The curated database of hedge funds that publish investor letters. Research by geography, strategy, and schools of thought.
| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
As of Oct 15, 2026
The Sustainable Value Strategy trailed its benchmark, the Russell 2500 Value Index, during the third quarter of 2026. Relative underperformance was driven predominantly by negative stock selection within Information Technology, compounded by an involuntary overweight resulting from the June Russell index reconstitution. While technology and artificial intelligence infrastructure holdings suffered broad multiple compression, Health Care served as a primary performance offset, supported by strong stock selection and an overweight stance. Materials and Consumer Discretionary also delivered modest positive relative contributions. From a macroeconomic perspective, the manager observed two dominant market forces: a sharp sentiment reversal across companies exposed to AI infrastructure build-outs and sustained strength in traditional energy driven by Middle East geopolitical disruption. Persistently elevated interest rates and high fuel costs undermined traditional defensive sectors including Utilities, REITs, and Consumer Staples. However, the manager notes that small-cap relative valuations have reached historically extreme trough levels compared to historical data since 1995, establishing an encouraging long-term contrarian setup heading into the post-midterm period. Portfolio turnover was characterized by active rebalancing away from momentum-sensitive data center and semiconductor exposure into fundamentally mispriced compounders. The strategy completely exited Everus Construction Group, BJ's Wholesale Club, and Dick's Sporting Goods, while significantly trimming Veeco Instruments, Adeia, Century Aluminum, and Plexus. Capital was methodically redeployed into five new long positions: Birkenstock, Lineage, Matador Resources, KBR, and ICON.
Outperformance is generated through disciplined stock selection in high-quality, growing businesses trading at attractive valuations while maintaining strict adherence to sustainable operating fundamentals.
The manager views the setup for active small-cap value investing as compelling following an 18-month period of extreme underperformance against broad market indices. Trailing relative return metrics for small-cap funds have reached historic trough levels that previously preceded substantial mean-reversion recoveries in 2004 and 2021. Furthermore, historical election cycles indicate small caps frequently outperform in the months following midterm elections, providing a supportive backdrop alongside the potential easing of Middle East geopolitical tensions in 2027. Riverwater remains committed to owning high-quality, growing businesses trading at attractive valuations.
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