Partner Letter

Dear partners,

We close the first half of 2026 with the same discipline that has guided Polaris since its inception: buying good businesses at reasonable prices and holding them for as long as it takes for value to be realized. Charlie Munger liked to remind us that the big money is not in the buying or the selling, but in the waiting. It is through that lens that we present the decisions of the period.

Brazil Outlook

The domestic environment called for additional caution. The downward path of the Selic rate lost momentum, and the policy rate ends the half at 14.25% per year, following cuts of smaller magnitude and a communication from Copom that the market read as hesitant. Inflation over the trailing 12 months once again broke through the top of the target band, pressured by fuel and food, and forecasts for the year have migrated to the 4.9% to 5.1% range.

Behind the numbers lies a deteriorating fiscal picture. The pace of government spending, combined with the uncertainty of the electoral calendar, has again put pressure on the long end of the yield curve. The cancellation of government bond auctions and the widening of real rates toward double digits signal a risk premium that we do not consider temporary. This backdrop informs our preference for companies with predictable cash generation, low leverage, and the ability to pass inflation through to prices.

Brazilian equity positions

We maintain in full our allocations to Itaúsa, Porto, Klabin, and Vulcabras. These are 4 theses that hold up well in the environment described above. Itaúsa preserves its historical discount to the value of its assets and the solidity of its banking core. Porto combines underwriting discipline with pricing power that benefits from high interest rates. Klabin offers exposure to dollar-linked revenue and to a packaging sector with resilient demand. Vulcabras continues to deliver operational execution and consistent margins at the domestic consumer end.

We added a new position: Grupo Equatorial. The thesis is deliberately defensive. Regulated revenue indexed to inflation, contracted cash flow, and a capital allocation track record that strikes us as above the sector average form an attractive combination for an environment of fragile public accounts and higher-for-longer interest rates.

Reduction in real estate funds

We carried out a meaningful reduction in our exposure to Brazilian real estate funds. With real interest rates persistently high, fixed income now competes directly with the segment's dividend yield, and part of the brick-and-mortar and paper theses lost their margin of safety. We chose to concentrate the remaining allocation exclusively in logistics assets, keeping BTG Pactual Logística and XP Log. Logistics warehouses benefit from long leases, inflation-linked adjustments, and structural demand tied to e-commerce, characteristics that support the thesis even in an adverse rate cycle.

U.S. equity positions

In the U.S. portfolio, we maintain our positions in Tesla and Google, whose long-term theses remain intact.

We increased our position in Berkshire Hathaway. At a moment of elevated risk premiums and reduced visibility, the company's cash fortress and the quality of its businesses work as a low-volatility anchor in the portfolio. Berkshire remains, for us, the practical translation of the margin of safety that Warren Buffett and Charlie Munger taught.

We opened 2 new positions. The first is Microsoft. The stock was heavily penalized by the market in recent months, in a move we understand to be tied more to short-term sentiment than to fundamentals. Recurring revenues remain firm and, in our reading, on a strengthening path, which creates a favorable asymmetry at the current price.

The second new position is the Pabrai Wagons ETF (NYSE: WAGN), recently established through the conversion of Mohnish Pabrai's fund, completed in February 2026. The choice is not accidental. Pabrai is a self-declared disciple of Buffett and Munger, and the vehicle gives us access to a concentrated value portfolio managed under the same philosophy we pursue, with the added advantage of offering exposure to assets outside Brazil and the United States, in markets where we still see meaningful price asymmetries.

Cash and liquidity

The discipline of carrying cash is part of our thesis. In Brazil, we keep a meaningful share of the portfolio in cash linked to the Selic rate, in floating-rate instruments that capture the elevated level of interest rates while preserving immediate liquidity. In the United States, the reserve is allocated to short-term U.S. Treasury bills through the TFLO ETF, which combines very low duration risk with a yield close to the short-term policy rate. In both cases, the objective is the same: to have ammunition available to take advantage of the opportunities that tend to appear during corrections, without being forced to sell good assets to fund them.

Store of value

We maintain our Bitcoin positions, supported by our conviction in the long-term thesis of a scarce monetary asset uncorrelated with traditional cycles. We also preserve exposure to gold, through a U.S.-listed ETF, as protection against the deterioration of fiat currencies around the world, a process that the fiscal expansion and inflation persistence described in this letter only reinforce. These are wealth-insurance positions, sized with parsimony and intended for long crossings.

Philosophy and diversification

The decisions of this half reinforce who we are. We look for understandable businesses, run with rationality in capital allocation, bought with a margin of safety, and held with patience. Increasing Berkshire and entering Pabrai's vehicle are not merely positions, they are a restatement of that philosophy. At the same time, the exposure we built to assets outside Brazil and the United States, together with the cash reserve and the protective assets, serves a diversification role that we consider prudent given the fiscal and geopolitical uncertainties of the moment.

We remain attentive, with cash to take advantage of opportunities without haste. We thank you for your continued conviction and remain at your disposal.

Sincerely,

Management Team
Polaris Global Strategies Ltd.