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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Driehaus Small/Mid Cap Growth Fund 2023 Q4 Investor Letter | Buyside Digest

Back to Fund Profile (Driehaus Small/Mid Cap Growth Fund)

Primary Source Intelligence • Q4 2023 Letter Analysis

Driehaus Small/Mid Cap Growth Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Driehaus Small/Mid Cap Growth Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Annualized+14.18%

Positioning StanceConstructive

GeographyUS

Digest Analysis

Quick Take

"Small/mid cap growth strategy underperformed in brutal 2022 but manager sees opportunity in current uncertainty. Inflation drivers are normalizing while small caps trade at historically cheap valuations versus large caps."

Executive Summary

Driehaus Small/Mid Cap Growth strategy declined 31.4% in 2022, underperforming the Russell 2500 Growth benchmark's 26.2% decline in one of the worst years for US equities since the Global Financial Crisis. The bear market was driven by inflation-induced Fed hawkishness, economic slowdown fears, and compressed equity multiples. The manager believes inflation will continue falling as key drivers normalize: M2 money supply is now negative, excess savings are declining, and supply chains have recovered. Labor market tightness remains the primary wildcard. Small caps now trade at historically cheap valuations relative to large caps, at levels consistent with past recessions. The strategy maintains overweight positions in industrials, benefiting from reshoring trends and over $1 trillion in federal infrastructure programs. Technology exposure was increased during the quarter. Healthcare was trimmed from 20% to 18%. The manager sees this uncertainty as opportunity, with many holdings trading at attractive discounts and positioned for multiple expansion as Fed policy normalizes.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

68%

CautiousHigh

Moderate (68%)

Strategy holds 93 positions with top 5 holdings representing only 12.6% of portfolio, indicating moderate diversification. Manager provides specific sector allocation decisions and names top holdings with clear rationale. Explicit positioning changes and sector overweights demonstrate moderate conviction in thesis execution.

Growth Outlook

25%

BearishBullish

Bearish (25%)

Manager acknowledges challenging conditions but sees opportunity in current uncertainty. Believes inflation will fall and Fed will normalize policy, leading to positive impact on equity sentiment and multiples. Constructive on small cap valuations being at recession levels with bad news priced in.

Risk Appetite

15%

DefensiveAggressive

Defensive (15%)

Portfolio maintains sector overweights and increased technology exposure during quarter, but overall positioning appears cautious given market conditions. Manager trimmed healthcare exposure and maintains defensive awareness of recession risks while staying invested.

Capital Deployment

25%

De-riskingDeploying

De-risking (25%)

Manager increased exposure to technology and industrial sectors during the quarter while trimming healthcare. Cash position at 1.7% suggests mostly invested stance. Net activity appears to be selective rotation and modest increases rather than aggressive deployment or de-risking.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

Manager explicitly states seeing 'many dynamic investment opportunities' and believes current period offers opportunity. Maintains overweight industrials and increased tech exposure, suggesting selective deployment bias despite challenging conditions.

Language Signal

20%

BearishBullish

Bearish (20%)

Language balances risk acknowledgment with opportunity identification. Uses positive terms like 'opportunity,' 'attractive valuations,' 'dynamic investment opportunities' but also emphasizes 'challenging conditions,' 'uncertainty,' and recession risks. Slightly more constructive than bearish overall.

Perceived Risk

72%

Low RiskElevated

Elevated Risk (72%)

Manager extensively discusses multiple systemic risks including inflation trajectory uncertainty, Fed policy mistakes, recession indicators, labor market tightness, and deglobalization pressures. Acknowledges 'uncertainty remains very high' and lists specific recession indicators, demonstrating high awareness of macro risks.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

Manager sees selective opportunities in defined areas, particularly industrials benefiting from reshoring and infrastructure themes. States seeing 'many dynamic investment opportunities' with attractive valuations but emphasizes selectivity given challenging environment. Opportunity set appears good but requires careful selection.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

Manager focuses on structural themes like reshoring and infrastructure spending that will play out over multiple years. Discussion of Fed policy normalization and recession cycles suggests 1-3 year investment horizon. No urgency expressed around near-term catalysts, indicating patient capital approach typical of growth equity strategies.