We continued to find durable credits offering attractive value even as valuations reflect a growing belief that the U.S. economy is slowing. Synopsys Inc is highlighted as a notable portfolio addition, with a yield of 4.55% and a credit rating of BBB+. The company is positioned well within the technology sector, which is expected to benefit from ongoing advancements in AI and other innovations, reinforcing its competitive moat in the semiconductor industry.

We believe artificial intelligence is beginning to proliferate from the digital world into the physical world across transportation, manufacturing, energy, and healthcare. These are markets that we estimate could represent, in aggregate, an addressable opportunity many multiples the size of the digital AI market. These new positions complement existing holdings such as Synopsys, which already give us exposure to this theme.

Synopsys, Inc. is a market-leading electronic design automation (EDA) software vendor serving the global semiconductor and systems markets. It operates in a global duopoly with Cadence Design Systems—like Visa and Mastercard in payments—with sizable competitive moats. Synopsys recently closed its acquisition of ANSYS, a long-time Baron investment. This acquisition should enable Synopsys to strengthen its simulation offering through a fully integrated platform across planning, designing, simulating, and testing chips, increasingly important for helping customers manage complexity and reduce costs.

We believe companies like Nvidia, Broadcom, and Synopsys could have many years of growth ahead of them. The artificial intelligence revolution is real and is expanding beyond AI infrastructure to proprietary data, applications, and productivity. This positions Synopsys well to capitalize on the ongoing AI-enabled capabilities, which may create opportunities for sustained earnings growth.

We added Synopsys, a leader in electronic design automation (EDA) software and custom chip designs, operating in a duopoly market with multiple avenues of growth driven by the increased complexity of semiconductor chips. The company’s EDA software and tools are mission critical and difficult to replicate, providing defense to its high-margin business model.

The purchase of Synopsys, a leader in electronic design automation (EDA) software and custom chip designs, was the most significant change to our IT holdings. Synopsys operates in a duopoly market with multiple avenues of growth driven by increased complexity of semiconductor chips. The company’s EDA software and tools are mission critical and difficult to replicate, providing defense to its high-margin business model. We think Synopsys remains well positioned to benefit from AI infrastructure spending and increasingly complex chip design.

We believe Synopsys is a leader in electronic design automation, operating in a consolidated software market characterized by high switching costs. The company’s acquisition of Ansys, coupled with its extensive intellectual property profile, will enhance its competitive edge as semiconductor design grows more complex, AI accelerators proliferate, and non-semiconductor companies develop their own specialized chips.