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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Edgewood's Q1 2026 underperformance of -13.3% was driven by AI-related valuation compression in growth stocks, not fundamental deterioration. Portfolio companies delivered 32% average earnings growth while the market priced theoretical disruption concerns."
Edgewood Management delivered a disappointing Q1 2026 return of -13.3% versus -4.3% for the S&P 500, primarily driven by valuation compression in growth stocks rather than fundamental deterioration. The firm's portfolio companies delivered strong fundamentals with average earnings growth of 32% year-over-year, significantly outpacing broader market growth of 19%. The underperformance was attributed to market pricing of theoretical AI-driven disruption concerns, particularly affecting software companies, despite better-than-expected earnings results. Edgewood maintains conviction in their concentrated 22-stock portfolio of high-quality businesses with durable competitive advantages. The firm believes many portfolio companies are well-positioned to benefit from AI adoption, with companies like MSCI expecting AI to triple investment capacity and Netflix using AI to improve content production efficiency. Management views current market conditions as creating meaningful appreciation opportunities between current prices and intrinsic values, and expects outperformance when markets refocus on fundamentals rather than speculative themes.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
We assign a conviction score of 0.75 because Edgewood runs a concentrated portfolio with a target of 22 positions (currently 21 named positions after selling Airbnb) with large, transparent allocations (such as Netflix at 8.7% and ASML at 8.1%). The team demonstrates strong fundamental conviction, holding through significant Q1 multiple compression because portfolio earnings growth remains exceptionally strong at +32% YoY.
Growth Outlook
We assign a market outlook score of 0.70. While the manager is disappointed with the immediate Q1 market results (-13.3% return), they view the market's overgeneralization of AI disruption risk as a source of valuation dislocation, creating substantial long-term appreciation opportunities for fundamental growth stocks.
Risk Appetite
We assign a risk appetite score of 0.65. Edgewood maintains high-conviction growth exposure in software, semiconductors, and medical technology despite the recent valuation reset. They have not raised high defensive cash reserves, instead shifting capital between existing high-quality compounders, showing an active risk-on posture.
Capital Deployment
We assign a capital deployment score of 0.50. Edgewood did not introduce any new names into the portfolio during Q1 2026, choosing instead to reallocate capital entirely within their existing 22-stock universe by completely exiting Airbnb and dividing those proceeds among existing high-conviction positions.
Forward Guidance
We assign a forward guidance score of 0.60. The manager is actively managing portfolio risk and utilizing market volatility to refine weightings, adding to positions like Axon (+2.0%) and Netflix (+2.0%) while exiting Airbnb. However, they are selective, having introduced no new portfolio names in Q1 2026.
Language Signal
We assign a language signal of 0.55. The text balances expressions of disappointment ('not pleased with the results', 'disappointment') with strong assertions of fundamental strength and confidence ('remain confident', 'better-than-expected earnings', 'meaningful appreciation opportunity').
Perceived Risk
We assign a perceived risk score of 0.55. While Edgewood notes macro risks such as the Iran war, government shutdowns, and changing rate cut expectations, they argue that the micro risk of AI-driven terminal value disruption in software is largely theoretical and overgeneralized by the market.
Opportunity Density
We assign an opportunity density score of 0.75. The manager emphasizes that massive multiple compression across their portfolio (up to 54% in high-growth names) represents an abundant, highly attractive opportunity set where prices have disconnected from intrinsic business values.
Time Horizon
We assign a time horizon score of 0.85. Edgewood explicitly operates on a multi-year investment horizon, evaluating companies on 5-year estimated growth rates and long-term structural tailwinds. They highlight their 20-year record to demonstrate that their strategy delivers superior compounding over long cycles despite short-term linear disruptions.
