Aptus Compounder Update
The Aptus Compounder Stock Sleeve is designed to provide equity exposure to a carefully selected group of individual stocks that offer attractive prospects through a combination of yield, growth, quality, and reasonable valuations relative to peers.
Strategic Context
From a construction perspective, this trade enhances our exposure to more risk-on types of stocks. This doesn’t mean that we are full-tilt bullish as the market is about to reach previous all-time highs, but recognizing the performance in 2025, that the ying-and-yang of our portfolio skews to more safety, given the concentration in only owning 15-stocks. What we’ve learned is that we can inject a higher-beta security into the portfolio, without messing up the construction. Said another way, we believe that our downside protection has been stellar, that we can take on more risk to potentially have better participation on the upside. Overall, this will increase our weighted beta in the Technological sector, while harvesting the losses on another.
Sale: United Health Group Incorporated (UNH)
The Aptus Compounders portfolio is selling UnitedHealth Group Incorporated (UNH). It’s no secret that it’s been a rough go for our shareholders owning UNH lately. But, up until this year, UNH was a bellwether in the portfolio and had outperformed the benchmark, the S&P 500, since purchase date. Then, things changed this year, as the company had both industry and idiosyncratic problems. This situation reminded us of a classic Wall Street idiom – “Good companies with good market share in a good theme often work…until they don’t”. Do we believe this is true? No, but given the concentration in this portfolio, we’re not willing to take that risk. That’s why we are selling.
To be frank, our team remains bullish on UNH over the long-term but believes that the next few quarters could be difficult, as the company tries to navigate both internal problems and headline risk. Our strategy tends to look through some of the short- and medium-term pain, as this portfolio is built to look through small blips of historically excellent companies. Over time, we are optimistic UNH can navigate these headwinds and potentially see a recovery in OptumHealth unit economics, but the situation may worsen with the final phase-in of v28 before it gets better.
While we may have overstayed our welcome on UNH, our team has also generated value-additive returns with good companies with good market shares and in good themes. For reference, as of June 25, 2025, 10 of the 15 stocks have outperformed the S&P 500 since their respective purchase date.
Purchase: Service Now, Inc. (NOW)
We believe that the purchase of ServiceNow, Inc. (NOW) is a perfect example of an Aptus Compounders holding, as it continues to enjoy a combination of high growth and high margin that few in the Tech space can match. Despite FCF margins nearing 30%, the company continues to prioritize growth over margin expansion, suggesting that at scale, this business will be highly profitable.
Simply said, here’s one of the coolest things on NOW. During difficult macro environments, there tends to be increased demand for back-office help, as it can create cost savings. But, in a growth scenario, companies tend to focus more on front-office tactics, as it’s a way to drive revenue growth. ServiceNow has portions of its business indexed to both offices. They have the ability to offset either, regardless of the macro trajectory.
ServiceNow remains one of the most crowded names in software, and we understand why. As a result, we often find the stock is fully valued, and many investors’ thesis recommendations frequently emphasize it as a quality compounder and not a company with a re-rating opportunity. But on a rare occasion, the company does trade at discount. For instance, last year when Salesforce had a tough Q1 and ServiceNow dropped in sympathy (without any logical connection), it created a great buying opportunity, but one that lasted only weeks. We wonder if right now is one of those rare investment opportunities to buy NOW at a discount.
Thank you for your continued trust.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.
Information presented in this commentary is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Information specific to the underlying securities making up the portfolios can be found in the Funds’ prospectuses. Please carefully read the prospectus before making an investment decision. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy.
The company identified above is an example of a holding and is subject to change without notice. The company has been selected to help illustrate the investment process described herein. A complete list of holdings is available upon request. This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the holdings listed have been or will be profitable, or that investment recommendations or decisions we make in the future will be profitable.
The S&P 500® Index is the Standard & Poor’s Composite Index and is widely regarded as a single gauge of large cap U.S. equities. It is market cap weighted and includes 500 leading companies, capturing approximately 80% coverage of available market capitalization.
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