| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
ClearBridge's Small Cap Growth Strategy underperformed in Q4 2025 as biotech rallied 28.1% while their IT holdings faced earnings disappointments, though they remain encouraged by improving contributions from newer investments. The strategy was active with 29 new positions and 19 exits, redeploying capital into businesses with idiosyncratic growth levers. Despite another challenging year for active managers with less than 20% of small cap growth strategies outperforming, the managers are optimistic about 2026. For the first time in over a decade, small caps exceeded large caps in earnings growth in Q3, with forecasts showing small cap earnings will handily exceed large caps in 2026. The managers expect a broadening of market leadership beyond AI infrastructure to traditional industries, with AI productivity benefits becoming more visible across sectors. Capital markets are accelerating with improving IPO activity and rebounding M&A volumes. With relative valuations still attractive and the asset class positioned for stronger performance, they believe the prolonged period of factor dislocation sets the stage for improved forward returns.
Small cap growth stocks are positioned for stronger performance in 2026 as earnings growth is forecasted to exceed large caps, relative valuations remain attractive, and market leadership is expected to broaden beyond the narrow AI infrastructure theme that has dominated recent years.
The manager is optimistic about the 2026 backdrop for small cap growth stocks after several years of narrow leadership and extreme performance dispersion. They expect a broadening of growth leadership across traditional industries and believe AI productivity benefits will become more visible across sectors. With small cap earnings growth set to eclipse large cap peers and relative valuations at attractive levels, they believe the asset class is poised for stronger performance.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 15 2026 | 2025 Q4 | BE, BETA, BHVN, DUOL, DYN, ELF, GKOS, IBP, INSM, LRN, NVS, PEN, PTGX, QLYS, RBC, SGRY, SSD, TREX, VRNS, WIX | active management, AI, Biotechnology, Capital markets, earnings, growth, small cap, Valuations |
PTGX SIMP |
The manager expects 2026 could mark a period where productivity and monetization benefits of AI become more visible across industries. Several holdings are actively leveraging… |
| Oct 9 2025 | 2025 Q3 | CLBT, CRDO, KTOS, RNA | Artificial Intelligence, defense, growth, healthcare, small caps |
BE US KD US |
The ClearBridge Small Cap Growth Strategy lagged benchmarks as speculative retail-driven rallies lifted low-quality stocks. The team added to high-conviction industrial and healthcare names like… |
| Jul 29 2025 | 2025 Q2 | BOOT, BWXT, CASH, RYTM, UTI, VOYG, WING | growth, market breadth, scalability, small caps, valuation | - | The fund discusses improving conditions for small-cap growth as market breadth expands and risk appetite normalizes. Management emphasizes companies with scalable business models and strong… |
| Apr 5 2025 | 2025 Q1 | AROC, GERN, GKOS, HIMS, KRMN, RKLB | - | - | - |
| Jan 9 2025 | 2024 Q4 | CWAN, FLR, MOD, OSCR, TGTX | - | - | - |
| Sep 30 2024 | 2024 Q3 | ANF, FTAI, OS, WTFC | - | - | - |
| Jul 18 2024 | 2024 Q2 | BPMC, FN, GLBE, PCVX, ROAD, TREX, VRNS, XPRO | - | - | - |
| Apr 23 2024 | 2024 Q1 | CNMD, DUOL, ELF, INSM, INTA, MEDP, RDNT, SMCI, VKTX | - | - | - |
| Jan 13 2024 | 2023 Q4 | BLKB, FF0 GR, IBP, MIRM, NARI, WMT | - | - | - |
| Aug 10 2023 | 2023 Q3 | AEL, KVYO, LNTH, MGRC, NCNO | - | - | - |
| Jun 30 2023 | 2023 Q2 | BE, BJ, FFO GR, TRUP | - | - | - |
| Mar 31 2023 | 2023 Q1 | DH, ESI, LTHM | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has become a dominant theme across major equity indices, with Nvidia leading the S&P 500, ASML dominating MSCI EAFE, and TSMC leading emerging markets. The fund benefited from AI-related dynamics, particularly through Samsung's memory products experiencing substantial price increases due to DRAM shortages driven by AI demand. |
Semiconductors Memory DRAM Technology Nvidia |
Capital MarketsThe IPO market continued to thaw into year-end, reinforcing that capital formation is re-accelerating after a multi-year slowdown. This backdrop remains supportive for SPAC issuance and transaction activity. The manager believes SPACs only work in a healthy capital markets backdrop with strong performance from IPOs, direct listings, and M&A. |
IPO market Capital formation Direct listings M&A activity Market reopening | |
Small CapsConcentrated portfolio of small-cap companies with limited sell-side coverage and institutional ownership. Invests where most institutional managers cannot or will not participate, allowing for asymmetric return potential. 44% of Russell 2000 stocks have zero Wall Street coverage, creating mispriced opportunities. |
Russell 2000 Limited Coverage Institutional Asymmetric Mispriced | |
TechnologyHoldings span social media, online search, cloud computing and e-commerce including select Magnificent 7 positions. They also own semiconductor companies at reasonable valuations, including picks and shovels businesses like Applied Materials with strong competitive positions and long track records of value creation. |
Technology Semiconductors Cloud Social Media E-commerce | |
| 2025 Q3 |
AIAI has become a dominant theme across major equity indices, with Nvidia leading the S&P 500, ASML dominating MSCI EAFE, and TSMC leading emerging markets. The fund benefited from AI-related dynamics, particularly through Samsung's memory products experiencing substantial price increases due to DRAM shortages driven by AI demand. |
Semiconductors Memory DRAM Technology Nvidia |
DefenseDefense positioning includes exposure to missiles, air defense and space through companies like Lockheed Martin, supported by large order backlogs providing strong long-term visibility amid heightened geopolitical tensions. |
Military Aerospace Geopolitical Security Infrastructure | |
Growth |
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HealthcareFund focuses exclusively on healthcare sector with concentrated portfolio of small-cap companies. Investment approach targets special situations within healthcare including spin-offs, asset sales, business model pivots, and new product launches. Portfolio includes pharmaceutical, medical device, biotechnology, and healthcare IT companies. |
Pharmaceuticals Medical Devices Biotechnology Healthcare IT Special Situations | |
Small CapsConcentrated portfolio of small-cap companies with limited sell-side coverage and institutional ownership. Invests where most institutional managers cannot or will not participate, allowing for asymmetric return potential. 44% of Russell 2000 stocks have zero Wall Street coverage, creating mispriced opportunities. |
Russell 2000 Limited Coverage Institutional Asymmetric Mispriced | |
| 2025 Q2 |
SmallCap |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 9, 2025 | Fund Letters | Aram Green | BE US | Bloom Energy Corp. | Industrials | Electrical Equipment | Bull | NYSE | AI, data centers, Electrification, energy transition, Fuel cells, growth, Margins, valuation | Login |
| Oct 9, 2025 | Fund Letters | Aram Green | KD US | Kratos Defense & Security Solutions, Inc. | Information Technology | Aerospace & Defense | Bull | NASDAQ | Aerospace, backlog, Defense, Drones, growth, Hypersonic, Margins, valuation | Login |
| Jan 15, 2026 | Fund Letters | Aram Green | PTGX | Protagonist Therapeutics, Inc. | Health Care | Biotechnology | Bull | NASDAQ | Blockbuster, Clinical, Immunology, Oraldrugs, pipeline | Login |
| Jan 15, 2026 | Fund Letters | Aram Green | SIMP | Simpson Manufacturing Co., Inc. | Industrials | Building Products | Bull | New York Stock Exchange | Buildingproducts, compounding, Housing, Margins, marketshare | Login |
| TICKER | COMMENTARY |
|---|---|
| BE | An underweight position in Bloom Energy Corp. (BE) detracted from performance. The machine learning (ML) model's have a highly unfavorable view of Bloom Energy, which ranked zero at the start of the quarter. The primary driver of the low score were its valuation features. During the quarter the stock rose significantly given rising demand from AI-related data center power needs. |
| BETA | BETA Technologies is an aerospace and defense company developing electric aircraft, propulsion systems and charging infrastructure for government, logistics and commercial applications. Its vertically integrated model, lower operating cost structure and focus on conventional takeoff aircraft provides multiple avenues for long-term growth. |
| DUOL | I have followed the company closely since the IPO since my wife was an avid user, not wanting to break her streak in learning Italian. I thought growth would drop off a cliff after COVID as happened with many other companies, and yet, quarter after quarter the company continued to execute. In fact, there are only four companies I can find that have grown revenues greater than 30% for at least the last 20 quarters in a row – MercadoLibre, Axon, Hims, and Duolingo. To have that growth endurance, you've got to be doing something right! Well, the stock was down almost 70% after the valuation got far too rich and management made it very clear they were prioritizing learning over monetization for 2026. That is the right call in my opinion, considering what the core competency of the company is. Duolingo shouldn't be thought of as a language learning app, it's an engagement machine that happens to educate. In service of its mission to make education widely available, it built the data-driven muscle of engaging users. To learn anything, the most difficult part is motivation and that is what Duolingo is good at. In fact, almost 40% of monthly users log into the app every day. For context, Snapchat is at 50%! You're telling me that an app that teaches you Spanish almost has the same level of engagement as the app where teens do all of their communication? As the company broadens its education subjects like math, music, chess, and other areas, retention should increase even more. If you get bored of learning a language, you can hop over to play some chess. And AI will allow the company to create better content for their current subjects and accelerate the broadening of the platform. Paired with the engagement muscle, Duolingo very well could become a must-have app for learning all sorts of things. This vision will take time but it's actually the exact vision of the CEO/founder. The main bear cases are AI translation and that no one actually learns anything. On the latter, it's up to the user. Duolingo can't force you to learn anything. But yes, education apps typically have very high churn. The fact that Duolingo is able to increase paid subs at a rapid rate despite the leaky bucket is incredibly impressive. On the former, language learning isn't all about practicality. For a large portion of users, they're trying to learn English and they actually really want to understand the language rather than use AI translating glasses. And secondly, Duolingo includes a structure for habit formation. The company is already embedding AI into its content program with its Max Tier so as the models improve, so should Duolingo's product. It's easy to say that high engagement, alone, isn't a moat and I'd agree but the company's core competency is A/B testing and therefore, the product improves at a much higher rate than competitors as it scales. We paid ~18x FCF, inclusive of stock-based comp. That's not super cheap but for a company with an exceptional founder and growth endurance rivaling our long-time holdings, MercadoLibre and Axon, we decided to finally start a position. |
| DYN | Dyne Therapeutics is a biotechnology company developing late-stage RNA-based therapies for muscular dystrophy conditions. With limited existing treatment options and encouraging early data, upcoming clinical milestones represent meaningful potential value creation opportunities. |
| ELF | Following a period of strong performance, shares of e.l.f. Beauty, a cosmetics company focused on affordable, digitally native products, declined as sales growth was hurt by management's decision to stop shipments to retailers that were slow to pass through tariff-related price increases. |
| GKOS | Glaukos is an ophthalmic medical technology and pharmaceutical company focused on novel therapies for glaucoma, corneal disorders, and retinal diseases. Shares contributed positively after the company reported strong fiscal third-quarter results, as revenue growth accelerated to approximately 37% year-over-year, driven by momentum in iDose, its flagship glaucoma product. The company also disclosed U.S. Food & Drug Administration (FDA) approval of its next-generation corneal health product, Epioxa, and indicated initial pricing was set materially above expectations, which was viewed as an incremental growth driver alongside the iDose ramp. |
| IBP | Installed Building Products installs fiberglass insulation into the walls of new homes and apartment buildings. Given the weak housing market, it grew earnings modestly in 2025, but even that trounced expectations. IBP has exceptional management and has generated good returns for us over the past four years. |
| INSM | Insmed Inc., a biopharmaceutical company focused on developing and commercializing therapies for patients with rare diseases, advanced 21% over the quarter. We have been pleased with the launch of Brensocatib, a first-in-class oral medication that treats non-cystic fibrosis bronchiectasis. The reception has been positive from physicians, patients, and payers. |
| LRN | Stride is a leading online provider of general education to K-12 students. We sold the position due to issues with a platform rollout that led to higher-than-expected student withdrawals and caused the company to limit in-year enrollment. Fall enrollments are historically a key driver for fiscal year results and investors may have to wait until next fall for another catalyst for the stock. |
| NVS | During the quarter, Chinese online discount retailer Vipshop Holdings Ltd., Canadian auto parts manufacturer Magna International and Swiss pharma Novartis AG were sold as each reached target valuation limits. |
| PEN | Penumbra reported strong quarterly financial results in which the company reported 16.9% constant currency revenue growth driven in part by 18.5% U.S. Thrombectomy revenue growth. In early January, the company announced it entered into an agreement to be acquired by Boston Scientific Corporation for approximately $14.5 billion at a 19% premium to the closing price the day prior. |
| PTGX | Protagonist Therapeutics is a biopharmaceutical company that currently has two internally discovered, clinically derisked drugs likely to launch with their partners in the near future, which we believe offer blockbuster potential — particularly an oral version of a well adopted injectable mechanism treating a range of immunology and inflammation conditions. |
| RBC | RBC designs and manufactures precision bearings and engineered components for aerospace, defense, and industrial markets. The stock outperformed in 4Q25 as aerospace demand remained resilient, defense orders accelerated, and operating leverage drove margin expansion. |
| SSD | Simpson Manufacturing is a leading building products company focused on connectors, truss plates and fasteners used in residential construction. With a dominant share in its core markets, attractive margins and opportunities to expand into adjacent categories, Simpson has steady compounding potential over time, in our view. |
| TREX | Trex is a US-listed supplier of outdoor composite decking and is currently experiencing an extended downturn in repair-and-remodel demand. In addition to a weaker-than-expected sales trajectory, in November the company unexpectedly announced incremental investment in sales and marketing for FY26 which will meaningfully impact profit margins. Notably, this followed the acquisition of its closest peer, AZEK, by James Hardie, suggesting the incremental investment may be defensive in nature. |
| VRNS | security software company Varonis and Wix.com, a website and application creation platform, both of which had minor disappointments that led to material stock price overreactions. We continue to have conviction in the idiosyncratic growth opportunities at each of these profitable and attractively valued businesses, both of which can benefit from the proliferation of AI adoption. |
| WIX | We initiated a position in cloud-based web services company Wix.com as shares fell on concerns surrounding Generative AI. However, we believe these concerns are somewhat misplaced, as the company's core capabilities, coupled with its strong partner ecosystem and critical back-end functionality for partners, should position it well long term. |
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