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| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
As of Aug 19, 2026
Source Capital returned 5.49% in Q2 2026 and 14.70% over the trailing twelve months, capturing 94.7% of its balanced benchmark return. The market has become extremely narrow, with AI-related stocks accounting for 50-75% of S&P 500 gains since late 2022 and semiconductors representing nearly 30% of the index at record levels. The manager questions the sustainability of $2.59 trillion in projected 2026 AI spending and whether massive data center capacity expansion will generate adequate returns. They are scaling back exposure to direct AI beneficiaries despite bullish long-term views on the technology, citing expanded valuations and shrinking margins of safety. Instead, they deployed capital into 13 new AI-agnostic mid-cap businesses at 10-15x NTM earnings, creating a portfolio trading at 16.0x forward P/E with 25% estimated 3-year EPS growth versus 20.4x and 19% for the S&P 500. High yield spreads at the fourth percentile historically led to minimal traditional credit exposure. The manager maintains 26% committed to private credit and 21% in cash, positioning for attractive absolute returns while accepting the risk of looking foolish relative to momentum-driven markets.
The manager is positioning the portfolio away from the narrow, AI-driven market rally by deploying capital into high-quality, AI-agnostic mid-cap businesses at attractive valuations of 10-15x NTM earnings, while reducing exposure to direct AI beneficiaries due to expanded valuations and late-stage capital cycle positioning, accepting the risk of near-term underperformance in favor of what they believe are highly probable long-term absolute returns.
The manager expects the portfolio of high-quality, AI-agnostic mid-cap businesses purchased at conservative valuations to produce sound absolute returns over the long term. They acknowledge uncertainty about AI capital spending sustainability and compute demand cycles, but believe their diversified mix of industry leaders with strong balance sheets and attractive growth profiles should deliver competitive performance. The manager is willing to look foolish relative to the market and miss out on bullish AI scenarios in order to own a portfolio highly likely to result in acceptable absolute results. They remain excited about not owning overpriced credit risk and continue seeking opportunities in private credit and select equity opportunities at attractive valuations.
Moderate Conviction Bullish
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