| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 5.7% | 18.19% | 19.7% |
Grandeur Peak's Emerging Markets Opportunities Fund returned +18.19% in Q2 2026, outperforming its benchmark as several 'submerged beach balls' began to surface after an extended period of underperformance. The quarter marked the best broad-based global market rally since 4Q 2020, with active foreign SMid-cap managers outperforming passive peers and high-quality funds outperforming lower-quality cohorts for the first time in years. Small-cap Semiconductors, a key overweight, delivered exceptional returns of +68.7% on strong fundamentals. The firm's rotation away from Software & Services due to AI-related obsolescence risk proved beneficial. Industrials remains highly attractive with diverse themes including data centers, defense, mining, and nearshoring. Consumer positions contributed strongly across regions, with the firm finding opportunities in non-AI names at attractive valuations. In China, the firm sees selective opportunities in brands creating emotional value despite near-term consumer weakness. The firm maintains discipline on Financials, remaining cautious on banks and REITs at elevated valuations while overweighting Capital Markets. Management believes the majority of the portfolio has yet to resurface and expects sustained outperformance as fundamentals reassert themselves over speculation.
Grandeur Peak invests in high-quality growth companies trading at attractive valuations with improving fundamentals, using the 'submerged beach ball' analogy—quality companies out of favor will eventually resurface as earnings growth forces market recognition.
The firm believes a majority of the portfolio has yet to resurface, and when it does, it will lead to sustained outperformance. They are optimistic about less submerging and more resurfacing in the future. The firm remains confident in identifying high-quality businesses at attractive valuations with improving fundamentals and having patience to let theses play out over a full market cycle. They believe the current environment rewarding speculation over substance is the exception rather than the rule, and that disciplined, bottom-up stock selection will continue to be rewarded over time.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 24 2026 | 2026 Q2 | - | China, consumer, emerging markets, growth, industrials, Quality, semiconductors, small caps | - | Grandeur Peak's EM Opportunities Fund returned +18.19% in Q2 as quality growth investing showed signs of resurfacing after years of underperformance. Small-cap Semiconductors surged +68.7% on strong fundamentals. The firm sees compelling opportunities in Industrials, Consumer, and selective Chinese brands at attractive valuations. Management believes most portfolio holdings remain undiscovered and positioned for sustained outperformance as the market refocuses on fundamentals over speculation. |
| Apr 24 2026 | 2026 Q1 | NVDA | AI, emerging markets, growth, infrastructure, Quality, semiconductors, small cap | - | Grandeur Peak identifies AI Infrastructure and Obsolescence risks as key portfolio threats, repositioning away from vulnerable software businesses toward AI-neutral companies and diversified infrastructure beneficiaries. Despite quality and growth underperformance headwinds, they maintain process conviction while concentrating portfolios for deeper conviction. Expect earnings growth to surprise upward as conservative guidance proves excessive. |
| Jan 28 2026 | 2025 Q4 | - | earnings, emerging markets, Foreign, growth, Quality, small caps, SMID, value | - | Grandeur Peak's quality-focused strategy faced continued headwinds as markets rewarded speculation over fundamentals, with low-quality funds outperforming by 24.2%. Despite challenging conditions, the firm delivered strong 16.4% earnings growth and projects 21.4% for 2026. The team reduced portfolio concentration while maintaining quality discipline, positioning for potential mean reversion across value-growth and quality dimensions. |
| Oct 28 2025 | 2025 Q3 | - | AI, fundamentals, global, Quality, small caps, Speculation, value | - | Grandeur Peak confronts a challenging period where speculative, low-quality stocks have dramatically outperformed quality-focused strategies. Despite five-year underperformance versus momentum-driven approaches, the firm maintains conviction in fundamentals-based investing. They view current market dynamics as unsustainable and remain positioned for an eventual rotation back to earnings-driven returns, emphasizing quality companies over speculative plays. |
| Aug 27 2025 | 2025 Q2 | - | Foreign, India, industrials, Quality, semiconductors, small caps, Valuations | - | Foreign small-caps delivered exceptional Q2 returns but remain attractively valued at 18% discount to U.S. large caps. High-quality foreign funds face technical dislocation from outflows despite superior fundamentals, creating opportunity for rebound. Strong performance across Industrials, recovering Semiconductors, and Consumer holdings. India research trip reinforced compelling long-term consumer growth story with infrastructure improvements and low penetration rates. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
Semiconductor CycleSmall-cap Semiconductor and Semiconductor Hardware had a strong quarter both fundamentally and technically, with earnings exceeding expectations and solid price returns. The sector was up +68.7% in Q2. The firm has deep expertise in semiconductors and has been waiting for a rebound in high-conviction names, which paid off during the quarter. |
Semiconductors Tech Hardware Earnings Small Caps |
AIThe market's obsession with AI is creating opportunities in non-AI-related names, allowing the firm to own high-quality businesses with attractive valuations. The letter discusses AI commoditizing cognition and the shift from functional output to meaning and emotional value, particularly in the Consumer sector. Software & Services rotations away from Obsolescence Risk (AI eroding competitive advantages) benefited portfolios. |
Software Consumer Valuations Obsolescence | |
QualityHigh-quality funds in the foreign SMid-cap universe outperformed in Q2 for the first time since 3Q 2024, and only the third time in five years. The market has shown a preference for lower-quality, higher-risk names over durable, higher-quality businesses, particularly in Health Care. The firm believes this dynamic underappreciates quality and fundamentals in favor of speculative momentum, which they expect will not persist. |
Foreign SMid Fundamentals Health Care Valuations | |
GrowthForeign SMid growth-oriented funds outperformed value peers by +6.1% in Q2 and are ahead year-to-date for the first time since 2020. The firm captured strong earnings growth across all funds in Q2, the strongest in many quarters, with stock prices responding to earnings growth as expected over the long term. |
Foreign SMid Earnings Value | |
ChinaChinese consumer companies are trading at rock-bottom valuations that have overshot. Consumers are bifurcating between ruthlessly value-seeking on functional purchases and spending freely on emotional value. Domestic brands are taking share from foreign brands driven by nationalism and product quality improvements. Management teams are not planning for a consumer demand rescue near-term but maintain growth ambitions. The firm sees selective opportunities in brands creating emotional value. |
Consumer Valuations Domestic Brands Tourism | |
IndustrialsIndustrials is one of the most exciting parts of the portfolio with diversity of themes beyond data centers, including serial acquirers, mining, nuclear, defense, nearshoring, and renewables. Many highest conviction positions feel undiscovered and inefficiently priced. The firm is excited for both near-term and long-term ability of these companies to deliver and outperform. |
Data Centers Defense Mining Nuclear Nearshoring | |
FinancialsUnderweight to banks and REITs has been a headwind. European and Japanese bank stocks have surged since early 2025 on higher rates, with valuations near highest since Global Financial Crisis. The firm remains cautious given elevated valuations, potential credit risk, and rate sensitivity, holding only small positions in higher-quality banks. REITs had a standout quarter but typically don't meet growth hurdles. The firm maintains overweight to Financial Services, specifically Capital Markets companies with globally focused, institutionally oriented, diversified businesses in niche strategies. |
Banks REITs Capital Markets Valuations Credit | |
ConsumerConsumer positions were strong contributors in Q2 across US, developed, and emerging markets, driven by great earnings and business growth. The market's AI obsession is creating opportunities in non-AI Consumer names to own high-quality businesses with attractive valuations and momentum. Consumer stocks have been out of favor post-pandemic, with many high-quality names trading well below historical averages. The firm sees durable, emotionally resonant businesses at bargain prices and believes the market underappreciates long-term durability of great Consumer franchises. |
Earnings Valuations Franchises Emotional Value | |
| 2026 Q1 |
AIAI has created two distinct risks: Infrastructure Risk (companies dependent on AI capital expenditure) and Obsolescence Risk (businesses vulnerable to AI displacement). The manager is positioning portfolios to perform across all AI outcomes, not maximize for one scenario. |
Infrastructure Obsolescence Data Centers Displacement Buildout |
SemiconductorsHardware and materials companies supplying AI infrastructure have tangible moats, visible demand, and pricing power. The physical infrastructure layer is more compelling than software services trying to figure out AI's impact. |
Hardware Materials Infrastructure Thermal Cooling | |
QualityHigh quality companies significantly underperformed in Q1, with 7.6% performance difference between top and bottom quality quintiles in Global Small/Mid category. The manager maintains conviction in their quality-focused process despite headwinds. |
Underperformance Quintiles Process Conviction | |
GrowthGrowth significantly underperformed value in both US Small/Mid and Foreign Small/Mid categories in Q1. Growth and value performance have been particularly imbalanced in foreign markets over recent years. |
Value Underperformance Foreign Imbalanced | |
| 2025 Q4 |
Small CapsForeign small caps dramatically outperformed US small caps in 2025, with Foreign Developed Small Caps returning +34.1% versus US Small Caps at +11.6%. The market rewarded lower-quality names over high-quality companies, creating headwinds for quality-focused strategies like Grandeur Peak. |
Foreign Developed Quality Dispersion |
QualityThe market increasingly rewarded companies with weaker fundamentals, with the lowest-quality funds outperforming highest-quality peers by 24.2% in 2025. This speculative environment has been challenging for fundamentally-based, high-quality investment styles over the past five years. |
Fundamentals Speculation Outperformance | |
ValueValue significantly outperformed growth in foreign small caps, with fund category results showing value ahead by 68.4% over five years versus 35.4% in index data. This disconnect suggests index returns have understated the opportunity set and valuation reset in growth. |
Growth Outperformance Disconnect Reset | |
AIAI infrastructure and quantum computing drove significant outperformance in 2025, though the manager sees considerable speculation and unsustainable valuations in many AI-related companies. The firm focuses on AI integration into enterprise workflows while remaining cautious toward speculative AI plays. |
Infrastructure Quantum Enterprise Speculation | |
FinancialsEuropean banking index was up approximately 100% in 2025, driven by elevated benchmark rates without systematic credit issues. The firm had lackluster performance in Financials across most funds, reflecting both benchmark headwinds and individual company misses. |
Banking European Rates Performance | |
| 2025 Q3 |
QualityGrandeur Peak maintains conviction in quality-focused investing despite underperformance. The firm emphasizes fundamentals-driven strategies over speculative momentum plays. Quality companies with strong balance sheets and earnings growth are expected to outperform over time. |
Quality Fundamentals Earnings Value |
AIAI-related sectors showed strong performance in Q3, particularly infrastructure and quantum computing. However, many AI names trade at unsustainable valuations disconnected from earnings reality. The firm focuses on AI integration into enterprise workflows rather than speculative AI plays. |
AI Technology Infrastructure Enterprise | |
Small CapsSmall-cap markets dominated by speculative momentum and low-quality names in Q3. A concentrated group of 252 stocks (5.1% of constituents) generated nearly half of the MSCI ACWI Small Cap Index returns. The firm maintains discipline in small-cap investing despite recent underperformance. |
Small Caps Momentum Speculation Concentration | |
| 2025 Q2 |
QualityHigh-quality foreign small-mid cap funds have underperformed low-quality peers by nearly 60% over five years despite superior fundamentals. The highest quality quintile has experienced the most severe outflows and now has the smallest share of assets under management for the first time on record. Manager believes this represents a technical dislocation with substantial room for rebound. |
Quality Fundamentals ROA Outflows Dislocation |
Small CapsForeign small-cap growth stocks delivered one of the top five best quarters in 30 years. They trade at an 18% discount to U.S. large caps, approximately 30% below their 20-year average valuation differential. Manager sees significant upside remaining in foreign small-cap space. |
Small Caps Valuations Discount Foreign Growth | |
IndiaResearch trip revealed striking infrastructure improvements and enormous headroom for growth in consumer sectors. Per capita consumption remains dramatically low across categories like footwear, food, and durables compared to developed markets. Manager came away feeling underweight Indian consumer companies with compelling secular tailwinds. |
India Infrastructure Consumer Demographics Growth | |
IndustrialsSector performed well across Japan, Europe, and US including cyclical names and higher-quality companies. Manager attracted to serial acquirers with systematic acquisition strategies and organic growth of at least 5%. Focus on commercial services providing value-add and capital goods companies with long-term tailwinds. |
Industrials Serial Acquirers Capital Allocation Services Tailwinds | |
SemiconductorsHoldings produced sizeable gains after struggling in recent years. Manager has been patient, leaning in when valuations became too cheap. Preference for businesses with pricing power and diverse customer base, highlighted by Belgian semiconductor developer focused on auto sector that was significantly undervalued. |
Semiconductors Valuations Pricing Power Auto Recovery |
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