| 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… |
| 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… |
| 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… |
| 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 discusses high-profile defaults in the private market and cautious Fed commentary that dampened sentiment. Lower quality C and CC rated securities were notable underperformers during the quarter, while the fund's positioning away from the lowest echelons of credit quality was positive for performance. |
Defaults Credit Quality Private Credit Spreads High Yield |
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 CapsConcentrated portfolio of small-cap companies with limited sell-side coverage and institutional ownership. Invests where most institutional managers cannot or will not participate, allowing for asymmetric return potential. 44% of Russell 2000 stocks have zero Wall Street coverage, creating mispriced opportunities. |
Russell 2000 Limited Coverage Institutional Asymmetric Mispriced | |
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 PolicyTariff headwinds are set to peak in 4Q25 with most tariffs having been paused and only starting to have economic effect at the end of 3Q25. US tariff collections have spiked to an annualized run rate of over US $300 billion which could effectively add up to 2.0 percent of GDP fiscal drag on the consumer. |
Inflation Growth Policy | |
| 2025 Q3 |
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 CapsConcentrated portfolio of small-cap companies with limited sell-side coverage and institutional ownership. Invests where most institutional managers cannot or will not participate, allowing for asymmetric return potential. 44% of Russell 2000 stocks have zero Wall Street coverage, creating mispriced opportunities. |
Russell 2000 Limited Coverage Institutional Asymmetric Mispriced | |
| 2025 Q2 |
Growth |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 22, 2025 | Fund Letters | Bob Mitchell | PL | Planet Labs PBC | Industrials | Aerospace & Defense | Bull | NYSE | cashflow, Defense, Demand, Geospatial, Satellites | 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 |
| 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 |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | HLIO US | Helios Technologies, Inc. | Industrials | Machinery | Bull | NYSE | growth, Hydraulics, machinery, Margins, restructuring, valuation | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | HLMN | Hillman Solutions Corp. | Consumer Discretionary | Building Products | Bear | NASDAQ | Costs, Hardware, Margins, retail, tariffs | 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 |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | ERII | Energy Recovery, Inc. | Industrials | Electrical Components & Equipment | Bear | NASDAQ | Desalination, energy, Execution, tariffs, Volatility | 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 |
| 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 |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | SSTI | SoundThinking, Inc. | Information Technology | Application Software | Bear | NASDAQ | AI, Demand, Municipalities, Publicsafety, SaaS | 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 |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | KIDS | OrthoPediatrics Corp. | Health Care | Health Care Equipment | Bull | NASDAQ | growth, guidance, Implants, Margins, Pediatrics | 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 |
| 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 | BMI | Badger Meter, Inc. | Information Technology | Electronic Equipment & Instruments | Bull | New York Stock Exchange | Free Cash Flow, recurring revenue, Smart Metering, Water infrastructure | 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 |
| 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 |
| 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 | FSV reported slower-than-expected results due to weather-related softness in its restoration business tied to roofing. We believe they have multiple avenues for reinvestment and that its management can generate shareholder value over the long term. |
| 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 designs and manufactures precision bearings and engineered components for aerospace, defense, and industrial markets. The stock outperformed in 4Q25 as aerospace demand remained resilient, defense orders accelerated, and operating leverage drove margin expansion. |
| RGEN | RGEN shares rallied as the bioprocessing market showed signs of stabilization and renewed demand for its life sciences tools. |
| 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 is a US-listed supplier of outdoor composite decking and is currently experiencing an extended downturn in repair-and-remodel demand. In addition to a weaker-than-expected sales trajectory, in November the company unexpectedly announced incremental investment in sales and marketing for FY26 which will meaningfully impact profit margins. Notably, this followed the acquisition of its closest peer, AZEK, by James Hardie, suggesting the incremental investment may be defensive in nature. |
| 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 | 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. |
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