| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 17.01% | 16.9% | 10.7% |
| 2025 | 2024 |
|---|---|
| 16.8% | -34.3% |
The Driehaus Small Cap Growth strategy outperformed its benchmark by 436 basis points in Q4 2025, returning 5.58% versus 1.22% for the Russell 2000 Growth Index. For the full year, the strategy returned 16.82% versus 13.01% for the benchmark, marking the tenth year of outperformance in the past eleven years. Small caps have demonstrated strong momentum since the April bottom, with the Russell 2000 returning 42.4% from the low, driven by accelerating earnings growth that is expected to outpace large caps. AI continues as the dominant market theme, driving productivity gains and economic expansion. Healthcare was the top contributing sector, rising 32.6% as biotech recovered with positive clinical results. The strategy increased healthcare exposure to 32.6% while reducing technology exposure due to AI-driven concerns about enterprise software demand. Looking ahead to 2026, the outlook remains positive supported by economic expansion, strong earnings, fiscal stimulus, and broadening market participation across cyclical sectors making new highs.
Small cap growth companies are positioned for continued outperformance driven by accelerating earnings growth, AI-driven productivity gains, and broadening market participation across sectors including healthcare recovery and technology infrastructure buildout.
Looking into 2026, we view the market outlook as positive. The US is currently experiencing economic expansion, strong earnings, stable long-term interest rates, fiscal stimulus, and monetary easing. We believe the outlook for 2026 is bullish with key macro drivers remaining intact and the market broadening out across multiple sectors.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 14 2026 | 2025 Q4 | BBIO, CRNX, CW, FN, GH, XBI | AI, Biotechnology, earnings, growth, healthcare, productivity, small caps | - | Small cap growth strategy delivered strong outperformance in Q4 2025, driven by accelerating small cap earnings and AI-powered productivity gains. Healthcare led performance with biotech recovery while technology exposure was reduced on software concerns. With small cap earnings expected to outgrow large caps and market broadening across sectors, the 2026 outlook remains bullish for continued small cap outperformance. |
| Oct 14 2025 | 2025 Q3 | ALAB, CRDO, GH, SITM | AI, Data centers, growth, healthcare, industrials, semiconductors, small cap, technology |
CRDO US GH US KARM US |
Driehaus Small Cap Growth outperformed by 467 basis points in Q3 2025, driven by AI infrastructure spending and small cap earnings acceleration. The strategy benefits from semiconductor exposure, data center buildout, and biotech innovation. With Fed easing supporting markets and small cap earnings surging, the manager maintains positive outlook for continued outperformance in this AI-driven cycle. |
| Jul 11 2025 | 2025 Q2 | AXON, CVLT, CW, CYBR, NTRA | AI, growth, industrials, infrastructure, small cap, tariffs, technology | - | Strong Q2 outperformance driven by industrials and energy overweights amid tariff-induced volatility. Successfully navigated AI infrastructure selloff by reducing then re-initiating positions at lower prices. Portfolio tilted toward industrials and technology while reducing healthcare exposure. Favorable outlook for second half supported by AI spending, infrastructure investment, and improving deal markets. |
| Apr 17 2025 | 2025 Q1 | CRNX, CYBR, ERJ, NTRA, SFM | AI, Biotechnology, growth, healthcare, small caps, tariffs, Trade Policy, volatility | - | Driehaus Small Cap Growth fell 16.57% in Q1 amid Trump tariff turmoil and AI theme collapse. Strategy reduced tech exposure while increasing healthcare despite RFK Jr concerns. Outlook hinges entirely on tariff negotiations and policy resolution. Portfolio positioned for companies to emerge stronger from crisis with market share gains as uncertainty clears. |
| Jan 17 2025 | 2024 Q4 | CALX, HALO, KNSL, PI, WSC | Fed policy, growth, inflation, infrastructure, Onshoring, Recession, small cap, Valuations | - | Small cap growth strategy suffered in 2022's bear market but sees opportunity in historically cheap valuations and secular trends. Manager expects inflation to continue falling, enabling Fed normalization and multiple expansion. Portfolio positioned for onshoring and infrastructure spending themes while maintaining exposure to technology and healthcare at attractive entry points. |
| Oct 11 2024 | 2024 Q3 | AXON, CRNX, FTAI, PCVX, TMDX | AI, Biotech, growth, industrials, infrastructure, Rate Cuts, small caps | - | Small cap growth strategy positioned for outperformance despite Q3 underperformance. Deep valuation discount to large caps, Fed rate cuts, and earnings acceleration create favorable setup. Strong themes in AI infrastructure, biotech innovation, and reshoring. Portfolio emphasizes quality growth holdings across industrials, healthcare, and technology with positive economic outlook supporting continued small cap leadership. |
| Jul 31 2024 | 2024 Q2 | BRBR, CAMT, CCJ, FTAI, TMDX | AI, Biotech, growth, healthcare, industrials, semiconductors, small cap, technology | - | Driehaus Small Cap Growth outperformed by 325bp in Q2 2024, driven by AI infrastructure plays and healthcare innovation. The fund increased tech exposure as semiconductor fundamentals improved dramatically. With small caps trading at historic discounts to large caps and Fed rate cuts expected, the manager maintains positive positioning across secular growth themes including reshoring and cybersecurity. |
| Apr 27 2024 | 2024 Q1 | AXON, BRBR, MNDY, NVDA, SAIA, SMCI | AI, energy, growth, healthcare, industrials, semiconductors, small cap, technology | - | Driehaus Small Cap Growth significantly outperformed in Q1 2024 driven by AI infrastructure themes and improving macro conditions. The strategy gained 18.98% versus 7.58% for the benchmark, with Super Micro Computer leading performance. AI adoption remains early and sustainable with strong earnings growth supporting valuations. Small caps trade at attractive discounts with improving fundamentals ahead. |
| Jan 17 2024 | 2023 Q4 | CALX, HALO, KNSL, PI, WSC | Biotechnology, Fed policy, growth, inflation, infrastructure, Onshoring, Recession, small cap | - | Driehaus Small Cap Growth significantly underperformed in 2022's brutal equity market, declining 34% versus benchmark's 26% drop. Manager sees opportunity in historic small cap discount to large caps and maintains exposure to reshoring, infrastructure spending, and biotech themes. Key catalyst is Fed policy normalization as inflation moderates. |
| Sep 30 2023 | 2023 Q3 | ACLS, CCJ, CELH, KNSL, SMCI | energy, growth, industrials, inflation, semiconductors, small caps, technology, Yields | - | Driehaus Small Cap Growth outperformed in Q3 despite yield-driven market weakness, benefiting from AI-driven technology growth and onshoring themes. Small caps trade at historically attractive valuations versus large caps. The strategy increased technology and energy exposure while reducing consumer discretionary. Inflation progress and potential Fed pause support the outlook for small cap outperformance in the next market cycle. |
| Jun 30 2023 | 2023 Q2 | AAPL, ACLS, INSP, JPM, KNSL, SMCI, XENE | AI, growth, healthcare, industrials, Recession, small cap, technology, Valuations | - | Small cap growth strategy outperformed in Q2 with AI infrastructure and housing themes driving returns. Small caps trade at historically attractive valuations while benefiting from manufacturing reshoring and sector recoveries. Despite recession risks from yield curve inversion, rolling expansions across industries suggest economic resilience. Strategy positioned for small cap outperformance cycle. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIEdgewood owns four AI infrastructure companies (NVIDIA, Broadcom, ASML, Synopsys) representing significant portfolio weight. The firm views AI as creating new product opportunities and efficiencies, with Draft One described as an AI killer app for police departments. AI Era Plan is the fastest booked Axon product to date. |
Infrastructure Software Semiconductors Applications Enterprise |
SoftwarePortfolio includes multiple software companies with strong growth profiles including ServiceNow, Intuit, and Shopify. Software segment shows 35% average EPS growth versus 6% for S&P 500 software index. AI is driving cloud demand and creating new monetization opportunities through tools like Draft One. |
SaaS Cloud Enterprise Growth Margins | |
GrowthPortfolio companies delivered 27% average EPS growth in 2025 versus 7% stock performance, creating stored alpha opportunity. Edgewood divides portfolio into three growth buckets with 21%+ growth companies representing 34.5% of portfolio. Management expects earnings strength to continue in 2026. |
Earnings Fundamentals Compounding Quality Alpha | |
HealthcareHealthcare holdings include Eli Lilly, Vertex, Boston Scientific, and Intuitive Surgical showing strong performance. Eli Lilly was a top contributor in Q4 with 41% return. Healthcare segment shows 32% average EPS growth versus 18% for S&P 500 healthcare index. |
Biotechnology Medical Devices Pharmaceuticals Innovation Demographics | |
| 2025 Q3 |
AIAI continues to be the dominant theme driving the market and economy. The fundamental strength in AI is very sustainable, with companies becoming more productive and efficient by using AI. Over the intermediate and long-term, profit margins should expand as companies leverage AI capabilities. |
Data Centers Hyperscaler Infrastructure Productivity Capex |
Data CentersThe biggest beneficiaries of the AI boom continue to be companies levered to the robust hyperscaler capex and data center buildout. Hyperscaler capex is driving revenue and earnings growth for numerous companies in technology and industrial sectors. |
Hyperscaler Capex Infrastructure Technology Industrials | |
SemiconductorsThe portfolio is overweight semiconductors, electronic equipment, and communication equipment. These companies are levered to the data center buildout, including semis, optical equipment suppliers, and contract manufacturers. |
Electronic Equipment Optical Contract Manufacturing Data Center | |
Energy TransitionEnergy demand from AI and data center growth is fueling a dramatic rise in electricity consumption. The growing utility capex trend shows rising utility capital expenditure budgets driven by AI and data center energy requirements. |
Utility Capex Electricity Infrastructure Energy Demand | |
BiotechnologyThe portfolio remains overweight biotech and pharmaceuticals despite sector concerns. The manager continues to see innovative drug discovery and promising clinical trials that will result in FDA approvals and successful commercial launches across various disease indications. |
Drug Discovery Clinical Trials FDA Approvals Pharmaceuticals | |
DefenseIndustrial holdings saw strength in multiple sub-industries including commercial aerospace, defense, satellites, drones, and defense-related infrastructure. These areas contributed to the strong performance in the industrials sector. |
Aerospace Satellites Drones Defense Electronics | |
| 2025 Q2 |
AIAI infrastructure demand remains robust with hyperscalers continuing competitive spending on data centers. The manager aggressively reduced AI infrastructure positions after DeepSeek debut but re-initiated at lower prices as earnings estimates appear conservative and capex trends remain strong. AI is expected to drive productivity gains and serve as a source of economic growth. |
Data Centers Infrastructure Spending Semiconductors Cloud |
Trade PolicyTrump's tariff policies drove extreme market volatility with reciprocal tariffs causing severe stress before a 90-day pause provided relief. Market assumes 10% baseline tariffs with higher rates for countries with larger trade surpluses. Tariff rates above 10-20% would be a headwind to growth and add uncertainty. |
Inflation Trade Down Risk Appetite | |
Infrastructure SpendingReshoring and infrastructure continue as sources of economic growth with hundreds of billions being spent on new data centers. The portfolio has significant exposure to nuclear infrastructure, traditional infrastructure, and engineering & construction companies benefiting from these trends. |
Construction Nuclear Onshoring | |
Defense SpendingCommercial aerospace and defense holdings showed strength during the quarter as part of the industrials sector outperformance. The portfolio maintains exposure to defense-related companies within the broader industrials allocation. |
Aerospace Defense | |
| 2025 Q1 |
Trade PolicyTrump announced reciprocal tariffs of at least 10% globally with rates up to 50% on 60 countries, causing extreme market volatility. After four days of sharp declines, Trump pivoted to a 90-day pause with 10% rates except China at 145%. The administration and trading partners are entering negotiations with potential for reduced tariff rates. |
Tariffs Trade Negotiations China Policy |
AIThe AI infrastructure investment theme effectively ended after DeepSeek's debut of a lower cost open source LLM on January 27th. This caused extreme selling in AI-related stocks as concerns rose about sustainability of AI capex growth and potential commoditization of LLMs, leading to reduced exposure in the portfolio. |
DeepSeek Infrastructure Capex LLM Data Centers | |
BiotechnologyHealthcare sector saw widespread multiple compression due to RFK Jr's controversial appointment as HHS Secretary overseeing FDA. Despite concerns about drug approval processes, biotech management teams report normal FDA dialogue with no signs of slowdown. Portfolio holdings have promising clinical stage therapies in obesity, epilepsy, diabetes, neurology, autoimmune diseases, and oncology. |
FDA Drug Approval Clinical Trials RFK Jr Therapeutics | |
Small CapsSmall cap growth strategy underperformed significantly during the quarter, declining 16.57% versus 11.12% for Russell 2000 Growth benchmark. Market breadth was extremely poor with intense hedge fund de-risking and selling. The strategy maintains focus on companies positioned to emerge strongly from current crisis and gain market share. |
Russell 2000 Growth Underperformance Breadth De-risking | |
| 2024 Q4 |
InflationManager believes inflation will continue to fall as key drivers (excess money supply, excess savings, supply chain issues, labor shortages) are normalizing. M2 money supply is now negative year-over-year, excess savings are declining, and supply chains have largely recovered. |
Fed Policy M2 Labor Markets Supply Chains Wage Growth |
OnshoringReshoring is identified as a powerful trend after decades of moving manufacturing overseas. Covid supply chain disruptions and uncertain behavior by China are driving companies to move manufacturing and supply chains back to the US. |
Supply Chains Manufacturing China Covid Domestic Production | |
Infrastructure SpendingMultiple very large federal stimulus programs offer big opportunities for US companies, including new infrastructure spending, the Inflation Reduction Act, Rural Broadband Spending programs and the Chips Act worth well over $1 trillion. |
Federal Stimulus Chips Act Rural Broadband Government Spending | |
Semiconductor CycleSemiconductors outperformed with holdings up 22% versus index up 12%. Semicap equipment industry is in cyclical decline as capex falls, but some suppliers benefit from silicon carbide adoption in automotive and EV applications. |
Silicon Carbide Capex Equipment Automotive EVs | |
Small CapsSmall cap valuations are at the second lowest relative valuation to large caps in 40 years and at levels similar to past recessions. Current small cap forward P/E is well below long-term average. |
Valuations Relative Performance P/E Multiples Large Caps | |
| 2024 Q3 |
AIAI infrastructure spending by Hyperscalers remains robust with 40% capex increases in 2024. Manager views AI as existential threat driving continued investment in GPUs, servers, networking equipment and data centers. Expects spending to decelerate but remain strong through 2025-2026. |
Data Centers GPUs Infrastructure Capex Hyperscalers |
OnshoringReshoring theme identified as supporting broader economy and preventing recession. Manager sees this as sustainable trend benefiting industrial holdings with strong earnings outlooks. |
Manufacturing Infrastructure Industrials Supply Chain | |
BiotechnologyBiotech holdings appreciated 17.9% with strong gains from vaccine company focused on bacterial diseases. Portfolio includes promising clinical stage therapies in obesity, epilepsy, diabetes, neurology, autoimmune diseases and oncology with upcoming clinical trials anticipated. |
Vaccines Clinical Trials Oncology Rare Diseases Drug Development | |
Infrastructure SpendingInfrastructure theme supporting economy and industrial holdings. Materials positions related to infrastructure and specialty metals in commercial aerospace showing continued strength in earnings and end market demand. |
Commercial Aerospace Materials Construction Government Spending | |
| 2024 Q2 |
AIThe fund increased exposure to semiconductors and hardware companies tied to AI infrastructure buildout. Several holdings benefited from the hardware infrastructure buildout to support AI applications, including semi cap equipment companies and semiconductor or component suppliers to data centers. IT budgets are shifting away from enterprise software towards AI and its supporting infrastructure. |
Data Centers Semiconductors Infrastructure |
SemiconductorsThe semiconductor group was a key outperformer with holdings appreciating 30.9% versus 10% for the index. The fund increased semiconductor exposure from 0.6% to 3.8% overweight as the fundamental outlook for holdings and the industry improved dramatically. Companies included semi cap equipment firms and component suppliers to data centers. |
Semi Equipment Components Data Centers | |
OnshoringReshoring remains a strong theme within the industrials sector where the fund maintains an overweight position. The fund continues to be positive on the sector as reshoring trends support various industrial companies and equipment providers. |
Industrials Manufacturing | |
CybersecurityCybersecurity remains a robust area within software as cyber attacks continue to grow in number and sophistication. Several industries have been hard hit this year by cyber attacks that have severely disrupted their operations in high profile attacks. |
Software Security | |
| 2024 Q1 |
AIAI holds tremendous potential to enhance productivity across industries through automation, analytics, and customer experience improvements. Enterprise adoption is still nascent but growing rapidly, with 45% piloting and only 10% in production. The manager views AI as early and sustainable, comparing it favorably to the Tech Bubble with stronger earnings and lower multiples. |
Artificial Intelligence Machine Learning Automation Productivity Enterprise Software |
Data CentersData center demand is expected to expand dramatically over the next five years, driven by AI applications. CoreWeave reports that daily requests are absurd and the world is grossly underestimating demand. Nvidia's CEO expects over $250 billion annually in data center equipment spending, benefiting tech and industrial companies. |
Cloud Infrastructure Server Equipment Cooling Technologies Energy Infrastructure Hardware | |
SemiconductorsSemiconductor companies have been among the strongest performers, with Nvidia becoming the third largest S&P 500 weighting and Super Micro Computer becoming the largest Russell 2000 weighting. The manager sees continued opportunities in networking and hardware companies benefiting from AI buildout. |
AI Chips Hardware Networking Equipment Server Technology Processing Power | |
EnergyAI and data centers are introducing a new era of energy demand, with estimates of 2-5% annual electricity power load growth versus historical 0.4%. This creates huge implications for natural gas, nuclear power, power generation, infrastructure, and supply chains, benefiting energy companies and utilities. |
Power Generation Natural Gas Nuclear Power Infrastructure Electricity Demand | |
OnshoringReshoring of manufacturing back to the U.S. remains a strong theme supporting industrial companies. The manager continues to be positive on the sector as reshoring provides robust fundamental trends for many holdings. |
Manufacturing Supply Chain Domestic Production Industrial Policy Trade Policy | |
| 2023 Q4 |
InflationManager believes inflation will continue to fall as key drivers (excess money supply, excess savings, supply chain issues, labor shortages) are normalizing. M2 money supply is now negative year-over-year, excess savings are declining, and supply chains have largely recovered. |
Fed Policy M2 Labor Markets Supply Chains Wage Growth |
OnshoringReshoring is identified as a powerful trend after decades of moving manufacturing overseas. Covid supply chain disruptions and uncertain behavior by China are driving companies to move manufacturing and supply chains back to the US. |
Manufacturing Supply Chains China Covid Domestic Production | |
Infrastructure SpendingMultiple very large federal stimulus programs offer big opportunities for US companies, including new infrastructure spending, the Inflation Reduction Act, Rural Broadband Spending programs and the Chips Act worth well over $1 trillion. |
Federal Stimulus Chips Act Rural Broadband Engineering Construction | |
BiotechnologyBiotech and pharma performed well in the second half after a long bear market decline. Manager remains encouraged with clinical trial updates and outlooks, anticipating 2023 will be promising as various clinical trials demonstrate successful outcomes. |
Clinical Trials Therapeutics Pharma Drug Development Healthcare | |
SemiconductorsSemiconductor equipment industry is in cyclical decline as industry capex falls, but some equipment suppliers are benefiting from adoption of silicon carbide (SiC) in automotive sector, especially electric vehicles. |
Silicon Carbide Electric Vehicles Capex Equipment Automotive | |
Small CapsSmall cap valuations are at the second largest discount to large caps in 40 years and at levels similar to past recessions. Current small cap forward P/E is well below long-term average, presenting attractive opportunities. |
Valuations Discount Russell 2000 P/E Multiples Relative Value | |
| 2023 Q3 |
AIHardware investment to support AI applications is showing huge growth inflection. Server manufacturers are seeing tremendous growth in AI servers, while GPU semiconductor companies benefit from rising AI demand. Several semiconductor capital equipment holdings are levered to AI adoption. |
Artificial Intelligence Servers GPUs Hardware Computing |
OnshoringKey themes such as reshoring, infrastructure and construction for new manufacturing facilities are showing clear signs of strength. The manager maintains exposure to these structural trends within the industrials sector. |
Reshoring Manufacturing Infrastructure Construction Industrials | |
Semiconductor CycleSemiconductors saw strong relative performance with holdings levered to AI and silicon carbide adoption in electric vehicles. Several semiconductor capital equipment holdings outperformed as the industry benefits from AI-driven demand. |
Semiconductors Silicon Carbide Equipment Electric Vehicles Chips | |
Energy TransitionThe portfolio includes exposure to uranium producers benefiting from favorable demand and supply dynamics, with uranium prices making new multi-year highs. Silicon carbide adoption in electric vehicles is also driving semiconductor performance. |
Uranium Nuclear Electric Vehicles Clean Energy Transition | |
Small CapsSmall caps continue at their second largest discount to large caps over the past 40 years. History shows small caps typically materially outperform during the first five years of a new market cycle, making the intermediate-term case very compelling. |
Valuation Discount Outperformance Market Cycle Russell 2000 | |
| 2023 Q2 |
AIAI is still in its infancy but will have significant economic impact and create many investment opportunities. Hardware investment to support AI applications is showing huge growth inflection, particularly in servers and networking equipment. The fund holds several companies benefiting from AI demand, including a server manufacturer seeing tremendous growth in AI applications. |
Hardware Servers Networking ChatGPT Computing |
HomebuildersDespite higher interest rates, homebuilders are outperforming due to severe housing shortage from 15 years of under-building, existing homeowners reluctant to sell due to low mortgage rates, and strong demand from millennials and second-home buyers. Public homebuilders have key advantages in scale, land acquisition, and mortgage rate buydowns. |
Housing Construction Mortgages Millennials Affordability | |
OnshoringManufacturing is returning to the US due to supply chain disruptions during Covid, rising costs in China, and national security concerns. Federal stimulus plans including the Inflation Reduction Act and Chips Act totaling over $2 trillion are accelerating this trend. This is driving demand for industrial holdings and is increasingly mentioned in quarterly results. |
Manufacturing Supply Chain China Infrastructure Industrial | |
Small CapsSmall caps trade at the second largest discount to large caps in 40 years and reached valuations consistent with past recession lows. Small caps typically outperform large caps for the first five to six years of new bull market cycles. Current valuations appear to have priced in a recession that may not materialize. |
Valuations Discount Bull Market Outperformance Recession |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 14, 2025 | Fund Letters | Jeffrey James | CRDO US | Credo Technology Group Holding Ltd. | Information Technology | Semiconductors | Bull | NASDAQ | AI, design wins, growth, hyperscalers, Margins, Networking, Optical, semiconductors | Login |
| Oct 14, 2025 | Fund Letters | Jeffrey James | GH US | Guardant Health, Inc. | Health Care | Diagnostics & Research | Bull | NASDAQ | Biotech, diagnostics, FDA, growth, innovation, Margins, Oncology | Login |
| Oct 14, 2025 | Fund Letters | Jeffrey James | KARM US | Karman Holdings, Inc. | Other | Aerospace & Defense | Bull | NYSE | Aerospace, backlog, Defense, growth, infrastructure, manufacturing, Margins | Login |
| TICKER | COMMENTARY |
|---|---|
| XBI | healthcare, a laggard a year ago, has multiple indices at or close to new all-time highs and the biotech ETF (SPDR S&P Biotech- XBI) is making a new four year high. This broadening participation across sectors reinforces our conviction that U.S. small caps are entering 2026 with durable momentum and an increasingly favorable risk reward profile. |
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