting the place in mid-January, which was previous to the market experiencing destructive returns within the again half of the quarter.
Prime Detractors
Microsoft
Microsoft builds best-in-class platforms and supplies providers that assist drive small enterprise productiveness, giant enterprise competitiveness, and public-sector effectivity. Microsoft’s merchandise embody working programs, cross-device productiveness functions, server functions, software program growth instruments, video video games, and business-solution functions. The corporate additionally designs, manufactures, and sells gadgets, together with PCs, tablets, and gaming/leisure consoles that every one combine with Azure, its cloud computing service. The inventory’s underperformance within the quarter was as a result of investor anxiousness relating to the large capital expenditures required for AI infrastructure and uncertainty over the near-term return on funding for these initiatives. Moreover, the decline was fueled by a broader market rotation out of high-valuation tech shares as analysts re-rated software-as-a-service (SaaS) firms amid fears of slowing enterprise spending and AI disruption.
ServiceNow
Based in 2004, ServiceNow has change into the main supplier of cloud-based software program options that outline, construction, handle and automate workflow providers for world enterprises. ServiceNow pioneered using the cloud to ship IT service administration (ITSM) functions. These functions enable customers to handle incidents and to plan new IT initiatives, provision clouds, handle software efficiency and construct functions themselves. The corporate has since expanded past the ITSM market to supply workflow options for IT operations administration, buyer help, human assets, safety operations and different enterprise departments the place beforehand a patchwork of semi-automated processes have sometimes been used with various levels of success. ServiceNow’s inventory bought off within the first quarter as buyers priced in fears the software program software layer at giant may very well be disintermediated by AI native merchandise. This worry drove significant a number of compression that materialized regardless of robust basic development delivered by the corporate.
Robinhood
Robinhood is a next-generation monetary platform redefining entry to investing for on a regular basis customers. Constructed round a frictionless, commission-free cellular expertise, the corporate empowers retail buyers to commerce shares, ETFs, choices, and cryptocurrencies, which had been markets traditionally gated by entry and complexity. Robinhood’s intuitive design and fractional share mannequin have made it the popular entry level for a brand new era of buyers, with over 80% of its customers below the age of 35. The platform has advanced past its unique buying and selling roots right into a diversified monetary ecosystem, producing rising income streams from internet curiosity revenue and subscription merchandise like Robinhood Gold, which now serves greater than 3 million members. Robinhood’s weak inventory value efficiency within the quarter was as a result of a relentless sell-off within the cryptocurrency market that severely impacted its transaction-based income, resulting in a This autumn income miss. Moreover, buyers had been involved by slowing retail buying and selling volumes because the seasonal enhance from its new prediction markets pale after the NFL season.
Transactions
Through the quarter we initiated one new place, Vertiv (VRT) and eradicated two positions, Veeva Programs (VEEV) and Visa (V). Our trailing 12-month turnover elevated to 24.4% whereas our trailing 3-year common annual turnover elevated to 17.4%. ¹
Firm Profile
Intuitive Surgical (ISRG) was based in 1995 on the then radical perception that computer-enhanced expertise may revolutionize surgical procedure by making it much less invasive and extra exact. The expertise originated from analysis at SRI Worldwide within the late Nineteen Eighties, initially funded by the NIH and DARPA for potential use in distant battlefield surgical procedure. Intuitive’s founders repurposed this for civilian hospitals and ambulatory surgical procedure facilities, creating the da Vinci Surgical System to reinforce surgeon management and enhance affected person outcomes by diminished tissue trauma and sooner recoveries. This foundational mission to beat human limitations stays the core of the enterprise at present.
Over the previous 25 years, Intuitive has been the first beneficiary of a robust Secular Driver: the worldwide shift from open surgical procedure to minimally invasive procedures. By offering surgeons with “wristed” dexterity and 3D visualization, capabilities far superior to conventional 2D laparoscopy, the corporate has systematically transformed complicated procedures into minimally invasive ones. Whereas its early foundational success was in prostatectomies and hysterectomies, the corporate has aggressively expanded into common surgical procedure and past. At present, the corporate’s whole addressable market consists of roughly 20 million annual soft-tissue procedures. With solely 3.2 million procedures carried out by Intuitive in 2025, an unlimited runway for development stays.
The energy of the funding lies in a enterprise mannequin that generates high-margin, recurring income by a “razor and razor blade” method. Past the preliminary $2 million funding for a da Vinci surgical system, hospitals incur recurring prices for specialised devices. These instruments can price as much as $3,500 per process and should be changed after simply 10 to twenty makes use of. This creates a formidable aggressive benefit. The {hardware} placement establishes excessive monetary and mental switching prices, whereas the instrument enterprise supplies high-velocity suggestions loops with practitioners. This moat is additional fortified by $8 billion in historic R&D funding, with $5 billion spent in simply the final 5 years, making a barrier to entry that’s more and more tough for opponents to beat.
In the end, the success of a enterprise will depend on an organization administration staff that may translate innovation into worth. Intuitive’s management is outlined by exceptional stability; with solely 4 CEOs in its historical past, the agency avoids the “revolving door” tradition seen in lots of public market firms. Present CEO David Rosa, who has held the CEO title for lower than a 12 months, was the ninth worker employed at Intuitive and has spent his 29-year tenure climbing the ranks by varied pivotal enterprise traces. This disciplined management has produced distinctive monetary metrics, together with mid-teens process development for over a decade and constant EPS growth. We consider Intuitive will proceed to execute this identical playbook: methodically allocating capital to deepen its moat whereas capturing an ever-growing share of the worldwide surgical market.
References
- ITD = inception-to-date, annualized. Inception date is 1/1/2009.
- Turnover Charge signifies the frequency of modifications to the portfolio, and is calculated because the higher of the buys or the sells through the interval as a proportion of the property below administration on the time of every transaction. The calculation eliminates the impact of client-directed money flows. Common Annual Turnover is calculated based mostly on a trailing three 12 months interval.
Editor’s Notice: The abstract bullets for this text had been chosen by Looking for Alpha editors.
