| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Grandeur Peak delivered a challenging 2025 as markets increasingly rewarded speculation over fundamentals, with the lowest-quality funds outperforming high-quality peers by 10.3% annually over five years. Despite headwinds, the firm's Global Reach portfolio achieved 16.4% earnings growth on a reasonable 18.8x P/E ratio, with ROA double that of the index. Foreign equities led with 32.0% returns versus 12.7% for the U.S., while smaller companies globally outperformed with micro-caps gaining 30.8%. The firm observed significant disconnects between index and fund category returns, particularly in value versus growth, suggesting index returns may understate true opportunity sets. Portfolio changes included reducing name counts for deeper analysis and shifting sector allocations, notably reducing Financial Services exposure while adding Insurance. Looking ahead, they estimate 21.4% earnings growth for 2026 and believe potential mean reversion across quality, value, and active management dimensions could create favorable conditions for their strategy.
Grandeur Peak maintains focus on constructing portfolios of high-quality businesses with attractive earnings growth trading at reasonable valuations, aiming for 12-15% average annual earnings growth that should translate into 10-12% average annual returns over the long term.
The firm continues to ask for patience while waiting for the market to appropriately value attractive metrics, believing earnings growth remains a north star that has historically been highly correlated with stock price over time. They estimate earnings growth for Global Reach will be 21.4% in 2026, even higher than the 16.4% achieved in 2025.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 28 2026 | 2025 Q4 | - | earnings growth, Foreign, Quality, small caps, SMID, value | - | Grandeur Peak faced headwinds in 2025 as markets rewarded speculation over quality, yet delivered strong 16.4% portfolio earnings growth. Foreign markets significantly outperformed U.S., with dramatic value outperformance masking true opportunity in growth. The firm reduced portfolio concentration and expects 21.4% earnings growth in 2026, positioning for potential mean reversion favoring quality strategies. |
| Oct 28 2025 | 2025 Q3 | - | AI, fundamentals, global, momentum, Quality, small caps, Speculation, value | - | Grandeur Peak confronts a challenging speculative rally favoring low-quality momentum stocks over fundamentals. Despite significant underperformance, the firm maintains conviction in quality investing, expecting earnings growth to ultimately drive returns. Current market concentration in speculative names with poor fundamentals creates unsustainable valuations that will eventually correct, favoring disciplined quality-focused strategies. |
| Jul 21 2025 | 2025 Q2 | - | Foreign, India, Japan, Quality, semiconductors, small cap, valuation | - | Foreign small-cap growth delivered exceptional Q2 returns but remains deeply undervalued at 18% discount to U.S. large caps. High-quality foreign stocks face technical headwinds from outflows despite superior fundamentals, creating significant rebound potential. Increased Japan exposure and identified India consumer opportunity. Selective industrial positioning amid tariff uncertainty. Early semiconductor recovery emerging after patient value approach. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
QualityThe market has increasingly rewarded companies with weaker fundamentals over high-quality businesses. The lowest-quality funds outperformed higher-quality peers by 10.3% annually over the past five years, creating a challenging environment for quality-focused strategies like Grandeur Peak. |
Quality Fundamentals ROA Earnings |
ValueForeign small-cap value significantly outperformed growth, with value funds returning 37.2% versus 20.0% for growth funds. The value-growth dispersion was much wider in fund categories than index data suggested, indicating meaningful opportunities in the value reset. |
Value Growth Dispersion Foreign | |
Small CapsSmall caps were not one unified market in 2025. Foreign Developed Small Caps returned 34.1% while US Small Caps returned only 11.6%. Globally, smaller companies outperformed with micro-caps gaining 30.8% ahead of large caps. |
Small Cap Micro Cap Foreign Dispersion | |
AIThe firm sees considerable speculation and unsustainable valuations in quantum computing, blockchain, crypto, and metaverse companies that outperformed in 2025. They remain cautious toward areas that have yet to demonstrate durable, high-return business models. |
AI Quantum Speculation Valuations | |
| 2025 Q3 |
QualityGrandeur Peak maintains unwavering commitment to quality investing despite underperformance. The firm emphasizes fundamentals-focused strategies over speculative momentum plays. Quality companies with strong balance sheets and earnings growth are expected to ultimately outperform lower-quality names. |
Quality Fundamentals Earnings Balance Sheet Discipline |
AIAI infrastructure and quantum computing drove significant outperformance in Q3, though much of this was speculative. The firm focuses on AI integration into enterprise workflows, semiconductors as computing backbone, and edge computing rather than speculative AI plays. |
AI Infrastructure Enterprise Semiconductors Edge Computing | |
MomentumLower-quality momentum stocks dominated Q3 returns, with speculative names posting exceptional gains despite poor fundamentals. The firm acknowledges this challenging environment for quality-focused strategies but maintains conviction that momentum-driven rallies are unsustainable. |
Momentum Speculation Low Quality Rally Unsustainable | |
| 2025 Q2 |
QualityHigh-quality foreign funds have underperformed low-quality peers by nearly 60% over five years despite superior fundamentals. The highest quality quintile of funds has experienced the highest volume of redemptions and now has the smallest share of assets under management within the foreign small-mid category for the first time on record. The manager believes there is substantial room for high-quality foreign SMID and Emerging Market SMID stocks to rebound should fundamentals regain traction as a main driver of investment. |
ROA Balance Sheets Fundamentals Outflows Technical Dislocation |
Small CapsForeign small-cap growth stocks led the rally in Q2 2025, delivering one of the top five best quarters of absolute performance in 30 years. Despite these gains, foreign small-cap growth stocks continue to trade at very attractive relative valuations compared to U.S. large cap equities, priced at nearly an 18% discount to U.S. large caps and approximately 30% below their 20-year average valuation differential. |
Valuation Gap Foreign SMID Growth Stocks Relative Performance Discount | |
IndiaIndia presents enormous headroom for growth with improving infrastructure, favorable demographics, rising per capita income, and political stability making the consumer space particularly compelling. The team identified significant underpenetration across multiple consumer categories including sports footwear, biscuit consumption, and out-of-home food consumption. India occupies a rare geopolitical sweet spot, maintaining relationships with both Western nations and Russia while benefiting from supply chain diversification away from China. |
Consumer Growth Infrastructure Demographics Underpenetration Geopolitical | |
SemiconductorsSemiconductor holdings produced sizeable gains in Q2 after struggling in recent years. The team has been patient, leaning in when valuations have gotten too cheap and are grateful to see the early stages of reversion in these names. One of the largest contributing companies was a Belgian semiconductor developer focused on the auto sector that was significantly undervalued relative to its financial position. |
Auto Sector Valuation Pricing Power Customer Base Reversion | |
JapanJapan provided the highest excess return in every fund that invests in the country. The team recognized a compelling opportunity to increase Japan exposure in 2024, with research analysts traveling to the country early this year gaining fresh insights and added conviction. They increased Japanese weight and concentrated into their highest conviction names, benefiting from strong earnings results and Yen appreciation. |
Excess Return Conviction Yen Appreciation Earnings Concentration |
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