| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 4.39% | 1.28% | 1.28% |
Grandeur Peak's Q1 2026 letter focuses extensively on AI-related portfolio risks, identifying Infrastructure Risk and Obsolescence Risk as two underappreciated threats. Infrastructure Risk affects companies dependent on AI capital expenditure, while Obsolescence Risk involves businesses vulnerable to AI displacement. The manager has repositioned portfolios away from software and knowledge-intensive businesses toward companies with limited AI displacement risk. Despite continued headwinds for quality and growth strategies, with significant underperformance gaps persisting, the team maintains conviction in their process. They reduced exposure to Technology, Financials, and Consumer sectors while increasing Industrials and Health Care weights. Portfolio concentration increased through methodical trimming to enable deeper conviction development. The manager positions in four zones: diversified infrastructure beneficiaries, AI-neutral companies, selective AI-native positions, and deliberate avoidance of high-risk businesses. They expect companies to deliver healthy earnings growth and potentially surprise markets upward as conservative Q1 guidance proves overly cautious.
Building portfolios designed to perform across the full spectrum of AI outcomes while maintaining quality and valuation discipline, with lower infrastructure risk than S&P 500 and lower obsolescence risk than private equity.
The manager expects companies to deliver healthy earnings growth and potentially surprise markets on the upside, particularly as conservative guidance from Q1 proves overly cautious. They anticipate European serial acquirer exposure will benefit from improved macroeconomic conditions and geopolitical conflict resolution.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| 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 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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