| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Sawgrass Asset Management's Small Cap Quality Growth portfolio returned 22.6% gross in 2Q26, underperforming the Russell 2000 Growth benchmark's 25.7% return by 3.1 percentage points. Small-caps delivered one of their strongest quarters in decades with the Russell 2000 up 21.5%, ranking as the eighth-strongest quarter since 1978. Technology was the standout sector, surging roughly 47% with semiconductors doubling in price. The portfolio's underperformance was driven by negative security selection in Health Care and Technology, and unfavorable factor exposure to lower beta positioning. StoneX Group was the standout contributor at 226 basis points, delivering record operating revenues and strong client engagement growth. The manager argues the small-cap decade has begun, citing the normalization of three key linchpins: valuation discount to large-caps near 25-year lows, mega-cap concentration, and duration of large-cap leadership. Importantly, over 60% of small-cap gains are driven by actual EPS growth rather than multiple expansion, with earnings estimates for 2026-2027 now projected to outpace large-caps. The firm positions its quality-focused strategy as built for this environment.
The small-cap decade has begun as the rubber band of valuation discount, mega-cap concentration, and large-cap leadership duration has snapped, positioning small-caps for historical appreciation over the next 3-10 years with earnings backing the move.
Manager believes the small-cap decade has begun and expects small-caps to generate historical appreciation over the next 3, 5, and even 10 years based on valuation discount normalization, mega-cap concentration unwinding, and the end of the large-cap leadership cycle. The firm positions its risk-conscious Small Cap Quality Growth strategy as built for this market environment.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Sep 4 2026 | 2026 Q2 | SNEX | earnings, growth, Quality, semiconductors, small caps, technology, valuation | SNEX | Small-caps delivered their eighth-strongest quarter since 1978 with Russell 2000 up 21.5% in 2Q26. Sawgrass returned 22.6% gross, underperforming the benchmark by 3.1 points due to Health Care and Technology selection. Manager declares the small-cap decade has begun, backed by earnings growth outpacing large-caps and valuations near 25-year lows. Quality positioning favors the multi-year setup ahead. |
| Apr 7 2026 | 2026 Q1 | - | AI, earnings, energy, Geopolitical, inflation, rates, Rotation, tech | - | Q1 2026 saw market leadership shift from AI-driven megacap tech to energy and cyclicals amid geopolitical tensions. Oil prices surged 80% following Middle East conflict, killing Fed cut expectations and reigniting inflation fears. Despite macro uncertainty, earnings remained firm. The market now rewards fundamentals over narratives as rotation continues. |
| Jan 20 2026 | 2025 Q4 | AORT, BTSG, CRVL, CVLT, IRMD, PRGS, SANM, SNEX, WLDN | growth, healthcare, industrials, Quality, small caps, technology, value | - | Small-cap quality growth strategy underperformed amid large-cap dominance but manager sees setup for small-cap decade. Three key catalysts align: extreme relative valuations, mega-cap concentration, and extended large-cap leadership cycle. Risk-on environment favored low-quality factors in 2025. Healthcare holdings led contributions while cybersecurity detracted. Strategy positioned for imminent leadership rotation. |
| Jul 21 2025 | 2025 Q2 | AORT, AVPT, NVDA, SNEX | growth, Quality, Risk Appetite, Russell 2000, small caps, valuation |
SNEX SNEX AORT AVPT |
Small cap quality growth strategy underperformed in Q2's speculative rally but is positioned for leadership reversal. Extreme valuation discounts, mega-cap concentration, and prolonged large cap leadership cycle create compelling setup. Portfolio emphasizes quality factors including profitability and low volatility that struggled in risk-on environment but should benefit when market conditions normalize. |
| May 13 2025 | 2025 Q1 | ADMA, CORT, RDNT, SNEX, STRL | growth, Outperformance, Quality, small caps, value, volatility | - | Small Cap Quality Growth outperformed by 590bps in Q1 through volatility minimization and quality factor selection. Growing evidence supports large-to-small cap leadership switch based on trough relative valuations, mega-cap concentration, and historically long large cap cycle. Quality factors including low leverage, positive cash flow, and higher ROIC position the strategy for anticipated small cap outperformance. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
Small CapsManager argues the small-cap decade has begun, citing three key linchpins: valuation discount of small to large, concentration of mega-caps, and duration of large-cap leadership. Small-caps delivered one of their strongest quarters in decades with Russell 2000 up 21.5% in 2Q26 and 74.5% from April 2025 bottom. Earnings are backing the move with over 60% of gains traced to EPS growth rather than multiple expansion, and small-cap earnings estimates for 2026-2027 now projected to outpace large-caps. |
Russell 2000 Valuation Earnings Quality |
SemiconductorsSemiconductor names had a record-shattering run in 2Q26, roughly doubling in price and contributing to Technology sector's best quarter ever with roughly 47% gain. Technology placed five stocks in the portfolio's top ten contributors for the quarter. |
Technology Chips | |
QualityQuality-oriented stocks kept lagging during the quarter as high-beta names and unprofitable companies outperformed. Manager positions their Small Cap Quality Growth strategy as built for the current market environment, emphasizing lower price volatility, stable consistent growth, and attractive valuations as differentiators. |
Factor Profitability Volatility | |
| 2026 Q1 |
AIGrowing skepticism around AI-driven returns dominated equity narratives. Software and large-cap tech names bore the brunt as investors questioned whether massive capital expenditures would translate into sustainable profits. Fears of AI displacement began to feel more tangible, pressuring valuations across the space. |
Software Tech Valuations Capital Expenditure Displacement |
OilEnergy stood out as the top performer on a surge in crude prices tied to geopolitical tensions. Oil prices spiked by 80% year-to-date following the closing of the Strait of Hormuz, causing broader inflation concerns and repricing of Fed expectations. |
Energy Crude Geopolitical Inflation Strait of Hormuz | |
RatesThe path of interest rates became far less certain as escalating Middle East conflict sent oil prices higher and reignited inflation concerns. Expectations for rate cuts evaporated, with markets even briefly pricing in the possibility of hikes. |
Fed Inflation Cuts Hikes Policy | |
EarningsCorporate fundamentals remained relatively firm with expectations for another quarter of double-digit earnings growth helping anchor sentiment. Earnings continued to provide a stabilizing force amid macro turbulence, though no longer strong enough to fully offset mounting geopolitical and policy risks. |
Growth Fundamentals Stabilizing Corporate Double-digit | |
| 2025 Q4 |
AIManager draws parallels between today's AI-driven market concentration and the 2014-15 oil collapse, warning that AI has become a macroeconomic assumption embedded in capital expenditure plans and valuations. Physical constraints like energy intensity and grid limitations complicate AI scalability assumptions. |
Artificial Intelligence Data Centers Valuations Energy Infrastructure Technology |
EnergyAI infrastructure's energy intensity creates significant constraints through rising electricity prices, grid capacity challenges, and regulatory scrutiny. These physical realities complicate the path forward for AI economics and challenge assumptions of frictionless scalability. |
Electricity Grid Infrastructure Data Centers Power Pricing Utilities | |
Small CapsThe portfolio consists of fundamentally strong businesses with resilient cash flows and improved competitive positions, though markets don't always reward fundamentals on a linear schedule. The strategy focuses on businesses that can compound value over time rather than speculation. |
Small Cap Value Investing Fundamentals Cash Flow Compounding | |
| 2025 Q2 |
Small CapsSmall caps are at extreme relative valuation discounts to large caps, with the Russell 2000 representing only 5% of S&P 500 market cap. The normalized P/E relative to larger stocks is at a two-standard-deviation low, cheaper than COVID lows. Large cap leadership cycle is the second longest in US stock market history. |
Russell 2000 Valuation Market Cap Leadership |
QualityThe portfolio focuses on quality factors including low price volatility, stable consistent growth, and attractive valuations. Quality factors struggled in Q2 as the market favored low-quality attributes like lowest share price, heavy short interest, and unprofitable stocks. |
Profitability Volatility Growth Valuations | |
Risk AppetiteThe quarter featured a strong risk-on environment with very low-quality attributes driving performance. High beta, low quality stocks set the pace, with microcaps leading after a poor Q1. The R2G's 12% quarterly return equates to 57% annualized, well beyond speculative market definitions. |
Beta Speculation Risk-on Microcaps | |
| 2025 Q1 |
Small CapsEvidence is growing in favor of a size leadership switch from large to small caps. Three key linchpins support this thesis: relative valuation discount of small cap to large cap at continual trough valuations, concentration of mega-caps as a percent of total equity market, and the duration of large cap leadership cycle being the second longest in U.S. stock market history. Additional supportive factors include healthy high yield market, resiliency of small caps regardless of winning party in Presidential elections, and normalizing GDP. |
Small Caps Value Leadership Valuation Outperformance |
QualityHigh-quality factors outperformed in Q1 2025, including larger market caps within small cap universe, reasonable valuation and growth, higher share prices, higher ROIC/ROE, lower leverage, positive cash flow, dividend payers, and lower beta. The strategy focuses on generating portfolios with lower price volatility, stable consistent growth, and attractive valuations built for current market conditions. |
Quality ROIC Cash Flow Dividends Low Leverage | |
VolatilityPrice volatility minimization was the strongest contributor to portfolio return during the quarter. The strategy's decision to minimize exposure to price volatility significantly outperformed as high volatility stocks were severely punished, with loss makers in the Russell 2000 Growth losing more than 17% during the quarter. |
Volatility Risk Management Downside Protection |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Sep 4, 2026 | Fund Letters | Sawgrass Asset Management - Small Cap Quality Growth | SNEX | StoneX Group Inc. | Capital Markets | Capital Markets | Bull | NASDAQ | Brokerage, Capital markets, Client Engagement, fee income, financials, growth, Record Revenues, transaction volumes | Login |
| Jul 21, 2025 | Fund Letters | Dean McQuiddy | SNEX | StoneX Group Inc. | Financials | Capital Markets | Bull | NASDAQ | acquisition, Capital markets, competitive position, earnings growth, Record Revenues | Login |
| Jul 21, 2025 | Fund Letters | Sawgrass Asset Management - Small Cap Quality Growth | SNEX | StoneX Group | Financials | Capital Markets | Bull | NASDAQ | acquisition, Capital markets, Equity, financial services, record growth | Login |
| Jul 21, 2025 | Fund Letters | Sawgrass Asset Management - Small Cap Quality Growth | AORT | Artivion | Health Care | Health Care Equipment & Supplies | Bull | NYSE | Aortic Disease, clinical data, Equity, Health Care Equipment, Medical devices | Login |
| Jul 21, 2025 | Fund Letters | Sawgrass Asset Management - Small Cap Quality Growth | AVPT | AvePoint | Information Technology | Software | Bull | NASDAQ | ARR growth, Data Management, Equity, Microsoft 365, SaaS, Software | Login |
| TICKER | COMMENTARY |
|---|---|
| SNEX | StoneX Group (SNEX) which registered 226bp of contribution. SNEX has consistently delivered record operating revenues, strong growth in client engagement, increased transaction volumes, and higher interest and fee income on client balances. |
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