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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Diamond Hill Small-Mid Cap Strategy underperformed in Q4 2025 due to a low-quality market rally, prompting the managers to defensively realign the portfolio into high-quality, low-debt, and non-cyclical business models."
In Q4 2025, the Diamond Hill Small-Mid Cap Strategy returned 1.19% (net of fees), underperforming the Russell 2500 Index's return of 2.22%. This relative underperformance was driven by a momentum-fueled, low-quality rally down the market cap spectrum, a lack of exposure to surging biotech stocks, and underperformance in the strategy's healthcare holdings. Stock selection in materials and information technology was positive, with notable contributions from Ciena and WESCO. In response to broad markets trading at all-time highs driven by AI-hype, the managers have shifted the portfolio into a more defensive posture, initiating nine new positions in companies characterized by lower debt, less cyclicality, or deep discounts to intrinsic value (e.g., SBA Communications, Wix, Booz Allen Hamilton), while liquidating holdings that reached intrinsic value or faced deteriorating structural dynamics (such as Lear Corp).
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
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