| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 17.0% | 16.9% | 10.7% |
| 2025 | 2024 |
|---|---|
| 16.8% | -34.3% |
The Driehaus Small Cap Growth strategy outperformed its benchmark by 436 basis points in Q4 2025, returning 5.58% versus 1.22% for the Russell 2000 Growth Index. For the full year, the strategy returned 16.82% versus 13.01% for the benchmark, marking the tenth year of outperformance in the past eleven years. Small caps have demonstrated strong momentum since the April bottom, with the Russell 2000 returning 42.4% from the low, driven by accelerating earnings growth that is expected to outpace large caps. AI continues as the dominant market theme, driving productivity gains and economic expansion. Healthcare was the top contributing sector, rising 32.6% as biotech recovered with positive clinical results. The strategy increased healthcare exposure to 32.6% while reducing technology exposure due to AI-driven concerns about enterprise software demand. Looking ahead to 2026, the outlook remains positive supported by economic expansion, strong earnings, fiscal stimulus, and broadening market participation across cyclical sectors making new highs.
Small cap growth companies are positioned for continued outperformance driven by accelerating earnings growth, AI-driven productivity gains, and broadening market participation across sectors including healthcare recovery and technology infrastructure buildout.
Looking into 2026, we view the market outlook as positive. The US is currently experiencing economic expansion, strong earnings, stable long-term interest rates, fiscal stimulus, and monetary easing. We believe the outlook for 2026 is bullish with key macro drivers remaining intact and the market broadening out across multiple sectors.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 14 2026 | 2025 Q4 | BBIO, CRNX, CW, FN, GH, XBI | AI, Biotechnology, earnings, growth, healthcare, productivity, small caps | - | AI continues to be the dominant theme driving the market and economy. Demand for AI LLMs is going up exponentially, with demand by AI users… |
| Oct 14 2025 | 2025 Q3 | - | Artificial Intelligence, Capex, healthcare, industrials, small caps |
CRDO US GH US KARM US |
Driehaus highlights the Feds policy pivot as a catalyst for small-cap recovery, with earnings growth accelerating into 2026. AI-related infrastructure and utility capex are driving… |
| Jul 11 2025 | 2025 Q2 | - | earnings acceleration, growth, momentum, revisions, small caps | - | The letter emphasizes momentum-driven growth investing focused on companies experiencing accelerating earnings and revenue inflections. Management highlights sector rotation and earnings revisions as key drivers… |
| Apr 17 2025 | 2025 Q1 | - | - | - | - |
| Jan 17 2025 | 2024 Q4 | - | - | - | - |
| Oct 11 2024 | 2024 Q3 | - | - | - | - |
| Jul 31 2024 | 2024 Q2 | - | - | - | - |
| Apr 27 2024 | 2024 Q1 | - | - | - | - |
| Jan 17 2024 | 2023 Q4 | - | - | - | - |
| Sep 30 2023 | 2023 Q3 | - | - | - | - |
| Jun 30 2023 | 2023 Q2 | - | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
BiotechnologyHealthcare industry positioned for catch-up growth after several years of below-trend performance. Government spending expected to increase relative to feared cuts, with companies signaling improvement in revenue growth. Focus on 'picks & shovels' businesses serving the industry. |
Life Science Tools Pharmaceuticals CRO & CDMO Healthcare Research | |
ProductivityNon-farm productivity surged in Q3, growing at an annual rate of 4.9%. Strong productivity in part driven by AI is boosting economic growth and positively impacting corporate earnings over the near-term, despite labor market stagnation. |
Economic Growth GDP Efficiency Labor Market Earnings | |
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 Q3 |
AI Capex |
|
Small Cap Recovery |
||
| 2025 Q2 |
Growth |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 14, 2025 | Fund Letters | Jeffrey James | CRDO US | Credo Technology Group Holding Ltd. | Information Technology | Semiconductors | Bull | NASDAQ | AI, design wins, growth, hyperscalers, Margins, Networking, Optical, semiconductors | Login |
| Oct 14, 2025 | Fund Letters | Jeffrey James | GH US | Guardant Health, Inc. | Health Care | Diagnostics & Research | Bull | NASDAQ | Biotech, diagnostics, FDA, growth, innovation, Margins, Oncology | Login |
| Oct 14, 2025 | Fund Letters | Jeffrey James | KARM US | Karman Holdings, Inc. | Other | Aerospace & Defense | Bull | NYSE | Aerospace, backlog, Defense, growth, infrastructure, manufacturing, Margins | Login |
| TICKER | COMMENTARY |
|---|---|
| BBIO | BridgeBio Pharma, Inc. Health Care 1.7 |
| CRNX | Crinetics Pharmaceuticals Inc Health Care 2.0 |
| CW | We initiated Curtiss-Wright, consistent with our high-quality growth orientation. We believe Curtiss-Wright is entering a period in which multiple near-term growth drivers are converging, including rising defense budgets, commercial aerospace production ramps, nuclear power plant life extensions and new builds, and submarine production. |
| FN | Fabrinet Information Technology 1.6 |
| GH | Guardant Health, a provider of blood-based diagnostic tests for cancer, performed particularly well, driven by strong Q3 results. Its core oncology business grew revenues 30% vs. 20% in the previous quarter, an acceleration driven by innovative product enhancements. Furthermore, its colon cancer screening tests continued to perform well, growing 50% sequentially from Q2. While shares were up significantly in 2025, we remain bullish on the business, as Guardant continues to lead the charge in converting oncology testing from tissue to blood. |
| XBI | the biotech ETF (SPDR S&P Biotech- XBI) is making a new four year high |
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