Lumentum Holdings has been a key contributor to our performance, reflecting its strong position in the connectivity sector. The demand for its products continues to grow, driven by advancements in AI and connectivity technologies. We believe Lumentum is well-positioned to capitalize on these trends, enhancing its competitive moat in the market. Our confidence in its future performance is bolstered by its recent contributions to the fund's returns, indicating robust operational strength.

Lumentum Holdings has been a key contributor to our performance, reflecting strong demand in the connectivity sector. The company is well-positioned to benefit from the ongoing growth in AI, which we believe will be a structural driver over the medium term. This aligns with our investment thesis that emphasizes companies with a competitive moat and innovative capabilities in technology.

Lumentum has been added to the portfolio as an optionality position, reflecting our belief in its potential within the semiconductor sector. The company is well-positioned to benefit from the ongoing trends in AI and technology, which are reshaping the market landscape. We see Lumentum as a player that could capitalize on the increasing demand for advanced optical technologies, which are critical for various applications, including data centers and telecommunications. This aligns with our strategy of focusing on companies that can deliver solid growth in a rapidly evolving environment.

We are selectively increasing exposure to companies with AI monetization and competitive advantages, where valuations may not yet reflect potential multi-year growth — particularly across hardware, infrastructure, and enabling technologies directly benefiting from expanding AI workloads and deployment. Lumentum, as part of our top holdings, is positioned to benefit from these trends, reflecting our confidence in its growth potential.

We added Lumentum, a scaled provider of optical and laser products, where valuable capacity in tight areas of data connectivity should benefit from evolving AI data and server architectures. This positions Lumentum well to capitalize on the increasing demand driven by AI infrastructure needs.

Lumentum Holdings (LITE) surged during the first quarter and was added to the S&P 500 Index, emerging as one of the market’s clearest AI-infrastructure winners. The most significant development was Lumentum’s receipt of a several-hundred-million-dollar order for co-packaged optics deliverable in the first half of 2027, alongside a rapidly expanding optical circuit switch backlog. This growth is driven by hyperscalers racing to address the critical optical interconnect bottleneck limiting AI cluster scaling. NVIDIA’s announcement of a $2 billion strategic investment and multi-billion-dollar purchase commitments for Lumentum’s advanced laser components validated the company’s mission-critical role in the AI infrastructure stack. Lumentum shares climbed over 100% during the quarter.

We hold the short position in Lumentum Holdings, Inc. (LITE) to offset the risk of some of our long holdings tied to the AI buildout. We believe the short position in Lumentum will help to mitigate the downside should the stocks of companies tied to AI infrastructure sell off broadly. But on a fundamental basis, we don’t think Lumentum has as powerful an economic engine as some of our long holdings tied to the AI buildout, nor do we think Lumentum will be as profitable.

Lumentum Holdings is positioned well within the expanding AI infrastructure market, benefiting from the ongoing build-out and deployment of AI technologies. The company is part of a sector where competitive moats are widening, suggesting strong potential for multi-year growth. The manager highlights Lumentum's role in hardware that directly supports AI workloads, indicating confidence in its future performance as the market matures and demand increases.

We believe Lumentum is a core beneficiary of the AI supercycle. Despite recent market volatility, we recognize that had we simply held our core positions in Lumentum through the conflict, our returns could have been in the triple digits. The ongoing technological developments and the resilience of the macro economy, driven by increased productivity and hyperscaler capex spending, reinforce our conviction in Lumentum's potential for significant growth.

Lumentum is a market leader in optical and photonic products, positioned to benefit from strong TPU demand and the continued evolution of XPUs. The company is included in our tension basket, reflecting our belief in its potential to capitalize on the ongoing U.S. vs China theme, particularly as demand for its OCS and optics solutions grows. We see Lumentum as well-placed to leverage these trends, making it a valuable addition to our portfolio.