Both large-cap value manager Mary Jane (MJ) Matts and large-cap growth manager Saverio Papagno see blurring across the style divide, as recent Russell and MSCI reclassifications have moved large technology names back and forth across the growth versus value boundary.
In the following Q&A, Matts and Papagno discuss key themes in the first half of 2026—market performance, the Iran conflict and energy, the Fed transition, the role of artificial intelligence (AI)—and what each manager expects in the back half of the year.
Matts is lead portfolio manager on the North Square Disciplined Value ETF (NSIV). She has run large-cap value for many years—most of them at Foundry Partners, the team CS McKee acquired in 2025.
Papagno is lead portfolio manager on the North Square Growth Opportunities ETF (NSIG). He managed a global growth strategy at Azimut Group for many years before joining CS McKee to run its U.S. growth mandate.
Both NSIV and NSIG launched in July 2026. CS McKee is part of Azimut NSI and is the institutional manager within Azimut Group's U.S. platform.
Q. Let’s start with Value. MJ, bring us up to speed on the markets and how performance has looked year to date.
MJ Matts: In the first half, the S&P 500 is up about 10%, powered by roughly a 10% upward revision in consensus earnings estimates—now implying a whopping 25% EPS growth for the year. Small caps have outperformed large caps by a wide margin: the Russell 2000 Index is up more than 22% versus about 10% for the Russell 1000.
On style, value has outperformed growth—the Russell 1000 Value Index up about 16% versus the Russell 1000 Growth up 5.3%. That's a wide differential, and it's driven notably by information technology: value tech outperformed growth tech, by a differential of almost 90% in this case, which is quite rare. Some very large names in the growth benchmark delivered lackluster returns, while on the value side we've had big runs in previously deep-value names—Micron up around 300%, Intel up almost 300%, and SanDisk up over 850%.
Q. Turning to Growth, to what do you attribute its recent underperformance, Saverio?
Saverio Papagno: A couple of things. These value outperformances might seem counterintuitive, given the epic run in semiconductor stocks this year. But the two indices are becoming harder to define. With the latest Russell rebalancing we saw large names flip from growth to value—something we'd already been seeing with the MSCI indices. Big tech names have moved from growth to value and back, so those two tags are becoming less precise.
From the perspective of the strategy I run, it was a very strong first half. The run in semiconductors is something I hadn't seen in 20 years in this business—and, as MJ said, it's been driven entirely by earnings, not sentiment or hype. That's very significant.
Q. Getting to specific themes, let’s start with the conflict in Iran.
Matts: It's been the headline story of global consequence this year. Energy stocks have done very well—the sector is up 20%, right up there with the two big AI-related sectors, industrials and information technology. The bigger impact on the outlook, though, is that supply disruptions have pushed oil prices up long enough to raise inflation expectations and lower the probability of rate cuts—which has probably held the market back somewhat year to date. With earnings estimates implying 25% growth for the S&P, that's a huge number; if investors had held to the earlier multiple, you might have seen an even bigger gain in the index, were it not held back by higher inflation expectations and a lower probability that the Fed can cut.
Q. Saverio, have you made adjustments to your portfolio?
Papagno: I get this question a lot. Traditionally, growth stocks are very sensitive to long-term rates, so when oil went above $100 and the 30-year bond was above 5%, you'd expect an impact on growth stocks. This time it wasn't the case—the fundamentals were so strong they cushioned these stocks. My approach is very much bottom-up, and with fundamentals and earnings revisions so strong, I had good reason to hold my positions. I was monitoring long-term rates, of course, but the strength of the fundamentals was really cushioning the stocks—very different from what we've seen at other times.
Q. On the topic of rates, any thoughts on how new Federal Reserve Chairman Kevin Warsh’s arrival might affect markets and rates going forward?
Matts: The Fed has its dual mandate, and right now, with inflation running above target and employment fairly stable and hot, the probability that he can follow through on what the administration would like to see—lower rates—has gone fairly low. Higher oil prices have long-tailed effects: even when spot prices come back down, a supply disruption like the one in the Strait of Hormuz means this may not be as transitory as we'd like. To Saverio's point, fundamentals are incredibly strong elsewhere, so the market has been cushioned against higher rates and higher inflation. But on energy in particular, we agree with Saverio on the long-term view—making sure we're looking at secular trends, which are actually very positive in energy and elsewhere.
Papagno: I'm pleased with the pick—a very credible choice. There had been a lot of discussion and some doubts about the future chair, and some market participants worried someone less credible on inflation might be selected. Honestly, I never thought for a moment that an institution like the Fed could be run by someone less than very credible. Inflation expectations have actually been declining lately—which is another sign the market gives a lot of credibility to the Fed. From my point of view, I see no problem with monetary policy.
Q. Let's shift to AI, which is in the headlines every day. How do you approach the market as Value and Growth managers, respectively?
Matts: As Saverio said, the lines between the two styles have blurred a good deal. Value managers are contrarians—we want to buy stocks that are on sale, trading below fair value, often because of a recent setback in results. What we're exploiting is investors' tendency to extrapolate a recent problem into the future; out-of-favor, under-followed, poorly understood names are a fertile fishing pond, because we know those stocks are consistently underpriced, which sets us up for outsized returns.
But that's just a starting point. The pure returns to simply buying cheap stocks have started to get arbitraged away, so it's essential to do the bottom-up fundamental work and determine which cheap stocks actually deserve to be cheap. In this AI age, we're finding opportunities in names you might not think of as direct plays—Caterpillar and Cummins in machinery, for instance—and we think financials are one of the groups that stands to benefit most from AI. A number of very high-end growth stocks have also floated down into our airspace: we've owned Google, and Meta a few years back, with some success, and today we hold Apple and Microsoft—fairly growth-y names that have come down to where they qualify for a value portfolio, which is somewhat unheard of. We're also using AI tools in our own stock-selection process—we're all part of this adoption, and we benefit from the speed at which information now moves.
Papagno: It's an exciting time. AI is the kind of major innovation that comes along once or twice in an investor's lifetime—the last comparable one was the internet in the 1990s, which was transformational for the whole economy and society. AI may be similar in scale, if not larger.
When you get a transformative innovation like this, the market's valuation framework for many stocks can become obsolete very quickly. That's a huge opportunity for an active manager: if you can spot the inflection point before the market has fully priced it, you can really make a difference. Memory stocks are the example mentioned earlier—treated as commodities for most of the last 20 years. I remember Micron's management going on roadshows saying this would fundamentally change their business, that there'd be real product differentiation—high-bandwidth memory (HBM) is design-qualified and sold out a year in advance—structurally the opposite of a spot market. But the market wouldn't hold the thought; every ambiguous data point, it defaulted back to the old cyclical framework. It became obsolete, and that became evident suddenly over the last few months. If you were positioned for that inflection ahead of time, you captured an extraordinary earnings upgrade cycle. That's why these innovations are so exciting for a portfolio manager—they create a lot of opportunity to generate alpha and a lot of dispersion within the sector.
Matts: Saverio's right. Back in the 1990s dot-com boom, there was very little in the value space you could even take a shot at—it was all out of sight. This time it's very different: a number of typically out-of-sight growth stocks have come down to attractive levels, and we're nibbling. We've even dipped a toe into NVIDIA—which has been a laggard despite enormous gains in reported earnings, as investors now question the long-term sustainability of the data-center build-out. There's some controversy on the name now, and in our estimation it's become undervalued enough, and timely enough, to own.
Q. Saverio, is there anything on the value side that's come into view for you as a growth manager?
Papagno: Certainly. As I mentioned, the memory stocks that were treated as value names, at very depressed multiples until recently—again, a case of an outdated valuation framework. That's an example of a former value stock that became attractive even for a growth manager.
Q. Can you each give one or two examples of a name in your portfolio and how it got there?
Papagno: One of our biggest active bets right now is ARM Holdings—incorporated in the UK, but listed on the Nasdaq. It's another example of a stock whose framework has changed. ARM was known for the IP used in virtually every smartphone, and today it's expanding into the data center, designing CPUs and even exploring GPUs with SoftBank. It's massively expanding its addressable market, it has great IP, and I believe it will be one of the winners of this AI wave.
Matts: A contrarian name we've used to good effect—still a significant holding—is Citigroup. Years back, it was among the cheapest in the bank group because it had worst-in-class operating metrics, which, counterintuitively, is exactly what intrigues us. We saw the potential for improvement as a change-agent CEO came in and began an extensive restructuring. As those operating metrics improved from worst-in-class toward average, the stock dramatically outperformed the peer group. That's one of the ways we think about finding under-loved, undervalued, out-of-favor names: look for companies with excellent assets that have been under-managed, where the street takes a wait-and-see attitude while we get in and build a position.
Q. We're at the midpoint of 2026—what are you watching most closely, and what could go wrong?
Matts: We're all fixated on the loss of momentum in the AI infrastructure trade, and the concern that excess capacity eventually drives pricing down. So far, the evidence on paid AI adoption and free-cash-flow generation continues to support the bull case fundamentally. That leaves valuation as the watch point—the overall market is high by historical standards, at about 22 times 2026 S&P earnings estimates. If rates were much lower, we'd worry less, but there isn't a strong case for Fed easing with inflation a bit above target and unemployment low, so we're not optimistic the market gets bailed out that way.
And be careful what you wish for: if inflation cools and the labor market softens enough to raise the odds of a cut, earnings estimates would most likely be falling too. This may be a kind of nirvana position—if earnings estimates hold, the market still has room to expand.
Papagno: We may be entering a moment where fundamentals and technicals clash a little in the short term. I'm a fundamental investor, but 20 years has taught me to respect the technicals, and there may be some excess that needs to be absorbed. That said, my last round of corporate contacts was all about visibility—companies in the tech space are telling me they have roughly eight quarters of visibility, which is exceptional. They're executing on the roadmap; the fundamentals are exceptionally strong.
As we move into the second half, the market will increasingly look at 2027 numbers—consensus is for almost $400 of S&P EPS. The further into the year we get, the more interesting the market's valuation starts to look. We have to be mindful of that.
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This discussion was recorded on July 2, 2026. Nothing contained in this communication constitutes tax, legal, or investment advice. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. This transcript contains certain statements that may include forward-looking statements. Although Red Cedar Investment Management believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Actual events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. You should not place undue reliance on these forward-looking statements.
This discussion reflects CS McKee's views and opinions as of July 2, 2026, which are subject to change at any time based on market and other conditions. We disclaim any responsibility to update these views. These views should not be relied on as investment advice or an indication of trading intention.