| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 8.0% | -1.9% | 0.1% |
Heartland Mid Cap Value Fund lost 1.92% in Q4 2025, underperforming the Russell Midcap Value Index which gained 1.42%. The fund maintains its disciplined two-bucket approach, combining Quality Value and Deep Value strategies despite high-quality value stocks continuing to lag speculative market segments. Valuation disparities between these groups have reached extreme levels not seen before. Key contributors included J.B. Hunt Transport Services, which benefited from cost reduction initiatives and strong cash flow generation despite freight market challenges. The fund initiated a position in MarketAxess Holdings, the largest U.S. corporate bond e-trading platform, which is successfully regaining market share. Kimberly-Clark was trimmed following its controversial $48.7 billion Kenvue acquisition. The managers observe significant insider buying across twenty portfolio companies, contrasting with widespread selling in overvalued names. While acknowledging AI's economic potential, they remain skeptical of current valuations in perceived winners. The extreme valuation disparities across mid-cap value create opportunities for patient, disciplined investors across multiple future scenarios.
The fund employs a disciplined two-bucket approach combining Quality Value and Deep Value strategies in mid-cap companies, maintaining valuation discipline despite current underperformance as extreme valuation disparities create long-term opportunities.
We believe this is time for discipline, not discouragement. Valuations for many companies in the higher quality part of mid-cap value market are as appealing, relative to Deep Value, as we've ever seen. We see valuation disparities across mid cap value companies that can prove beneficial in a wide range of future scenarios, not just the rosy outcomes.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 12 2026 | 2025 Q4 | JBHT, KMB, MKTX | AI, Capital markets, financials, industrials, Logistics, mid cap, Quality, value |
JBHT MKTX KMB |
The fund employs a two-bucket approach combining Quality Value and Deep Value strategies. High-quality value stocks continued to lag speculative parts of the market, with… |
| Oct 9 2025 | 2025 Q3 | CNC, DHI, LRCX | Artificial Intelligence, Housing, Quality, semiconductors, Value Investing |
DHI LRCX |
The Heartland Mid Cap Value Fund lagged benchmarks as investors chased AI and speculative growth, while fundamentals-driven names lagged. The team remains focused on valuation… |
| Jul 11 2025 | 2025 Q2 | BDX, EG, HUBB | free cash flow, fundamentals, mid cap value, self-help, valuation extremes |
EG HUBB |
The letter highlights a bifurcated opportunity set driven by valuation extremes within mid-cap equities. Management emphasizes free cash flow yield, self-help catalysts, and disciplined valuation… |
| Mar 31 2025 | 2025 Q1 | MIDD, PRGO, TDY | - | - | - |
| Jan 13 2025 | 2024 Q4 | CNC, SYY, WTW | - | - | - |
| Sep 30 2024 | 2024 Q3 | DG, RHI, SNN | - | - | - |
| Jun 30 2022 | 2024 Q2 | FIS, JBHT, SRCL | - | - | - |
| Apr 15 2024 | 2024 Q1 | DCI, HSY, PRGO | - | - | - |
| Oct 1 2024 | 2023 Q4 | CABO, CNC, NTRS | - | - | - |
| Sep 30 2023 | 2023 Q3 | FAF, NOV, SPB | - | - | - |
| Jun 30 2023 | 2023 Q2 | CNC, SRCL | - | - | - |
| Mar 31 2023 | 2023 Q1 | CNC, IBKR, INGR, TDC | - | - | - |
| Oct 17 2022 | 2022 Q3 | AAP, CEG, SWKS, TCBI | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has become a dominant theme across major equity indices, with Nvidia leading the S&P 500, ASML dominating MSCI EAFE, and TSMC leading emerging markets. The fund benefited from AI-related dynamics, particularly through Samsung's memory products experiencing substantial price increases due to DRAM shortages driven by AI demand. |
Semiconductors Memory DRAM Technology Nvidia |
Capital MarketsThe IPO market continued to thaw into year-end, reinforcing that capital formation is re-accelerating after a multi-year slowdown. This backdrop remains supportive for SPAC issuance and transaction activity. The manager believes SPACs only work in a healthy capital markets backdrop with strong performance from IPOs, direct listings, and M&A. |
IPO market Capital formation Direct listings M&A activity Market reopening | |
LogisticsDeutsche Post demonstrated resilience with strong performance following robust earnings despite tariff-related challenges, driven by robust pricing power and cost control. The diversified logistics company showcased the defensive characteristics of quality logistics operators in challenging environments. |
Pricing Power Cost Control Tariff Resilience Diversified Logistics Earnings | |
ValueBlue Tower focuses on value investing with international diversification. The manager notes that the valuation spread between cheap and expensive stocks is one of the greatest in market history, creating a favorable environment for their value-oriented approach. |
Value International Cheap Expensive Valuation | |
| 2025 Q3 |
AIAI has become a dominant theme across major equity indices, with Nvidia leading the S&P 500, ASML dominating MSCI EAFE, and TSMC leading emerging markets. The fund benefited from AI-related dynamics, particularly through Samsung's memory products experiencing substantial price increases due to DRAM shortages driven by AI demand. |
Semiconductors Memory DRAM Technology Nvidia |
Cyclicals |
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Housing |
||
SemiconductorsTaiwan Semiconductor represents the dominant manufacturer for leading fabless chip designers including NVIDIA, Apple, and Broadcom. The global arms race to develop artificial general intelligence will support multiple years of robust growth for foundries with leading-edge capabilities. |
Foundries Advanced Process AI Chips Manufacturing Technology Leadership | |
ValueThe portfolio trades at significant discounts to the broad market, with P/E ratios 40-42% below the S&P 500. The manager believes many steady-growing companies are overlooked by markets focused on AI winners, creating opportunities in businesses with lower assumed margins and productivity that could benefit from AI adoption. |
Discount Multiples Undervalued Overlooked Opportunity | |
| 2025 Q2 |
ValueThe portfolio trades at significant discounts to the broad market, with P/E ratios 40-42% below the S&P 500. The manager believes many steady-growing companies are overlooked by markets focused on AI winners, creating opportunities in businesses with lower assumed margins and productivity that could benefit from AI adoption. |
Discount Multiples Undervalued Overlooked Opportunity |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Oct 9, 2025 | Fund Letters | Colin McWey | DHI | D.R. Horton, Inc. | Consumer Discretionary | Homebuilding | Bull | NYSE | affordability, Book Value, buybacks, homebuilding, Orders, ROIC, scale | Login |
| Oct 9, 2025 | Fund Letters | Colin McWey | LRCX | Lam Research Corporation | Information Technology | Semiconductor Equipment | Bull | NASDAQ | CapEx, consolidation, Etch, market share, Semicap, services, Upcycle | Login |
| Jul 11, 2025 | Fund Letters | Colin McWey | EG | Everest Group, Ltd. | Financials | Reinsurance | Bull | New York Stock Exchange | Pricing, Reinsurance, turnaround, underwriting, valuation | Login |
| Jul 11, 2025 | Fund Letters | Colin McWey | HUBB | Hubbell Incorporated | Industrials | Electrical Components & Equipment | Bull | New York Stock Exchange | Destocking, Electrical, Grid, Margins, utilities | Login |
| Jan 12, 2026 | Fund Letters | Colin McWey | JBHT | J.B. Hunt Transport Services, Inc. | Industrials | Transportation | Bull | NASDAQ | buybacks, Cyclicality, Freight, Intermodal, scale | Login |
| Jan 12, 2026 | Fund Letters | Colin McWey | MKTX | MarketAxess Holdings Inc. | Financials | Capital Markets | Bull | NASDAQ | Bonds, Electronictrading, Operatingleverage, rerating, scale | Login |
| Jan 12, 2026 | Fund Letters | Colin McWey | KMB | Kimberly-Clark Corporation | Consumer Staples | Household Products | Neutral | New York Stock Exchange | Allocation, Integration, Risk, Staples, valuation | Login |
| TICKER | COMMENTARY |
|---|---|
| JBHT | J.B. Hunt, which falls into the Deep Value bucket, is a diversified transportation company focusing on intermodal shipping. Customers hire Hunt to move freight using different methods of transportation to reduce cost. The company owns the largest fleet of 53-foot shipping containers, which allow for three ocean-freight shipping units to be consolidated into two Hunt containers that can then be moved by rail and company-owned trucks. Hunt's mode agnostic approach sets it apart from the competition, as does its size. JBHT's intermodal business is roughly twice as big as the next largest competitor, resulting in a scale and cost advantage that has produced high returns on capital and better prices for customers. In recent years, the freight market has been put through the wringer, as supply chains during and after the pandemic experienced a tremendous amount of volatility. In Q3, however, Hunt beat analysts' forecasts, owing to recent actions to reduce costs. Management's focus on improving areas that they can control seems to be working, as operating margins for JBHT's intermodal segment expanded by 100 basis points year over year, despite fewer loads shipped in the quarter. While managing through a freight recession, cash flow generation remains strong, the company's balance sheet is in fantastic shape with a leverage ratio of less than 1x, and management has been aggressively repurchasing company stock below our view of intrinsic value. In 2025, the company bought back more than 5% of the shares outstanding. JBHT currently trades at 11.8 times consensus next 12-month EV/EBITDA, which represents a 25% discount to the Industrial sector. |
| KMB | One holding that ran into difficulties last quarter is Kimberly Clark (KMB), the tissue company behind well-known brands such as Huggies, Cottonelle, and Kleenex. The consumer products giant saw its shares fall more than 14% in November, not because of poor results or sub-par execution. Instead, the stock sank immediately after KMB announced its $48.7 billion acquisition of Kenvue, the consumer health company spun off from Johnson & Johnson which sells Tylenol, Neutrogena, Band-Aid and Listerine. We disagree with management's capital allocation decision, as it takes KMB into new categories and poses significant integration risk. We find it unfortunate that management made such an aggressive move after executing well against an internally focused playbook that positioned KMB for value creation in the coming years. We fear that the Kenvue deal makes the company bigger, not necessarily better. We trimmed the position in response to the Kenvue announcement. However, we balance deal-related question marks against a valuation of 13 times earnings (a historically wide discount to peers), better market share trends and improved margin performance in recent years. |
| MKTX | In the quarter, we initiated a new position in MarketAxess Holdings (MKTX), a Quality Value company that owns and operates the largest e-trading platform in the U.S. for corporate bonds. Bonds are largely traded over the counter, unlike equities or listed derivatives, which are traded on exchanges. Operating a trading platform is all about scale, where volume determines profitability. Rising customer activity can be a virtuous circle that begets more trading as depth of liquidity improves for all platform participants. Improved liquidity, in turn, drives down trading costs, which then attracts even more volume. Scaled trading platforms can be extremely profitable. MKTX's operating margin, for example, exceeds 40% while gross margin can exceed 75%. Though MarketAxess pioneered electronic bond trading, prior management rested on their laurels as peers launched new trading protocols that gained market share. MKTX's bread and butter is providing leading market depth in single-bond trading. But the industry has witnessed the rapid adoption of portfolio trading (PT), where asset owners can bundle a portfolio of bonds and receive better pricing versus trading on a bond-by-bond basis. Tight corporate bonds credit spreads as of late have exacerbated the shift to PT. CEO Chris Concannon has led a multi-year initiative to invest in a competing PT product among other value-added tools being launched by MKTX. Management has chosen not to wait for a better market environment to advance their efforts. As a result of this push, the company's operating margin declined to around 41% last year, down from more than 45% in 2022. We have been encouraged by recent trading data that suggest MKTX is gaining share in key areas of the U.S. credit market, with share recovery happening even faster than we expected. Looking forward, moderating investment spend should result in better operating leverage. We also believe the company's international and emerging markets businesses, where electronic trading penetration is lower than in the U.S., have significant growth opportunity and scale advantages. When we purchased the stock in the fourth quarter, MarketAxess was trading at 12.6 times consensus EV/EBITDA estimates for 2026. Since then, the multiple has expanded to 13.7 times. This is still favorable to the company's domestic exchange peers, who are trading at a median multiple of 16.6 times, despite MKTX's superior profit margins and balance sheet. |
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