| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 6.2% | 2.3% | 3.0% |
| 2025 |
|---|
| 3.0% |
Aristotle Capital Boston maintains an optimistic outlook on small/mid-cap equities, citing compelling valuations relative to large caps with the Russell 2500 Index trading near the lower end of its historical range. The fund returned 2.37% in Q4 2025, outperforming the Russell 2500 Index's 2.22% return through strong security selection in industrials and information technology. Key return drivers include AI-related demand benefiting optical networking companies like Ciena, power grid modernization supporting smart metering solutions, and continued reshoring of U.S. manufacturing. The portfolio maintains overweights in information technology and materials while remaining underweight consumer discretionary and financials after harvesting gains. Multiple catalysts support the outlook including potential deregulation, lower corporate tax rates, increased M&A activity, and infrastructure spending. However, risks persist from elevated volatility due to inflationary concerns, geopolitical tensions, and potential economic weakness. The fund's bottom-up security selection approach focuses on identifying attractive long-term opportunities regardless of sector definitions, with positioning reflecting company-specific views rather than top-down sector predictions.
Small/mid-cap stocks offer compelling valuations relative to large caps and are positioned to benefit from multiple tailwinds including deregulation, lower corporate tax rates, increased M&A activity, reshoring, and infrastructure spending.
We remain optimistic about the long-term potential for the small/mid-cap segment of the U.S. market. Valuations remain compelling relative to large caps, with the Russell 2500 Index trading near the lower end of its historical range.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 4 2026 | 2025 Q4 | AEIS, AER, AGI, AHCO, AUB, BJ, BKU, CIEN, DY, EHC, HASI, HMN, HQY, HURN, IDA, ITRI, MTSI, NOVT, PRGO, PWP, UGI, WWW | Banking, healthcare, industrials, small cap, technology, Utilities, value | - | AI-related demand is driving strong performance for optical networking equipment manufacturers like Ciena, which is dominating market share for scale across data center projects in… |
| Oct 14 2025 | 2025 Q3 | AGI CN, CIEN, COLB, HAE, HGV, JHX, MTSI, PNW, PRMB, SCI, WTRG | Artificial Intelligence, M&A, Manufacturing, small caps, Utilities | - | Small and mid-cap equities benefited from AI optimism, easier monetary policy, and valuation appeal versus large caps. The fund added companies with durable cash flows… |
| Jul 22 2025 | 2025 Q2 | ACIW, ALIT, BHLB, CHE, CMCO, DLB, DY, FTAI, IPAR, JBGS, MNRO, MTSI, PRGO, SMG, TROX, VRRM | diversification, earnings, Quality, Small/Mid Cap Caps | CHE | - |
| Mar 31 2025 | 2025 Q1 | ADC, AGI CN, B, DBI, MTSI, SUM, VVV, WWW | - | - | - |
| Jan 23 2025 | 2024 Q4 | ACHC, AXTA, AZPN, CMCO, COLD, CTLT, DOC, GTLS, HXL, INFN, NSIT, SUM | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIThe extended federal government shutdown added volatility during what was otherwise a risk-on environment, with a mid-quarter shift in market behavior for AI-related equities as the exuberant narrative evolved to one more balanced in assessing the technology's enormous potential against staggering capital spending plans and high expectations. The team initiated a position in Credo Technology as a more diversified way to gain exposure to strong trends in AI-connectivity. |
Connectivity Semiconductors Infrastructure Capital Spending |
Grid UpgradeUtilities are deploying ever-accelerating amounts of capital into grid infrastructure to meet rising electricity demand. S&P 500 Utility Index capex forecasts for 2026 and 2027 increased by 16% and 15% respectively. Higher levels of capital deployed within the regulated utility framework are lifting utility growth profiles. |
Grid Infrastructure Capital Expenditure Regulated Utilities Transmission Power Grid | |
OnshoringReshoring of supply chains presents compelling opportunities for smaller companies. AZZ is positioned to benefit from domestic manufacturing reshoring trends, while the broader strategy targets companies that can capitalize on this shift. |
Reshoring Supply Chains Manufacturing | |
| 2025 Q3 |
AI Exposure |
|
Small CapsThe fund invests in a portfolio of competitively advantaged small and medium-sized businesses, which remained out of favor for most of the quarter. The strategy of owning leading small-cap businesses has been the foundation since inception, delivering 354 basis points of annual outperformance over the benchmark since inception despite recent headwinds. |
Growth Outperformance Benchmark Russell Businesses | |
U.S. Growth |
||
| 2025 Q2 |
DiversificationThe Fund remains purposefully diversified despite market leadership being narrow and focused on AI. This discipline reflects commitment to effective risk management and appropriate diversification, which weighed on relative performance but positions the Fund well for various market scenarios. |
Risk Management Portfolio Construction Concentration |
QualityThe portfolio has shifted toward higher quality businesses with better profitability, lower leverage, and less volatile earnings. Quality stocks underperformed significantly in 2025, creating attractive entry points for value investors. The manager maintains price discipline while seeking quality companies trading at discounts to intrinsic value. |
Quality Profitability Leverage Earnings | |
Small/Mid Caps |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 22, 2025 | Fund Letters | Dave Adams | CHE | Chemed Corp. | Health Care | Health Care Services | Bull | NYSE | buybacks, cashflow, Cyclicality, Demographics, Health Care, Hospice, Margins, Regulation, services | Login |
| TICKER | COMMENTARY |
|---|---|
| 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 |
| 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. |
| BJ | BJ's Wholesale Club Holdings is a Massachusetts-based retailer operating membership warehouse clubs that sell a wide variety of goods from groceries and housewares to electronics, appliances and jewelry. With the company benefitting from better-than-expected performance from recently opened stores that highlights their strong fundamental execution and a pipeline of new stores in development, we believe that management should be able to continue these efforts to grow shareholder value over the next several years. |
| CIEN | Ciena, a networking systems company, saw shares increase meaningfully during the quarter amid optimism around hyperscaler and AI-related demand. The company has also benefited from growing cloud spending, which has supported its pluggables and data interconnect business. |
| DY | After a long and successful ownership of DY, we decided to exit our position in the fourth quarter in favor of more attractive opportunities. The business is experiencing strong demand from internet providers for fiber deployment, but we believe much of the recent valuation expansion is being driven by AI exuberance. |
| EHC | Although the fundamentals for EHC are steady, EHC is both a defensive business and a defensive stock in a market that wants offense |
| 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. |
| NOVT | Novanta (NOVT) supplies proprietary precision components and systems used in mission-critical medical and advanced industrial applications. |
| 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. |
| PWP | Perella Weinberg Partners is a boutique investment bank that has been investing in incremental deal capacity through strategic hires of experienced investment bankers. An expected upturn in mergers & acquisitions (M&A) activity over the next several years following a period of below average activity should allow the company to operationally leverage the investments they've been making during the downturn. Deal pipelines remain near all-time highs, activity is increasing, and the market is pricing in future modest interest rate cuts, which increases confidence that sustained M&A volume recovery is growing. This environment should allow the company to generate shareholder value over the coming years. |
| UGI | UGI Corporation is a Pennsylvania-based energy infrastructure company operating regulated natural gas utilities, midstream and marketing assets, AmeriGas retail propane distribution and international LPG services. Under the leadership of a new, highly experienced and highly respected CEO, UGI is implementing an operational reset at AmeriGas while executing a strategic pivot toward its stable utility footprint and underappreciated Midstream assets that we believe are well positioned to capitalize on regional demand. This management-led transformation, coupled with non-core divestitures and an improving balance sheet, should drive greater predictability and support a more durable long-term earnings growth profile. |
| 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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