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| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
As of Oct 15, 2026
Distillate U.S. Small/Mid Cap Quality & Value (SMID QV) returned 18.46% net of fees YTD through the third quarter of 2026, substantially outperforming the Russell 2000 Index (+13.87%) and the Russell 2000 Value Index (+17.22%). Annualized net-of-fees performance since strategy inception reached 13.78%, generating 4.04% and 3.75% of annualized excess returns over the Russell 2000 and Russell 2000 Value benchmarks, respectively. The strategy maintained a disciplined portfolio structure characterized by an 8.6% next-twelve-months free cash flow to enterprise value yield and a P/E multiple of 9.6x, while holding zero exposure to unprofitable, negative free-cash-flow companies. From a macroeconomic perspective, the manager highlights severe valuation and concentration distortion across broad indices, driven by the historic buildout of artificial intelligence infrastructure and surging developed market sovereign bond yields. Rising interest rates are identified as a dual headwind: threatening multiple compression for historically overextended mega-cap tech equities, while simultaneously straining levered, unprofitable small-cap businesses. Benchmarks like the Russell 2000 devote approximately 50% of interest-adjusted free cash flows toward debt service, creating refinancing hazards that SMID QV circumvents through strict financial leverage and debt-to-EBITDA screens. Portfolio construction remains strictly anchored to fundamental cash generation, low indebtedness (net debt to EBITDA of 0.7x versus 1.6x for the Russell 2000), and methodical quarterly rebalancing. During recent quarterly reconstitution, the strategy initiated positions in Owens Corning, Deckers Outdoor Corporation, and ICON Plc, while adding to Skyworks Solutions and PVH Corp. Disposals and trims included full exits from HF Sinclair Corporation and CDW Corporation alongside trims in Abercrombie & Fitch, Insight Enterprises, and Blackbaud.
Systematically investing in financially stable, lowly leveraged small- and mid-cap companies trading at high free cash flow yields generates superior long-term compounded returns while mitigating downside risks from rising interest rates.
Distillate anticipates that the extraordinary valuation divergence between headline indices and fundamentally sound value equities will ultimately resolve through mean reversion. With rising rates exposing fragile, debt-heavy business models, the manager expects companies with durable free cash flow generation, strong interest coverage, and modest entry multiples to provide robust downside protection and deliver superior long-term compounded gains.
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