| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.4% | -1.9% | -10.1% |
| 2025 | 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|---|
| -10.1% | 9.6% | 21.9% | -27.8% | 16.9% | 31.1% |
Conestoga's Small Cap Composite returned -1.89% in Q4 2025 and -10.13% for the full year, underperforming the Russell 2000 Growth Index's 1.22% and 13.01% returns respectively. The year was marked by extreme volatility, with Small Caps plummeting over 20% on tariff concerns in February before surging 50% from April to October. Performance was dominated by narrow leadership from low-quality, unprofitable stocks, creating headwinds for Conestoga's high-quality approach. In Q4, Small Cap biotech and pharmaceutical stocks represented 132% of the index's returns, where the firm had minimal exposure. However, profitable stocks began outperforming unprofitable ones by 5% from mid-October through year-end, suggesting quality leadership may be returning. Looking ahead, the manager is optimistic about Small Caps given projected 32% earnings growth in 2026 versus 13% for Large Caps, a 25% valuation discount, and anticipated tailwinds from pro-growth government policies. The firm expects this could herald a new extended cycle of Small Cap outperformance.
Conestoga maintains a high-quality, low-beta investment approach focused on profitable small-cap companies, expecting quality leadership to return after a period dominated by speculative, unprofitable stocks.
Looking ahead we think the outlook for Small Cap stocks is bright. After experiencing two years of negative earnings growth, Small Caps achieved nearly 9% earnings growth in 2025 and are projected to grow by an additional 32% in 2026. Given the anticipated economic growth tailwinds from last year's pro-growth and deregulatory government policies, we believe there is a compelling case for Small Caps to outperform Large Caps for the first time since 2020. This could potentially herald a new, extended cycle of Small Cap outperformance.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 18 2026 | 2025 Q4 | AAON, AZTA, BMI, CWAN, DGII, DSGX, FSV, KRMN, LMAT, NGEN, NOVT, RBC, RGEN, ROAD, SPSC, STVN, TREX, TRNS, VCEL, VERX | Biotechnology, credit, Performance, Quality, small caps, tariffs, volatility |
CWAN RBC RGEN FSV BMI KRMN MLAB |
Small Caps achieved new all-time highs in 2025 despite extreme volatility, with the Russell 2000 Growth Index surging 50% from April to October after initial tariff concerns. The manager expects Small Caps to outperform Large Caps given 32% projected earnings growth versus 13% for Large Caps and a 25% valuation discount. The market was dominated by low-quality, high-beta, unprofitable stocks during the April-October rally, creating headwinds for the manager's high-quality approach. However, profitable stocks began outperforming unprofitable ones by 5% from mid-October through year-end, suggesting quality leadership may be returning. Small Cap biotech and pharmaceutical stocks dominated fourth quarter performance, representing 132% of the Russell 2000 Growth Index's total returns despite comprising only 11% year-to-date through Q3. The manager's minimal exposure to this sector was a significant performance headwind. Trump administration's comprehensive tariff strategy announcement in February caused Small Caps to plummet over 20% in weeks. However, potential policy modifications in April sparked a dramatic turnaround, with the Russell 2000 Growth Index surging nearly 50% over six months. Concerns about credit quality in private credit and regional banking emerged in Q4, highlighted by First Brands bankruptcy and Tricolor fraud allegations. JPMorgan CEO's cockroach comment underscored systemic concerns, triggering a 10% correction in the Russell 2000 Growth Index. |
| Oct 13 2025 | 2025 Q3 | AAON, CWST, DSGX, HLIO, HLMN, MIR, MRCY, NOVT, ROAD, SLP, SPSC, VERX | Beta, Earnings Cycle, quality growth, small caps, valuation |
MRCY US HLIO US ROAD US |
The letter highlights that speculative rallies in low-quality, unprofitable, and high-beta small-cap stocks drove index gains, while Conestogas focus on profitable, high-quality businesses lagged. Management remains confident that when market leadership rotates back to fundamentals, quality stocks will outperform again. The environment reflects the early phase of a new small-cap cycle, supported by earnings acceleration and valuation discounts. |
| Jul 22 2025 | 2025 Q2 | AAON, AGYS, BFAM, CWAN, DSGX, ESE, EXPO, FSS, JBTM, MMSI, NEOG, RBC, ROAD, SLP | Beta, earnings, growth, Quality, small caps |
PL WLDN ROAD MEG HLMN ERII SSTI KIDS SLP |
The commentary highlights the challenges of conservative growth investing during periods dominated by low-quality, high-beta stock rallies. Management maintains focus on profitable small-cap companies with strong balance sheets and recurring revenues. Small-cap growth is positioned to benefit as fundamentals reassert importance over speculation. |
| May 1 2025 | 2025 Q1 | AAON, ALTR MM, CWST, DSGX, ESE CN, HBCP, MMSI, RBC, ROAD, SPSC, TRNS, VERX | - | - | |
| Dec 31 2024 | 2024 Q4 | ALTR, CXT, EXPO, FOXF, KAI, NCNO, NEOG, NOVT, QTCO, ROAD, SITE, SSD, VERX, WK | - | - | |
| Oct 23 2024 | 2024 Q3 | AAON, CSWI, EXPO, FFO GR, NRC, OFLX, PRO, QTWO, ROAD, SLP, TREX, VCEL | - | - | |
| Jun 30 2024 | 2024 Q2 | AGYS, ALTR, DH, EXPO, LMAT, MMSI, MODN, MSA, MSTR, PYCR, SITE, SLP, SMCI, SPXC, SSD, STVN, TREX, ULS | - | - | |
| Apr 15 2024 | 2024 Q1 | AAON, AXON, CCCS, CWST, EXPO, FOXF, MRCY, MSTR, NEOG, PLOW, ROAD, SMCI, TREX, VCEL, WK | - | - | |
| Dec 31 2023 | 2023 Q4 | AAON, ALTR, DGII, DSGX, FOXF, HLIO, PYCR, SSD, STVN, TREX | - | - | |
| Sep 30 2023 | 2023 Q3 | CSWI, CWAN, CWST, DGII, MODN, NOVT, OMCL, PRO, ROAD, SPSC, SSD, VERX | - | - | |
| Jun 30 2023 | 2023 Q2 | AXON, BL, FF0 GR, FSS, LMAT, MLAB, MRCY, NOVT, SITE, SPSC, SSD | - | - | |
| May 23 2023 | 2023 Q1 | AAON, ALTR, AXON, AZTA, CWAN, DGII, FFO GR, MODN, PLOW, QTWO, SPSC | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
Credit StressThe fund is responding to historically low credit spreads by reducing exposure to high yield and other lower-rated debt. They believe current spreads offer insufficient compensation for credit risk and increase the risk of permanent impairment of capital. The managers are downside-focused and do not share the market's optimism needed to justify such low spreads. |
Credit spreads High yield Credit risk Permanent impairment Risk compensation |
QualityThe company emphasizes investing in businesses with excellent economics, durable competitive advantages, and high-integrity management. This quality focus is evident in concentrated equity holdings and operating business acquisitions. |
Durable Advantages Management Quality Economic Moats Competitive Position | |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy | |
TechnologyThe fund added three technology companies that have each halved over 2025 and hopes to add more. Many tech stocks had become expensive but recent falls present opportunities, though most still aren't cheap enough including Xero. |
Software Valuation Opportunity Selloff | |
Trade PolicyRecent tariff policies continued to negatively impact U.S. consumers and companies throughout the year. However, international companies have been finding new trade arrangements and growth opportunities, benefiting from shifts in global trade patterns as the new U.S. administration alters terms of international cooperation. |
Tariffs International Growth Cooperation Impact | |
| 2025 Q3 |
QualityThe company emphasizes investing in businesses with excellent economics, durable competitive advantages, and high-integrity management. This quality focus is evident in concentrated equity holdings and operating business acquisitions. |
Durable Advantages Management Quality Economic Moats Competitive Position |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy | |
| 2025 Q2 |
Growth |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 22, 2025 | Fund Letters | Bob Mitchell | SLP | Simulations Plus, Inc. | Health Care | Life Sciences Tools & Services | Bear | NASDAQ | Demand, Drugdevelopment, Margins, restructuring, Software | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | CWAN | Clearwater Analytics Holdings, Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | Client Retention, Investment Operations, recurring revenue, Software Acquisition | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | RBC | RBC Bearings, Inc. | Industrials | Industrial Machinery | Bull | New York Stock Exchange | Aerospace, Defense, Free Cash Flow, operating leverage, Precision Manufacturing | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | RGEN | Repligen Corp. | Health Care | Life Sciences Tools & Services | Bull | NASDAQ | biologics, Bioprocessing, Consumables, Destocking, operating leverage | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | FSV | FirstService Corp. | Real Estate | Real Estate Services | Bear | NASDAQ | execution risk, organic growth, Property-services, recurring revenue | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | MRCY US | Mercury Systems, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Aerospace, backlog, Defense, electronics, growth, Margins, Modernization | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | BMI | Badger Meter, Inc. | Information Technology | Electronic Equipment & Instruments | Bull | New York Stock Exchange | Free Cash Flow, recurring revenue, Smart Metering, Water infrastructure | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | HLIO US | Helios Technologies, Inc. | Industrials | Machinery | Bull | NYSE | growth, Hydraulics, machinery, Margins, restructuring, valuation | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | KRMN | Karman Holdings, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Defense, Ip Protection, Long-Cycle Programs, Sole Source | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | ROAD US | Construction Partners, Inc. | Industrials | Construction & Engineering | Bull | NASDAQ | backlog, construction, growth, infrastructure, Margins, Projects, valuation | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | MLAB | Mesa Laboratories, Inc. | Health Care | Life Sciences Tools & Services | Bear | NASDAQ | Acquisitions, Life Sciences Tools, margin pressure, Organic Growth Constraints | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | PL | Planet Labs PBC | Industrials | Aerospace & Defense | Bull | NYSE | cashflow, Defense, Demand, Geospatial, Satellites | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | WLDN | Willdan Group, Inc. | Industrials | Consulting Services | Bull | NASDAQ | Electrification, Grid, growth, infrastructure, utilities | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | ROAD | Construction Partners, Inc. | Industrials | Construction & Engineering | Bull | NASDAQ | backlog, construction, growth, infrastructure, Margins | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | MEG | Montrose Environmental Group, Inc. | Industrials | Environmental & Facilities Services | Bull | NYSE | Compliance, Environmental, growth, Remediation, services | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | HLMN | Hillman Solutions Corp. | Consumer Discretionary | Building Products | Bear | NASDAQ | Costs, Hardware, Margins, retail, tariffs | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | ERII | Energy Recovery, Inc. | Industrials | Electrical Components & Equipment | Bear | NASDAQ | Desalination, energy, Execution, tariffs, Volatility | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | SSTI | SoundThinking, Inc. | Information Technology | Application Software | Bear | NASDAQ | AI, Demand, Municipalities, Publicsafety, SaaS | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | KIDS | OrthoPediatrics Corp. | Health Care | Health Care Equipment | Bull | NASDAQ | growth, guidance, Implants, Margins, Pediatrics | Login |
| TICKER | COMMENTARY |
|---|---|
| AAON | AAON declined after the company reported operational challenges related to a recent system rollout. |
| AZTA | but it was outweighed by weakness in Vericel Corp. (VCEL), Neogen Corp. (NGEN), and Azenta, Inc. (AZTA). |
| BMI | BMI is a leading provider of water meters and connected smart-metering solutions primarily for municipal water utilities. The company exhibits hallmarks of high quality, operating in an oligopolistic water-metering market providing must-have solutions, replacement-driven recurring revenue, healthy capital structure, and good management. |
| CWAN | With Clearwater, the market was overly focused on the debt and large acquisitions while missing how core Clearwater was growing strongly still and had a tailwind from rate cuts. Clearwater Analytics ended getting bought out and would've netted me a large gain but in the meantime due to the size of the position I took and the options leverage, the weak performance was causing me to question my conviction until I decided to sell my position for a 30% loss, 2 weeks before the buyout news came through. |
| DGII | DGII provides connectivity solutions, including routers, gateways, and embedded systems. The stock performed well in the quarter as recurring services revenue grew faster than expected and margins expanded with mix shift toward software and subscriptions. Improved demand visibility in industrial and infrastructure end markets, along with disciplined expense management, supported earnings upside. |
| DSGX | In terms of full year performance effects, stock selection was most challenging in Technology, where fears of the AI eating Software theme gripped the market and caused significant multiple contraction across the group, with SPS Commerce, Inc. (SPSC), Vertex, Inc. (VERX), and Descartes Systems Group, Inc. (DSGX) experiencing the largest negative effects in our portfolio. |
| FSV | Our lone position in Real Estate during the fourth quarter, FirstService, was the portfolio's largest negative contributor. The company specializes in residential management and storm restoration, but it struggled following a soft Q3, as its newly acquired commercial roofing business experienced a slower than expected conversion of its backlog. Additionally, certain large projects have been on hold following a volatile macro environment. This has been happening for several quarters, and the lack of progress has been disappointing. We expect growth to bottom in Q4 and then pick back up, driven by expansion in its remaining business lines. |
| KRMN | KRMN is a defense technology company specializing in the design and manufacturing of highly engineered, mission-critical systems for a diverse set of existing and next-generation space, missiles, hypersonic, and defense programs. KRMN generates mid-teens or better organic revenue growth that is complimented by tuck-in M&A. |
| LMAT | while Stevanato Group SpA (STVN) and LeMaitre Vascular, Inc. (LMAT) were the detractors. |
| NGEN | but it was outweighed by weakness in Vericel Corp. (VCEL), Neogen Corp. (NGEN), and Azenta, Inc. (AZTA). |
| NOVT | Novanta (NOVT) supplies proprietary precision components and systems used in mission-critical medical and advanced industrial applications. |
| RBC | RBC Bearings, Inc. (RBC) manufactures engineered precision bearings and related products for customers in the aerospace, defense, and industrial markets. It is a market leader with a strong reputation for technical capabilities, product quality, and on-time delivery. RBC outperformed in 4Q as its quarterly results beat consensus estimates on both revenue and EPS. Its Aerospace and Defense business (A&D, 44% of total revenue) was particularly strong, essentially 'firing on all cylinders.' Management expects strong growth in its A&D backlog and is in the process of adding capacity to meet demand. Growth in its Industrial business (56% of total revenue) remains sluggish, but management has significantly improved the profit margins of this business and is now in the process of implementing growth initiatives. We continue to like RBC's leadership team, well-established strategic playbook, as well as its opportunities for growth and capital deployment. |
| RGEN | Other strong performers in the quarter, primarily driven by strong earnings results, included Repligen |
| ROAD | ROAD is a vertically integrated civil infrastructure company constructing roadways and highways across the Sunbelt. The stock underperformed during the quarter following the release of fiscal fourth-quarter results, where earnings per share missed analyst estimates. |
| SPSC | SPSC reported a more muted near-term business outlook. Whereas there are certainly some environmental issues we think are temporary, we discovered recently that management made a poor acquisition. As a result, an activist has targeted the firm. We continue to believe the business is advantaged and see multiple avenues for value creation. |
| STVN | Pulling back by -22% was Stevanato Group, which manufactures glass packaging for syringes, autoinjectors, and other pharmaceutical needs. Recent revenues and earnings each exceeded expectations, though management was conservative and merely reaffirmed its guidance for the balance of its fiscal year. There may have been some advanced purchasing from customers, though Stevanato's core business grew well, and we added to our position on the weakness. |
| TREX | TREX Company, a leader in composite decking, was our biggest laggard in Industrials during the fourth quarter, as an increasingly competitive environment and weaker end-market trends led to poor Q3 results. TREX saw business fall off after Labor Day, which is inconsistent with results from other peers and surveys. It was quite surprising and may be a function of its higher DIY business. Regardless, this contradicts our thesis, so we exited the position. |
| TRNS | while Transcat, Inc. (TRNS) saw persistent organic service revenue weakness and margin compression following a series of acquisitions which weighed on profitability and investor sentiment. |
| VCEL | Vericel is a medical device company specializing in cartilage repair and burn care. VCEL's autologous cartilage repair product is differentiated and value-added for younger patients with knee cartilage defects of 2-4 cm. The company recently swung to profitability, and we see margin expansion as revenue ramps. Our intrinsic value estimate is $50 per share. |
| VERX | Vertex detracted from relative quarterly performance |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| No Recent Sells Data | ||||||
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| No industry data available | |||
