Adam Rich

Capital Allocation Almanac | Vol. 10 When European Integration Hit Diminishing Returns Europe’s strongest growth came before the European Union. From the late 1950s through the early 1990s, the Common Market delivered exceptional results. Trade barriers fell, markets expanded, productivity rose, and capital finally had room to scale across borders. The gains were large because the frictions removed were obvious. The Common Market integrated markets, not capital allocation. Labor laws, fiscal policy, social contracts, and investment priorities stayed national. That mattered. The turning point came in the early 1990s with the Maastricht Treaty. By then, the biggest gains from integration had already been captured. Markets were open. Trade was flowing. Capital had scaled. Maastricht didn’t meaningfully expand opportunity. It changed the return profile. Integration shifted from removing barriers to imposing constraints. Fiscal rules, regulatory harmonization, and state-aid limits increased. Adjustment mechanisms weakened. Capital allocation remained national, but the cost of deploying capital rose. That’s when returns began to fall. Under the Common Market, integration lifted ROIC by expanding markets faster than costs. After Maastricht, integration reduced volatility—but compressed marginal returns. More coordination. More regulation. Lower incremental payoff. Growth didn’t disappear. But the integration dividend peaked. From that point on, Europe was no longer compounding off market expansion. It was managing outcomes—and managing outcomes is structurally lower return than expanding opportunity. The Common Market raised returns by enlarging the playing field. Maastricht marked the moment integration began to trade growth for stability. And once returns start falling, deeper integration doesn’t reverse it—it just manages the consequences. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Q1 2026 International Strategy Recap podcasts.apple.com/us/podcast/ep-… @AdamRich_CAF

Winners & Warnings - AI: First-Order Fears, Second-Order Opportunities @AdamRich_CAF podcasts.apple.com/us/podcast/ep-…

Capital Allocation Insights | $KHC $KHC is undergoing a real strategic reset. After a decade of share losses and operating with an ultra-lean, cost-extraction model, management is pivoting away from margin defense and toward volume-led growth. Under CEO Steven Cahillane, Kraft Heinz is stepping up reinvestment by roughly $600M, including: • R&D up ~20% • Marketing rising to ~5.5% of sales • Pricing architecture resets • Expanded sales capabilities • Simplified operating structure • Incentives now tied more directly to market share This is a material cultural shift. Cahillane is not from the 3G playbook that defined Kraft Heinz’s prior era of zero-based budgeting and extreme cost discipline. His background at Kellogg’s, Coca-Cola, and AB InBev reflects a brand-building and commercial orientation. The company is effectively saying: 2026 is the margin floor. Reinvestment today to restore competitiveness tomorrow. For years, Kraft prioritized efficiency extraction over brand investment. That protected margins — but eroded volume and share. Now the bet is that disciplined reinvestment can stabilize volume and reset the growth trajectory into 2027. The CAF question: Is this reinvestment cycle enough to rebuild brand strength in a more competitive food landscape — or is it simply repairing a decade of underinvestment? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

The Investment Judgment Series | Vol. 7 The Danger of Silent Underperformers Selling obvious losers is difficult — but at least it’s clear. The stock is down, the thesis is broken, returns on capital are deteriorating. The decision, while painful, is straightforward. The harder problem is different. What do you do with the stock that isn’t down — but isn’t advancing either? The market is up 15%. Your position is up 10%. It hasn’t collapsed. It hasn’t violated your risk limits. It simply hasn’t kept pace. These are the silent underperformers. They often look fine on the surface: stable ROIC, steady earnings, reasonable balance sheets. Nothing appears wrong. But nothing is improving meaningfully either. Incremental returns are flat. Reinvestment isn’t accelerating. The opportunity set isn’t expanding. They aren’t deteriorating — they just aren’t evolving. That’s where the risk hides. In a positively skewed market, long-term returns are driven by a small number of businesses that meaningfully improve their economics over time. Capital tied up in companies with flat trajectories dilutes exposure to those few that are bending the curve. So the more important question isn’t whether the position is down. It’s whether it is progressing. How much of your portfolio is sitting in businesses with no improving trajectory? And more importantly: Is the company investing enough to become a stock that matters? Is incremental capital becoming more productive? Is the slope of returns changing? Is the economic footprint expanding? Selling losers is about discipline. Eliminating stagnation is about standards. Flat isn’t neutral. Flat is opportunity cost. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $INFY AI is shifting the supply curve in IT Services. Management was explicit: “AI productivity leads to compression in IT services.” That’s a remarkable admission. AI makes engineers more productive. Fewer people are required per project. Traditional labor-based billing models face pressure. Yet at the same time: • +13,000 net headcount in the last three quarters • 20,000 campus hires this year • 20,000 planned next year • Continued recruiting + massive reskilling Capacity is still expanding. Infosys’ thesis is clear: AI will compress traditional services — but AI-first services (strategy, transformation offices, governance, agentic systems, enterprise re-architecture) will more than offset it. Today, AI revenue is ~5.5% of total revenue. Management believes it can follow the digital playbook — scaling from small to majority mix over time. The bet: AI → better growth + better revenue per person + better margins. But structurally, AI also increases delivery capacity across the entire industry. If productivity rises faster than AI demand scales, utilization and pricing become the pressure point. The CAF question: Is AI creating incremental enterprise demand faster than it is expanding IT services supply — or is the industry still adding headcount into a productivity wave? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $GLEN-LN $GLEN-LN left production and capex guidance unchanged — and chose to return more cash instead. CapEx: flat at ~$6.5B average through 2028. No step-change. No aggressive ramp. That includes copper growth and the Alumbrera restart — but still within the existing framework. What changed? Distributions. Glencore topped up payouts to reach ~$2B ($0.17/share) — explicitly adding to the base calculation. And instead of recycling proceeds from asset sales (Bunge, Century stake, ports, PASAR smelter) into expansion… They’re returning capital. Buybacks remain “on the table,” but management pivoted toward cash distributions after significant repurchases in prior years. That matters. Copper production is expected to step up into 2028–29. But near-term capital intensity isn’t accelerating. Like $BHP, Glencore is signaling discipline. In prior commodity cycles, elevated prices meant volume growth and rising capex. This time, even with constructive long-term copper demand, the major diversified players are prioritizing balance sheet strength and shareholder returns. The CAF question: If the largest miners are holding capex flat and distributing excess cash, who is actually funding the incremental supply? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $BHP $BHP just increased its interim dividend 46% HoH — taking payout to 60% of earnings. At the same time, it announced: • $4.3B silver streaming agreement (Antamina) • $2B WAIO power monetization • Continued portfolio high-grading The largest diversified miner in the world is not ramping production aggressively. It’s returning cash and selling non-core exposure. That matters. When the biggest player in a commodity industry chooses payouts and divestments over volume growth, it sends a signal: Capital discipline > production growth. Yes, BHP still has copper growth (brownfields, OZ Minerals integration, Jansen in potash). But the tone is clear — growth will be measured and funded within a strict capital framework. In prior cycles, miners chased volume at peak prices. This cycle, even with copper tight and long-term demand strong, the industry leader is prioritizing balance sheet strength and shareholder returns. That’s structurally bullish for supply discipline. The CAF question: If the largest miner is choosing returns over acceleration, who is actually going to close the copper supply gap? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $MU $MU is spending like a company in a structural shortage. Fiscal ’26 CapEx was already guided at $20B+ — and the Tongluo acquisition adds another $1.8B on top. That’s more CapEx than $CVX is spending this year. Idaho 1 ramps in 2027. Idaho 2 follows. A new Singapore NAND fab begins wafer outs in 2H28. Cleanroom space is expanding across three continents. Meanwhile: – Gross margins have surged from ~18% to nearly 70%. – DRAM prices have jumped sharply. – Customers are locking in multi-year supply agreements. This is what the acceleration phase of a memory cycle looks like. When shortages hit semiconductors, double ordering follows. Customers overbook. Producers respond with greenfield builds. Capacity always comes — it just arrives late. Today the narrative is scarcity. By 2027–2028, Idaho, Tongluo, Singapore, and Korean expansions all hit supply. Markets rarely peak when shortages are most visible. They peak when investors start pricing the capacity that isn’t online yet. The CAF question: Are memory margins structurally higher this cycle — or are we watching the supply response that ultimately resets it? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

The Investment Judgment Series | Vol. 6 Why We Optimize for Performance—Not Metrics A lot of investors are taught to optimize for the wrong things. Tracking error. Turnover. Style consistency. Factor purity. Those metrics are easy to measure. They’re easy to explain. And they’re often pushed by allocators. But none of them are the objective. The objective is performance. And not just relative performance — absolute performance. The math is unforgiving. Large drawdowns permanently impair capital. A 50% loss requires a 100% gain just to get back to even. So the most important thing an investor can have isn’t low tracking error or elegant factor exposure. It’s a process designed to protect against large losses. Here’s a simple stress test every investor should ask: What does your process do when the AI bubble pops? Not if it’s volatile. But if capital floods the space, capacity overwhelms demand, and returns on incremental investment collapse. Does the process: - recognize deteriorating ROIC? - adjust when reinvestment economics change? - reduce exposure when narratives detach from capital reality? - or does it stay fully invested to protect style purity and benchmarks? This isn’t about AI. Every cycle has its version. The point is that risk isn’t tracking error. Risk is permanent loss of capital. Turnover and tracking error are outputs. They are consequences of decisions — not objectives. Optimizing for performance means: - accepting discomfort - tolerating periods of looking different - prioritizing survival over smoothness - and understanding that risk is asymmetric You can recover from looking wrong. You can’t recover easily from large drawdowns. That’s why process matters more than metrics. And why optimizing for performance is ultimately about protecting capital first. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $XYZ $XYZ just announced a 10% workforce reduction. This isn’t simply cost control. It’s the downstream effect of a capital allocation thesis that didn’t hold. In 2021, $XYZ spent $27B in high-multiple equity to acquire Afterpay. The belief at the time: BNPL had a network effect. Scale early → defensibility later. But BNPL wasn’t a network business. It was distribution + underwriting + marketing spend. Dozens of competitors entered. Barriers were low. Customer switching costs were minimal. Merchants multi-homed. The “network” never hardened. Instead of reinforcing a focused, high-ROI reinvestment engine, $XYZ layered on complexity, credit exposure, and lower-margin economics. Now the unwind continues: • Afterpay repositioned as embedded infrastructure • Investment narrowed back to Cash App + Square • 10% workforce reduction to realign cost structure The key lesson isn’t about layoffs. It’s about capital diagnosis. If you mistake competitive intensity for a moat — you overpay. If you mistake distribution for a network — you overinvest. The CAF question: Has $XYZ truly rebuilt around focused reinvestment engines — or is it still digesting a deal based on a moat that never existed? In scale industries, focus compounds. In low-barrier markets, scale alone doesn’t defend. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $CSCO Focus wins in capital allocation. Cisco Systems ( $CSCO) is down ~7% after earnings — but the bigger story isn’t the quarter. It’s the cycle. Over the past several years, Cisco has repositioned toward software, subscriptions, and security. Recurring revenue improved. Margins stabilized. Capital returns remained strong. But during that same period, one of the largest networking investment cycles in decades emerged — AI-driven data center buildouts. And the primary beneficiaries weren’t Cisco. - Arista Networks ( $ANET) captured hyperscale switching share. - Celestica ( $CLS) scaled with AI infrastructure demand. - Accton Technology ( $2345-TT) became a key ODM supplier enabling hyperscale networking buildouts. Cisco’s stock has held up relative to the broader market — but it has lagged technology and significantly trailed its most focused competitors. This isn’t about whether software is “good.” It’s about capital intensity and focus during regime shifts. When an industry enters a once-in-a-decade capex cycle, the companies tightly aligned with that spend — and reinvesting aggressively into the core bottleneck — tend to win. Repositioning toward software may improve stability. But in a hardware-led AI infrastructure cycle, focused investment wins. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $DASTY (Dassault Systèmes) AI is shifting the supply curve for software. If development productivity improves 30–40%, companies face a capital allocation choice: expand margins — or reinvest aggressively to increase speed, capability, and product depth. For standalone industrial software companies like Dassault Systèmes $DASTY, this decision is structural. Their economics depend on pricing power and workflow control across design, simulation, and lifecycle management. But integrated industrial players such as Siemens AG $SIE don’t rely on software as a standalone profit center. They can bundle it with hardware, automation systems, and long-term service contracts. If AI lowers development costs, they can reinvest those gains into deeper integration — or even price software more aggressively — because their return comes from the entire system, not just the license. That changes the competitive dynamic. AI doesn’t just improve margins — it compresses the barrier to building competitive tools. In a stack where industrial giants control physical assets, data, and installed bases, software becomes part of a broader capital allocation strategy. The key question for $DASTY isn’t whether AI improves productivity. It’s whether those productivity gains are reinvested fast enough to defend the moat in a world where integrated competitors can subsidize software economics from hard-asset returns. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $BP BP is resetting its capital allocation before a new CEO even takes the helm. Ahead of Meg O’Neill’s April 1 start, BP has already: - Cut 2026 capex to $13–13.5bn (lower end of guidance) - Announced a $20bn divestment program through 2027 - Suspended share buybacks to prioritize balance sheet repair - Reaffirmed a resilient, growing dividend (+4% minimum annual growth) From a Capital Allocation Framework lens, this is an important signal. When capital is reduced, portfolios are high-graded, and buybacks are paused before new leadership arrives, it usually means the decision wasn’t stylistic — it was forced by returns. The capital math no longer worked under the prior structure. This mirrors a broader energy theme: - Oversupply + higher costs → ROIC pressure - The response isn’t “grow differently,” it’s invest less, invest better - Cutting capital and exiting weaker assets can raise returns, even if volumes fall Notably, BP is making these moves without waiting for a new strategic vision from the incoming CEO. That suggests the board has already aligned on direction; execution comes next. CAF question: When an industry becomes oversupplied, is the path to higher shareholder returns driven by more investment — or by less, better-focused capital? Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $NGLOY Anglo American’s updated production guidance highlights a capital allocation reality that’s becoming harder to ignore in copper. The company lowered near-term copper output expectations: - 2026: 700–760 kt (from 760–820 kt) - 2027: 750–810 kt (from 760–820 kt) The driver isn’t demand. It’s execution and asset quality — particularly at Collahuasi in Chile, where Anglo is working through a lower-grade transition phase. What matters through a CAF lens is how management responded. Rather than forcing volume, Anglo is accepting slower near-term growth to preserve long-term asset value and returns, while reiterating that by 2028 its Chilean copper assets should exceed ~790–850 kt once sequencing improves. That choice reinforces a broader industry pattern: Even at record copper prices, majors are constrained by geology, capital intensity, and execution risk — not willingness to invest. At the same time, the portfolio contrast is stark. While copper remains a strategic priority (including continued pursuit of Teck exposure in Chile and Peru), non-core assets are under pressure: - De Beers is expected to generate negative EBITDA in 2025 - Diamond demand is weak amid China softness, lab-grown competition, and tariff pressure - Further impairments are possible as Anglo works toward an exit Put together, this update shows capital triage in action: - Copper: disciplined pacing, long-cycle focus, higher return hurdles - Diamonds: impaired economics, restructuring, and potential divestment - Group strategy: simplify, concentrate, and protect ROIC The key takeaway isn’t the guidance cut itself. It’s that even well-capitalized miners are choosing restraint over forced growth in copper — while actively pruning assets that no longer justify reinvestment. That gap between copper demand expectations and realistic supply growth continues to widen — and capital allocation, not commodity prices, is doing the work. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

The Investment Judgment Series | Vol. 5 Learning to Read the Market Is Like Learning a Language Learning to read the market is a lot like learning a language. At first, prices feel like noise. Isolated words without meaning. Over time, you realize markets communicate — not in sentences, but through relationships. One of the most helpful things I’ve done as an investor is build a first-principles watchlist: a small set of charts across commodities, rates, and currencies that actually drive economies. Every day, I run through the same charts and ask one question: What does the year-over-year change tell me? Not where prices are — but how they’re changing. Over time, patterns emerge. You stop reacting to headlines. You start recognizing conditions. This is also when something becomes very clear: most narratives show up after the move. Prices move first. Markets adjust. Explanations come later. By the time a narrative feels obvious, the signal has often already passed. That’s why I’ve found it far more valuable to spend time understanding the movement of core markets than consuming more third-party research or commentary. Most commentary explains what happened. Markets move on how conditions are changing. Just like learning a language, fluency doesn’t come from reading translations. It comes from immersion. Regime shifts don’t happen because one asset moves. They happen when multiple markets start signaling the same thing: - commodities and rates confirming inflation pressure - currencies and credit signaling stress - rates and equities diverging or realigning When several markets “say” the same thing at once, the message gets louder. Reading the market helps you understand when something is changing — before the narrative catches up. That’s where timing comes from. And timing is learned by listening to markets themselves, every day. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Capital Allocation Insights | $SHEL Shell’s latest earnings reinforced a theme we’ve already seen develop over the past year: returns are improving not because Shell is growing faster, but because it is investing less — and investing better. Management reiterated a tighter cash CapEx range of $20–22B, down materially from prior cycles. The reason wasn’t a lack of opportunities, but a deliberate choice to only pursue accretive barrels. That discipline showed up clearly: - Capital budgets stepped down from $25–27B → $22–25B → $20–22B - Projects like the Rotterdam biofuels plant were stopped mid-stream - Exploration is explicitly “not an open bucket” - Lower-return chemicals, retail, and mobility assets were divested At the same time, Shell continues to advance higher-margin oil & gas projects, targeting more than 1mmboe/d of new production by 2030, while letting the portfolio shrink elsewhere. This is the important capital lesson: When an industry becomes oversupplied or structurally challenged, cutting capital can raise ROIC faster than expanding it. Shell is effectively: - Shrinking its asset base - Lowering reinvestment intensity - Redirecting capital toward cash generation - Returning excess capital via dividends and buybacks The result is a business that is less complex, more cash-generative, and more resilient — even in a difficult macro. The broader takeaway isn’t about Shell alone. It’s about how capital discipline, not growth, often drives the next phase of returns in mature commodity industries. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Benchmark Blind Spots: Emerging Markets Adam Rich, deputy CIO, breaks down why EM is defined by capital constraints and concentrated outcomes. @AdamRich_CAF podcasts.apple.com/us/podcast/ep-…

Capital Allocation Insights | $QCOM $QCOM ’s earnings reaction wasn’t driven by AI enthusiasm or lack thereof — it reflected how input costs and capital intensity interact in hardware businesses. Management highlighted higher memory prices as a headwind. For Qualcomm, that matters because its core handset and connectivity franchises still fund the majority of cash generation, and those businesses are directly exposed to bill-of-materials inflation. At the same time, Qualcomm continues to expand its AI footprint: - Acquisitions in connectivity, CPUs, and vision AI - Broader positioning across data center and edge platforms The capital allocation tension is structural: - AI semiconductors are scale-sensitive businesses - Memory is becoming a scarcer, higher-cost input - Qualcomm has reiterated operating-expense discipline, not a step-change in reinvestment When core margins are pressured by input costs, free cash flow becomes more constrained. In capital-intensive markets, that constraint influences how quickly and how broadly a company can reinvest. In AI hardware specifically, returns have historically been shaped by: - Scale economics - Sustained R&D intensity - The ability to absorb cost volatility across cycles This sets up a key capital allocation question: In an industry where scale helps absorb rising input costs, how much reinvestment capacity does Qualcomm’s core business support — and how does that shape its competitive posture in AI over time? This quarter didn’t invalidate Qualcomm’s strategy. It clarified the capital math required to execute it. Disclaimer: Views are those of the author and not necessarily Vaughan Nelson. For educational purposes only, not investment advice. Any reliance is at your own risk. Vaughan Nelson does not guarantee accuracy. Past performance is not indicative of future results. Securities mentioned may be held in Vaughan Nelson strategies.

Today’s Capital Allocation Daily: $QCOM announced plans to enter the AI data-center market. The tech looks promising — but in this cycle, it’s scale, not novelty, that wins. 👇