| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 12.18% | 8.4% | 5.5% |
The Madison Large Cap Fund returned 8.4% in Q2 2026, underperforming the S&P 500's 15.2% as a narrow group of 50-60 AI data center-related stocks powered virtually all market gains. The managers draw explicit parallels to the late 1990s internet bubble, noting the current market narrowness exceeds even that period. Top contributors included semiconductor holdings Texas Instruments, Analog Devices, and Keysight Technologies, which benefited from strong datacenter demand, plus Alphabet's exceptional Cloud growth (60%+ revenue growth, doubled backlog). The fund initiated a position in Intercontinental Exchange at decade-low valuations, viewing AI concerns as misplaced, and received Honeywell Aerospace shares through a spinoff. Detractors included housing-exposed names like Lowe's and Ferguson, pressured by stubbornly high interest rates. The managers express deep concern about investor risk appetite and willingness to pay high prices for uncertain AI outcomes, warning that euphoria will dissipate and booms will be followed by busts. They position the portfolio in quality companies with both growth prospects and resiliency to multiple macro risks including unpredictable policy, expanding deficits, inflation, and geopolitical volatility.
The Madison Large Cap Fund maintains a concentrated portfolio of 25-40 high-quality companies with strong long-term growth prospects and resiliency to adverse conditions, while actively avoiding the AI-driven market euphoria that the managers compare to the late 1990s internet bubble.
The managers expect the market's extreme narrowness will not continue indefinitely and that investor willingness to pay high prices for uncertain AI outcomes will dissipate over time. While they acknowledge AI as a major development that will reshape society and the economy, they warn that obvious corporate winners today may not be winners tomorrow, and that booms will be followed by busts. They express concern about multiple macro headwinds including unpredictable government policy, expanding federal deficits, lingering inflation and interest rate risks, stretched consumer balance sheets, and volatile geopolitical conditions. The tone is cautious and defensive, emphasizing the fund's focus on companies with both long-term growth prospects and resiliency.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 15 2026 | 2026 Q2 | A, ACGL, ADI, CPRT, FERG, GOOGL, HON, HONA, ICE, KEYS, LOW, TXN | AI, Concentration, large cap, Market Narrowness, Quality, risk management, semiconductors, Valuations |
ICE HONA |
Madison Large Cap underperformed in Q2 as AI mania drove extreme market narrowness comparable to the late 1990s bubble. Semiconductor and Cloud holdings delivered strong results, but the managers actively avoid the euphoria, warning that obvious winners today may not be winners tomorrow. They position in quality companies with growth and resiliency, initiating Intercontinental Exchange at decade-low valuations while flagging multiple macro headwinds. |
| Apr 18 2026 | 2026 Q1 | A, ADI, CRM, DE, DHR, IT, KEYS, META, PCAR, SBUX, TXN, WDAY | AI, large cap, Quality, semiconductors, technology, value |
CRM META |
Madison Large Cap outperformed the S&P 500 in Q1 2026 despite sector allocation headwinds, as AI disruption fears drove market rotation from software to physical economy companies. Strong semiconductor and industrial holdings offset weakness in AI-vulnerable names. New positions in Meta and Salesforce reflect opportunistic buying of quality companies trading at attractive valuations due to AI concerns. |
| Jan 20 2026 | 2025 Q4 | A, ACGL, ADI, AMZN, BN, CDW, CPRT, DHR, FERG, FI, GOOGL, HON, KEYS, LOW, NKE, PCAR, PGR, PH, TXN, WDAY | AI, Automation, financials, industrials, large cap, Quality, technology, value |
FISV WDAY |
Madison Large Cap Fund outperformed in Q4 2025 with a 3.43% return versus 2.66% for the S&P 500. The quality-focused strategy faced headwinds in 2025's momentum-driven market but managers remain committed to investing in durable businesses at reasonable prices. Portfolio activity included adding Workday and Honeywell while exiting Fiserv and Nike. Outlook is cautiously optimistic for 2026. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIThe managers view AI as a major development that will reshape society and the economy, but express deep concern about current market dynamics. They compare the current AI-driven market narrowness to the internet bubble of the late 1990s, noting that 50-60 AI data center construction-related stocks have powered virtually all S&P 500 performance. They warn that obvious corporate winners today may not be winners tomorrow, and that booms will be followed by busts. |
Data Centers Semiconductors Bubble Valuations Market Narrowness |
SemiconductorsThe fund holds multiple semiconductor positions that performed well in the quarter. Texas Instruments and Analog Devices both reported strong results driven by robust end market conditions and accelerating datacenter demand. Keysight Technologies benefited from growing demand for AI-specific use cases in optical and electrical equipment. These holdings represent core positions in the portfolio. |
Analog Test Equipment Data Centers AI Infrastructure | |
CloudAlphabet's Cloud segment delivered exceptional performance, growing revenue by over 60% and nearly doubling its backlog. The managers view this as one of Alphabet's two most consequential segments alongside Search. Cloud growth is a key driver of the fund's Alphabet position. |
Alphabet Revenue Growth Backlog | |
Risk AppetiteThe managers express concern about a broader attitude shift among investors reflecting greater appetite for gambling and risk-taking, and a willingness to overlook inevitable bumps in the road. They characterize the current market environment as exhibiting mass hysteria and euphoria around AI, with investors paying high prices for highly uncertain outcomes. They believe this willingness to tolerate thin margins of safety will dissipate over time. |
Market Sentiment Speculation Valuations Euphoria | |
ExchangesThe fund initiated a new position in Intercontinental Exchange, which operates leading financial exchanges, clearing houses, and provides data and software. The managers believe ICE should continue to grow revenue and profits attractively, potentially accelerating if AI trading strategies proliferate. They view the current decade-low valuation as misplaced concern about AI impact, believing ICE's exchanges could actually benefit from AI trading strategies. |
Financial Infrastructure Data AI Trading Valuation | |
AerospaceThe fund received shares in Honeywell Aerospace through a spinoff from Honeywell International. The managers view it as a leading aerospace and defense supplier with products on approximately 90% of in-service aircraft. They believe the separation should enhance an already high-quality business through better-tailored management compensation and capital allocation, with the combination of attractive growth outlook, improved incentives, and optimized capital allocation being underappreciated. |
Defense Spinoff Capital Allocation Growth | |
| 2026 Q1 |
AIAI disruption fears triggered sell-offs in asset-light software and services companies viewed as vulnerable to commoditization. However, AI is also creating new demand for optical equipment, electrical equipment, and datacenter products. Some companies like Salesforce are leveraging AI to enhance their platforms. |
Disruption Commoditization Datacenter Software Optical |
SemiconductorsAnalog semiconductor companies Analog Devices and Texas Instruments reported strong results due to improving end market conditions and growing demand for datacenter products. The semiconductor cycle appears to be recovering from recent weakness. |
Analog Datacenter Recovery Cycle | |
| 2025 Q4 |
AIPershing Square views AI as a major driver of market performance and structural growth, particularly benefiting megacap technology companies. The firm has positioned in AI beneficiaries like Alphabet, Amazon, and Meta, seeing AI integration as a key catalyst for these businesses. They believe AI-driven earnings growth justifies higher market multiples for leading technology companies. |
Artificial Intelligence Technology Cloud Data Centers Semiconductors |
BuybacksPSH has aggressively repurchased its own shares as a strategy to address the discount to NAV, buying back 74 million shares representing 29.7% of initial shares outstanding at an average discount of 29%. The firm views share buybacks as value-accretive when trading below intrinsic value. Share buybacks contributed 1.2% to 2025 performance. |
Share Repurchases Capital Allocation Discount to NAV | |
DividendsPSH has implemented a progressive dividend policy where dividends increase with NAV growth. The quarterly dividend has increased 84% from $0.10 per share in 2019 to $0.1837 per share currently. This dividend strategy is part of their approach to address the discount to NAV and provide shareholder returns. |
Dividend Policy Shareholder Returns Income | |
Private CreditThrough the HHH strategic transaction and Vantage acquisition, PSH is gaining exposure to specialty insurance and reinsurance, which provides access to private credit markets and alternative investment opportunities. The Vantage acquisition represents a $2.1 billion investment in the insurance sector, diversifying PSH's earnings streams. |
Insurance Reinsurance Alternative Investments |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 15, 2026 | Fund Letters | Madison Large Cap Fund | ICE | Intercontinental Exchange | Financial Data & Stock Exchanges | Financial Exchanges & Data | Bull | New York Stock Exchange | AI Trading, Clearing Houses, Data Services, Equity, Financial Exchanges, mortgage market, proprietary data, Regulatory Moat, Value | Login |
| Jul 15, 2026 | Fund Letters | Madison Large Cap Fund | HONA | Honeywell Aerospace | Aerospace & Defense | Aerospace & Defense | Bull | NASDAQ | Aerospace & Defense, aftermarket services, capital allocation, Commercial Aviation, Defense, Equity, Installed base, OEM Supplier, spin-off | Login |
| Apr 18, 2026 | Fund Letters | Madison Large Cap Fund | CRM | Salesforce.com | Software - Application | Application Software | Bull | New York Stock Exchange | AI, Cloud computing, CRM, Enterprise software, Large Enterprises, SaaS, share repurchase | Login |
| Apr 18, 2026 | Fund Letters | Madison Large Cap Fund | META | Meta Platforms | Internet Content & Information | Interactive Media & Services | Bull | NASDAQ | AI, capital expenditures, digital advertising, platform, social media, User growth, WhatsApp Monetization | Login |
| Jan 20, 2026 | Fund Letters | Rich Eisinger | FISV | Fiserv, Inc. | Information Technology | Data Processing & Outsourced Services | Bear | New York Stock Exchange | Execution, Growthreset, Payments | Login |
| Jan 20, 2026 | Fund Letters | Rich Eisinger | WDAY | Workday, Inc. | Information Technology | Application Software | Bull | NASDAQ | AI, growth, Margins, Software | Login |
| TICKER | COMMENTARY |
|---|---|
| TXN | Texas Instruments, a global supplier of analog and embedded semiconductors, reported strong results and a good outlook due to the combination of strong end market conditions and accelerating demand for products used in datacenters. |
| ADI | Analog Devices, another semiconductor company, also enjoyed strong end market conditions for its diversified portfolio of analog integrated products. |
| KEYS | Electronic test and measurement company Keysight Technologies again reported strong quarterly results and an even better outlook. Along with Keysight's core end markets remaining strong, it is benefiting from growing demand for AI-specific use cases in optical and electrical equipment. |
| GOOGL | Alphabet continues to report very strong results, driven by its two most consequential segments, Search and Cloud. Search is growing revenue in the high teens as users are increasingly finding modified results in AI mode and AI overviews useful while Cloud grew revenue by over 60% and nearly doubled its backlog. |
| A | At Agilent, a life science tools company, revenue growth bounced back and margins expanded nicely. |
| ACGL | Consistent with the last few quarters, Arch Capital, a multiline insurer, reported weak growth. However, margins held up nicely and capital return was substantial. The company repurchased around $800m worth of stock, retiring nearly 2.5% of its outstanding shares in the quarter. At the current valuation, we believe this is an excellent use of excess capital. |
| LOW | While results at Lowe's were generally consistent with expectations, interest rates remain stubbornly high, dampening housing market activity and investor expectations. |
| FERG | The same can be said about Ferguson, where in-line results were outweighed by unfavorable housing market dynamics that put pressure on the industry as a whole. |
| ICE | Intercontinental Exchange, an operator of leading financial exchanges and ancillary data products, reported strong results in the quarter, but its stock has been caught up in the broad sell-off in asset-light companies that are perceived as 'AI losers'. Intercontinental Exchange (ICE) operates leading financial exchanges and clearing houses, as well as provides data and software to its customers. Founder and CEO Jeff Sprecher has long characterized ICE's overarching strategy as 'bringing transparency, efficiency, and standardization to markets with a mission to digitize the analog'. We believe ICE should continue to grow revenue and profits at an attractive clip over time and could even see the rate improve if AI trading strategies proliferate, ICE expands into new markets, and the mortgage market picks up after a multiyear slumber. ICE is currently priced at a decade low valuation as investors are concerned about the potential impact of artificial intelligence technologies. We believe this sentiment is misplaced, as ICE's exchanges could actually benefit from AI trading strategies, and its data and software are regulatory-compliant, largely proprietary, and deeply embedded in customer workflows. |
| CPRT | Volume growth at Copart, which manages salvage vehicle auctions, continues to be weak due to more under-and-uninsured auto drivers and shifting market share amongst insurance carriers. While recent performance has been frustrating, Copart's earnings have grown at a healthy clip over the past few years, and its competitive position remains strong. The company also announced that Executive Chairman Jay Adair, who previously served as CEO for many years, will return to the role. We view this as a positive development. Jay was instrumental in building Copart over the past 30+ years, and his substantial ownership stake keeps him strongly aligned with shareholders. |
| HONA | Honeywell Aerospace (HONA) is a leading aerospace and defense supplier, supporting OEM, government, and aircraft operator customers. The company's products sit on a wide variety of aerospace programs with approximately 90% of in-service aircraft today having Honeywell Aerospace content. The separation from Honeywell International should enhance an already high-quality business as management compensation and capital allocation will be better tailored to the specific needs of the business. We believe the combination of attractive growth outlook, improved incentives, and optimized capital allocation is underappreciated. |
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