| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 6.6% | 1.9% | 0.2% |
| 2025 |
|---|
| 0.2% |
The Aristotle Small Cap Equity Fund returned 1.96% in Q4 2025, underperforming the Russell 2000 Index's 2.19% return. The fund maintains an optimistic long-term outlook on small-cap equities, citing compelling valuations with the Russell 2000 trading near multi-decade lows relative to large caps. Key contributors included MACOM Technology Solutions, which benefited from strong semiconductor demand in data centers and 5G applications, and Haemonetics, which reported strong earnings in blood management products. The fund added positions in regional banks like Atlantic Union Bankshares, viewing DOGE-related concerns as creating attractive entry opportunities. Portfolio positioning reflects bottom-up security selection with overweight allocations in industrials and information technology, while maintaining underweight positions in healthcare due to biotechnology binary risks and consumer discretionary due to retail sector challenges. Potential catalysts include deregulation, lower corporate tax rates, increased M&A activity, and continued U.S. manufacturing reshoring, though risks remain from inflation, geopolitical tensions, and potential economic weakness.
Small-cap equities offer compelling long-term value with the Russell 2000 trading at multi-decade low valuations relative to large caps, supported by potential tailwinds including deregulation, lower corporate tax rates, increased M&A activity, and continued U.S. manufacturing reshoring.
We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2000 Index trading near multi-decade lows on a relative basis.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 4 2026 | 2025 Q4 | ACHC, AEIS, AER, ATR, AUB, CCRN, CNS, EHTH, GTLS, HAE, HURN, IDA, ITRI, LKQ, MTSI, NUS, PRGO, PTEN, TITN, WWW | Deregulation, Energy Transition, healthcare, M&A, Regional Banks, semiconductors, small caps, value | - | The fund focuses exclusively on small-cap equities with valuations remaining compelling relative to large caps, with the Russell 2000 Index trading near multi-decade lows on a relative basis. Potential tailwinds include deregulation, lower corporate tax rates, increased M&A activity, continued reshoring of U.S. manufacturing and infrastructure-related spending. Value stocks outperformed growth counterparts during the quarter as the Russell 2000 Value Index returned 3.26% compared to 1.22% for growth. Lower-quality companies outperformed higher-quality companies with factors like high bankruptcy risk, low sales growth, and low price to earnings having the strongest payoffs. MACOM Technology Solutions, a designer and manufacturer of high-performance semiconductor products, was a top contributor with strong quarterly results. The company has meaningful exposure to growing demand from Data Center and 5G end market applications along with domestic manufacturing footprint. Healthcare was the best-performing sector at +18.54% during the quarter. The fund holds positions in companies like Haemonetics in blood management and Acadia Healthcare in behavioral health services, though maintains an underweight allocation as it avoids biotechnology companies due to binary risk. The fund added positions in regional banks including Atlantic Union Bankshares and WesBanco, viewing DOGE-related concerns as creating attractive opportunities. These banks benefit from diversified customer bases, growing market share, and solid balance sheets positioned for trust and deposit opportunities. The fund holds positions in companies supporting power grid modernization through Itron's smart metering solutions and IDACORP's transmission opportunities. These companies are positioned to benefit from critical regional transmission opportunities and grid monitoring solutions. |
| Nov 4 2025 | 2025 Q3 | ALE, AZEK, COLB, CRI, DLB, FLWS, HAE, HGV, JHX, KNX, MRCY, MTSI, OGS, REI, RRC, SUPN, WNC | consumer, industrials, Recovery, small caps, valuation |
SUPN MRCY MTSI COLB |
The fund emphasized high-conviction small-cap holdings with strong fundamentals and improving earnings visibility amid an easing policy backdrop. Despite market volatility, management sees opportunities in niche industrials, regional banks, and select consumer firms poised for recovery. Small-cap valuations remain historically attractive, supported by resilient demand and renewed investor risk appetite. |
| Jul 22 2025 | 2025 Q2 | ACIW, ALIT, BHLB, CHE, CMCO, DY, FLS, GRDN, IPAR, JBGS, MNRO, MTSI, SMG, TROX, VRRM | Balance Sheets, fundamentals, Inefficiency, small caps, Valuations | CHE | The letter emphasizes disciplined small-cap investing focused on companies with durable business models, strong balance sheets, and consistent cash generation. Management highlights valuation inefficiencies in the small-cap universe driven by passive flows and investor neglect. Small caps are positioned for relative outperformance as fundamentals reassert importance over macro narratives. |
| Mar 31 2025 | 2025 Q1 | ADC, AGI CN, CMCO, HURN, MTSI, ONB, VECO, VVV | - | - | |
| Jan 23 2025 | 2024 Q4 | ACHC, AMTM, ASC, AXTA, AZPN, COLD, GTLS, HXL, INFN, SUM, TROX | - | - | |
| Sep 30 2024 | 2024 Q3 | ACHC, ACIW, ASC, BWIN, FIBK, NVRI | - | - | |
| Jul 10 2024 | 2024 Q2 | ASC, AZZ, CRI, CRNC, DY, GTLS, LFUS, PWSC | - | - | |
| Apr 15 2024 | 2024 Q1 | ATNI, AZEK, CPLP, ITRI, MODV, PWSC, QDEL, SP | - | - | |
| Jan 13 2024 | 2023 Q4 | BDC, CHRS, CUBI, NOG, OII, SP | - | - | |
| Oct 19 2023 | 2023 Q3 | - | - | - | |
| Jul 28 2023 | 2023 Q2 | ADEA, CRNC, DY, GXO, ITRI, MODV, MRCY, STHO | - | - | |
| Mar 31 2023 | 2023 Q1 | ACHC, AIMC, HASI, NSIT, PACW, SBNY, STAR, WWE | - | - | |
| Jan 31 2023 | 2022 Q4 | ADEA, AIMC, ASC, CALM, DBI, EHAB, SAF, VVI, XPER | - | - | |
| Sep 30 2022 | 2022 Q3 | ACHC, CCRN, MRCY, PETQ | - | - | |
| Jun 30 2022 | 2022 Q2 | AZPN, CUBI, HURN, STAR, SUM, UTL, WWW | - | - | |
| Mar 30 2022 | 2022 Q1 | AZEK, CALM, FLWS, JBGS, MTSI, NEX, OHI | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
Energy TransitionThe portfolio maintains significant exposure to electrification themes through companies like Bloom Energy, which provides clean, reliable power solutions for AI data centers. The energy transition represents a structural opportunity as companies race to build power infrastructure to support growing electricity demands from AI workloads. |
Electrification Clean Energy Power Generation Fuel Cells Grid Infrastructure |
HealthcareHealthcare was the strongest relative contributor in the quarter with holdings increasing nearly +16% compared to benchmark returns of roughly +12%. Exact Sciences was acquired for a significant premium by Abbott Laboratories resulting in an +86% return, while other strong performers included Tarsus Pharmaceuticals, Glaukos following approval of a new product, Penumbra, and Repligen driven by strong earnings results. |
M&A Product Approval Earnings Biotech | |
Regional BanksFlagstar has exceptional management and board that are ahead of the game in turning their business around after balance sheet issues. Trading at significant discount to conservatively marked balance sheet compared to similar banks. |
Banks Turnaround Value | |
SemiconductorsRGA initiated a position in Lattice Semiconductor, viewing it as an under-appreciated AI winner with immediate gains and longer-term optionality. Lattice's focus on efficiency and advantages in low-power, small footprint FPGAs position it favorably for AI servers, particularly as the only Post-Quantum Cryptography secure chips on the market. |
FPGAs Security Efficiency AI Infrastructure Programmable | |
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 | |
ValueManager emphasizes investing in controlled companies trading at significant discounts to NAV, with European holding companies showing discounts of 30-68%. The strategy focuses on securities mispricing where real value exists, contrasting with overvalued technology stocks. |
Discounts NAV Mispricing Undervalued Controlled | |
| 2025 Q3 |
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 |
SmallCaps |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Nov 4, 2025 | Fund Letters | Dave Adams | SUPN | Supernus Pharmaceuticals Inc. | Health Care | Biotechnology | Bull | NASDAQ | cash flow, CNS, growth, healthcare, innovation, pharmaceuticals, profitability | Login |
| Nov 4, 2025 | Fund Letters | Dave Adams | MRCY | Mercury Systems Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Aerospace, backlog, Computing, Defense, Government, growth, Security | Login |
| Nov 4, 2025 | Fund Letters | Dave Adams | MTSI | MACOM Technology Solutions Holdings Inc. | Information Technology | Semiconductors | Bull | NASDAQ | 5G, Connectivity, data centers, Margins, Optical, Rf, semiconductors | Login |
| Nov 4, 2025 | Fund Letters | Dave Adams | COLB | Columbia Banking System Inc. | Financials | Banks | Bull | NASDAQ | banking, Capital, dividends, efficiency, EPS growth, merger, synergies | Login |
| Jul 22, 2025 | Fund Letters | Dave Adams | CHE | Chemed Corp. | Health Care | Health Care Services | Bull | NYSE | capital allocation, cashflow, Demand, Demographics, Hospice, leverage, Regulation, services, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| ACHC | Acadia Healthcare is a behavioral healthcare and substance abuse treatment services company. Shares sold off following mixed third quarter earnings results. While earnings beat estimates, management reduced forward guidance, causing the stock to sell-off. The company expects to reduce capex plans and focus on improving the operational strength of the business, which should improve free cash flow. We continue to believe the company is well positioned to be an important part of the solution to an unfortunately growing need for behavioral health services. |
| AEIS | Advanced Energy Industries, Inc. (AEIS) was a top contributor in the Small Cap strategy during the quarter. AEIS provides highly engineered power conversion and control solutions for semiconductor equipment and data centers. Shares performed well after the company delivered a strong third-quarter report, exceeding the high end of guidance on the back of record Data Center Computing revenue that more than doubled year-over-year. Total revenue increased 24% year-over-year and Adjusted EPS rose 78%, reflecting both growth and operating leverage. Looking ahead, we spent time with management and others in and around the space during the quarter, and management reiterated that AI-driven demand remains robust and expects Data Center Computing to grow 25–30% in 2026 on secured design wins, supported by incremental capacity in the Philippines and Mexico and a Thailand facility that is ready to ramp quickly. In Semiconductor, customer validation of the eVerest and eVoS platforms underpins our expectation for growth as leading-edge logic and memory spending is expected to strengthen into 2026–2027. The balance sheet remains strong with a $192M net cash position. |
| AER | Airline leasing business AerCap contributed 1.4% to the Fund's returns |
| ATR | Aptar, a specialist in drug-delivery and consumer-dispensing solutions, experienced reduced demand from pharmaceutical customers due to inventory normalization in nasal decongestants |
| AUB | Atlantic Union Bankshares is a Virginia-based, bank holding company serving the Virginia, District of Columbia, Maryland and North Carolina markets. Concerns about the potential negative impact to banking customers in their served markets from DOGE-related cuts created an opportunity to build a position in the company. Given the company's diversified customer base, growing market share from increased scale following a meaningful market expanding acquisition and solid balance sheet, we believe that the DOGE-related overhang presents an attractive opportunity to own a high-quality bank led by a strong management team that should drive capital appreciation for shareholders. |
| CCRN | Our largest purchases in the quarter were PDEX, CCRN and NRC. We are revisiting the nurse staffing company we first owned back in 2019 and sold when COVID comps turned negative. At $8 / share and with 32M shares out, the company has a $260M market capitalization. At its most recent quarter, the company had $99M in net cash and no debt. In December it received a $20M termination payment following its failed $615M acquisition by AYA. This leaves it with over 40% of its market cap in cash and a pro forma enterprise value of $140M. |
| GTLS | Chart Industries Inc. makes specialized equipment for storing, transporting and processing gases for the LNG and hydrogen industries. GTLS was in the process of combing with Flowserve in a merger of equals. But on July 29, Baker Hughes agreed to acquire GTLS for $210.00 per share in cash – topping the Flowserve merger. |
| HAE | HAE entered the quarter with very low expectations, which helped drive a strong stock reaction following earnings. Guidance increased due to improving margins from initiatives. HAE will likely reach its long-term margin targets outlined at its prior investor day. While some parts of the business are still improving, strength in other areas has helped offset those challenges. Buybacks increased at these depressed valuation prices, enhancing shareholder value. Overall, we believe the setup remains attractive, supported by the company's underlying quality. |
| IDA | IDACORP is an Idaho-based, vertically integrated electric utility that provides service to customers in southern Idaho and eastern Oregon. Strong industrial load growth and robust population migration into its service territory, combined with critical regional transmission opportunities, underpin the company's robust five-year capital plan and double-digit rate base growth outlook. We believe this expansion, facilitated by a constructive regulatory environment and a proven management team, should drive consistent earnings growth and long-term capital appreciation for shareholders. |
| ITRI | Itron (Smart & Efficient Grids, US) had a disappointing quarter having lowered expectations for its order intake for the year at its Q3 results. This created uncertainty and reduced visibility for the market. |
| MTSI | Semiconductor holding MACOM Technology Solutions rose nearly +40%, as the company experienced broad-based demand, similar to many semiconductor companies in 2025. |
| PRGO | Perrigo, an over-the-counter (OTC) pharmaceuticals manufacturer, saw shares decline following weak results in its infant formula and European OTC businesses. Long term, the company is conducting a strategic review of its infant formula business and will refocus on consumer-oriented operations by expanding the range of products offered alongside its store-brand OTC portfolio, actions we view positively. |
| WWW | The stock fell 32% this quarter, returning to our initial entry price. This business has two key footwear brands, Saucony in running and Merrill in outdoor. Saucony is an extremely strong brand among elite runners. The challenge for the company is translating that brand halo to casual runners and lifestyle consumers. Saucony sales grew 27% in the most recent quarter and over 40% the quarter before. An expansion of their retail footprint has helped. At 13x 2025 earnings, the risk-reward calculation is compelling and we have increased our position. |
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