| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 3.6% | 13.1% |
| 2025 | 2024 |
|---|---|
| 13.1% | 27.3% |
Rewey Asset Management's SMID composite outperformed in 4Q25, gaining 3.58% versus 3.15% for the Russell 2500 Value index. The manager views small-cap outperformance as an early sign of portfolio rebalancing away from large-cap indices and remains optimistic heading into 2026. Key return drivers include extreme valuation disparities between large and small caps, with the S&P 500 trading at 23.56x 2026 PE versus 15.69x for Russell 2500 Value. The strengthening U.S. economy, recovering from 1Q25 weakness to 4.3% GDP growth in 4Q25, supports the outlook. Fed rate cuts of 175 basis points over 15 months are expected to benefit financing-dependent cyclical industries. Consumer spending tailwinds from fiscal policy changes and potential additional rate cuts if job weakness persists provide further support. Primary risks include persistent inflation above Fed targets, deteriorating employment conditions, and ongoing geopolitical uncertainties. The portfolio maintains 33 positions with 4.3% cash, focusing on financially strong companies with clear value creation catalysts over 2-3 years.
Small and mid-cap value stocks offer compelling opportunities due to extreme valuation disparities with large-cap tech, potential economic tailwinds from Fed rate cuts and fiscal policy, and investor neglect creating attractive entry points for financially strong companies.
Manager expects several potential catalysts for small and SMID cap sector into 2026 including continued moderate GDP growth, moderating inflation, potentially more Fed rate cuts, and general neglect of the sector leaving companies at attractive valuations. Tone is optimistic despite acknowledging market uncertainties.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jan 18 2026 | 2025 Q4 | BR, CADE, DFIN, HOLX, LAKE, MEC | AI, Gdp, inflation, rates, small caps, technology, value |
MEC LAKE DFIN |
Manager believes small cap value sector remains attractively valued and neglected by investors. Small cap outperformance in 4Q25 viewed as early sign of portfolio rebalancing away from large-cap indices. Expects continued momentum into 2026 driven by strong GDP environment and lower Fed rates. AI adoption creating productivity gains but also sustained negative headwind for labor market as companies choose not to backfill roles. While positive for earnings through cost savings, AI-driven job weakness could force Fed to cut rates further. Large-cap tech AI valuations questioned by investors. Fed cuts of 175 bps over last 15 months expected to re-spark growth in financing-dependent cyclical industries. Weak job growth and dual mandate may force Fed to cut rates more than preferred. Lower rates viewed as positive catalyst for small cap sector. Extreme valuation differentials between large and small caps create opportunity. S&P 500 trades at 23.56x 2026 PE while Russell 2500 Value at 15.69x and Russell 2000 Value at 14.11x. Manager focuses on financially strong companies at attractive valuations with 2-3 year value creation plans. |
| Oct 12 2025 | 2025 Q3 | KD, UCTT, VREX | Fed, Labor, Rotation, Semiconductor, SmallCap |
VREX KD UCTT |
Rewey emphasizes rotation into small and smid-cap equities as rate cuts and cyclical recovery begin. Weak labor data and AI-driven job cuts may push the Fed to ease further. Semiconductor capital equipment companies like UCTT illustrate undervalued cyclical rebound potential. |
| Jul 17 2025 | 2025 Q2 | DCO, LAKE, OFIX | activestrategy, dispersion, SmallCap, valuation, value |
DCO LAKE OFIX |
The fund argues small- and SMID-cap value stocks remain undervalued due to neglect and macro uncertainty. As broad macro forces fade, dispersion should favor active stock selection. Financial strength and valuation discipline are central to capturing upside as sentiment normalizes. |
| Mar 31 2025 | 2025 Q1 | AEM CN, DCO, ZYXI | - | - | |
| Jan 18 2025 | 2024 Q4 | AVNS, KD, WFRD | - | - | |
| Oct 31 2024 | 2024 Q3 | INTT, KD, LWAY | - | - | |
| Jul 16 2024 | 2024 Q2 | III, LAKE, RELL, WBS | - | - | |
| May 9 2024 | 2024 Q1 | ARIS, COLB, RELL | - | - | |
| Jan 18 2024 | 2023 Q4 | ARIS, BDC, CADE | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2025 Q4 |
AIAI has been integrated into RGA's research process through tools like NotebookLM, Gems in Gemini, and Claude Code. The firm views AI as a force multiplier for human judgment rather than a replacement, emphasizing the Kasparov Law principle. They believe the market narrative around AI displacement is swinging to unhelpful extremes, creating investment opportunities. |
Machine Learning Automation Software Productivity Innovation |
RatesFederal Reserve resumed rate-cutting cycle with first cut since December 2024, signaling resumption of easing. Expected three cuts of 25bps between now and first quarter 2026 as Fed responds to signs of weakness in US labor market. |
Fed Monetary Policy Labor Market Easing Liquidity | |
Small CapsSmall caps getting strong start in 2026 supported by easing monetary conditions and constructive fiscal backdrop. Small caps more sensitive to economic cyclicality which is overdue for expansion. Expected to grow at better pace than large caps in 2026 after long period of underperformance. |
Value Growth Cyclical Monetary Policy Fiscal Policy | |
ValueManager emphasizes investing in controlled companies trading at significant discounts to NAV, with European holding companies showing discounts of 30-68%. The strategy focuses on securities mispricing where real value exists, contrasting with overvalued technology stocks. |
Discounts NAV Mispricing Undervalued Controlled | |
| 2025 Q3 |
Labor |
|
Semiconductor |
||
SmallCap |
||
| 2025 Q2 |
SmallCap |
|
ValueThe manager continues to find attractive value opportunities despite expensive markets, purchasing undervalued companies like Centene, GlaxoSmithKline, Carrefour and PayPal trading at low multiples with strong fundamentals. |
Undervalued Low Multiples Contrarian Opportunistic |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 17, 2025 | Fund Letters | Chip Rewey | OFIX | Orthofix Medical Inc. | Health Care | Medical Devices | Bull | NASDAQ | Activism, Insiderbuying, Marginexpansion, Medtech, turnaround | Login |
| Jan 18, 2026 | Fund Letters | Chip Rewey | MEC | Mayville Engineering Company, Inc. | Industrials | Metal Fabrication | Bull | New York Stock Exchange | Acquisitions, Cyclicality, Data Center Equipment, Industrial Recovery, Metal Fabrication | Login |
| Jan 18, 2026 | Fund Letters | Chip Rewey | LAKE | Lakeland Industries, Inc. | Industrials | Safety Equipment | Bear | NASDAQ | Activist Ownership, execution risk, Fire Protection, Merger Integration, Safety Equipment | Login |
| Jan 18, 2026 | Fund Letters | Chip Rewey | DFIN | Donnelley Financial Solutions, Inc. | Information Technology | Financial Software | Bull | New York Stock Exchange | Capital markets, financial software, Free Cash Flow, SaaS Transition, Share Buybacks | Login |
| Oct 12, 2025 | Fund Letters | Chip Rewey | VREX | Varex Imaging Corp. | Health Care | Medical Equipment & Supplies | Bull | NASDAQ | healthcare, manufacturing, medical imaging, recovery, tariffs | Login |
| Oct 12, 2025 | Fund Letters | Chip Rewey | KD | Kyndryl Holdings Inc. | Information Technology | IT Services | Bull | NYSE | infrastructure, IT services, margin expansion, transformation | Login |
| Oct 12, 2025 | Fund Letters | Chip Rewey | UCTT | Ultra Clean Holdings Inc. | Information Technology | Semiconductor Equipment | Bull | NASDAQ | AI, Equipment, manufacturing, Margins, recovery, semiconductors | Login |
| Jul 17, 2025 | Fund Letters | Chip Rewey | DCO | Ducommun Incorporated | Industrials | Aerospace & Defense | Bull | New York Stock Exchange | Aerospace, backlog, Defense, Margins, Upcycle | Login |
| Jul 17, 2025 | Fund Letters | Chip Rewey | LAKE | Lakeland Industries, Inc. | Consumer Discretionary | Safety Apparel | Bull | NASDAQ | Industrial, Margins, restructuring, Safety, tariffs | Login |
| TICKER | COMMENTARY |
|---|---|
| BR | This valuation disparity is what we see as another example of the large cap vs. small cap valuation opportunities in general, as DFIN's market value is only $1.2 billion vs. BR at $26.6 billion. |
| CADE | We note that both CADE and HOLX both agreed to be acquired, with the deals pending closure in 2026. We believe both deals will close and elected to hold the positions into the close, as there is likely upside for each. |
| DFIN | We initiated a position in Donnelley Financial Solutions (DFIN), a provider of capital markets and compliance-related technology solutions. We believe significant, but positive, changes in the business model have reduced investor visibility leading to investor neglect and undervaluation of the shares. DFIN is in the mid-stages of transitioning to a software-as-a-service model for corporate governance reporting, mergers and acquisitions filings and initial public offering registrations. We think DFIN's shares are very attractively valued. Shares closed the year at $46.69 per share, down 25.6% YTD and down 33.2% from their 52-week high of $69.92 on 2/6/25. Shares trade at only 10.5x 2026 EPS and 5.6x EBITDA estimates, both near the lower end of traditional ranges, and significantly below peers, such as Broadridge (BR) which trades at multiples of 24.1x and 16.7x, respectively. We have conservatively set our price target at $66, up 41.4% from year end closing low, implying only a 15x EPS multiple, and a level still roughly 5% under its 52-week high. |
| HOLX | We note that both CADE and HOLX both agreed to be acquired, with the deals pending closure in 2026. We believe both deals will close and elected to hold the positions into the close, as there is likely upside for each. |
| LAKE | LAKE was our weakest performer in 4Q25, declining 45.31%. We had reduced our position ahead of its FY3Q26 report, as we thought there could be some weaknesses in sales and merger integration. While results were weaker than expected, we believe the share price decline was an overreaction, amplified by year-end tax-loss selling. LAKE retains a strong balance sheet, and we see a clear path to revenue growth in the global fire protection market through both organic initiatives and acquisitions. We also note that following the quarter a new holder filed a 13D and now owns 8.38% of the shares. |
| MEC | MEC was our top 4Q25 performer, rising 34.8%. Shares rallied as investors began to look past 2025 cyclical sales weakness and envision the potential sales strength a 2026-2027 recovery could bring. The stock also benefited from enthusiasm around the Accu-Fab acquisition, which opened the data-center equipment market to MEC. While we remain positive on the company's long-term prospects, we expect the cyclical recovery in its agriculture, truck, and consumer recreational end markets to be gradual and uneven. As a result, we modestly trimmed our position. |
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