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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
Buyside Digest is not affiliated with, and does not endorse, Mairs & Power - Small Cap Fund. This analysis is provided for institutional research purposes only and is not investment advice.
"Mairs & Power Small Cap Fund fell 11.04% in Q1 2025 on tariff uncertainty and sector rotation, underperforming due to software and automotive holdings while utilities outperformed. Despite trade policy creating stagflation risks, compressed small-cap valuations at 30% discount to large caps present compelling long-term opportunities for quality companies with durable advantages."
The Mairs & Power Small Cap Fund declined 11.04% in Q1 2025, underperforming benchmarks amid tariff uncertainty and sector rotation. The fund's underperformance was driven primarily by stock selection in Healthcare, Financials, Information Technology, and Real Estate sectors. Notable detractors included Workiva, affected by softening ESG reporting demand, and automotive-exposed names like Gentherm and Littelfuse facing uneven EV adoption and macro softness. Positive contributors included Casey's General Stores with strong geographic expansion, Life Time Group with membership growth, and utilities NorthWestern Energy and Black Hills Corporation benefiting from data center infrastructure demand. The fund initiated a position in Cognex Corporation, a computer vision systems provider with promising AI capabilities for industrial automation. Despite near-term trade policy uncertainty creating stagflation risks and business caution, the managers remain optimistic about small-cap opportunities given compressed valuations. The S&P Small Cap 600 trades at 14.3 times forward earnings, a 30% discount to the S&P 500, representing an attractive entry point for long-term investors focused on quality companies with durable competitive advantages.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The managers demonstrate high conviction in their investment philosophy, explicitly stating they remain committed to their approach and will continue doing what they've always done. They show confidence in identifying opportunities and maintaining long-term focus despite near-term challenges.
Growth Outlook
The manager expresses concerns about tariff uncertainty, potential stagflation, and declining business confidence, but balances this with recognition of economic resilience and opportunities in compressed valuations. The outlook acknowledges challenges while maintaining measured optimism.
Risk Appetite
The fund maintains its investment philosophy and continues to see compelling opportunities despite market volatility. The managers initiated a new position in Cognex and express confidence in their approach, showing selective but constructive risk appetite.
Capital Deployment
The fund initiated a new position in Cognex Corporation and exited Altair Engineering following acquisition, showing selective deployment activity. The managers express seeing compelling opportunities but no indication of aggressive capital deployment or cash level changes.
Forward Guidance
While expecting more volatility ahead, the managers explicitly state they remain optimistic about long-term prospects for high-quality small-cap companies and continue to see compelling investment opportunities, indicating cautiously positive forward bias.
Language Signal
Language is balanced with risk-aware terms like uncertainty, disruption, and volatility offset by opportunity-focused language around attractive valuations, compelling opportunities, and optimism about long-term prospects.
Perceived Risk
The managers identify multiple significant risks including trade war impacts, stagflation potential, declining business confidence, and policy uncertainty. They acknowledge these create a challenging landscape for businesses and policymakers to navigate.
Opportunity Density
Despite market challenges, the managers explicitly state they continue to see compelling investment opportunities, particularly given compressed small-cap valuations. They highlight the attractive entry point created by the 30% valuation discount to large caps.
Time Horizon
The fund emphasizes long-term capital appreciation, holding stocks for the long term, and focusing on durable competitive advantages. The managers explicitly state their optimism about long-term prospects despite near-term disruptions, indicating patient capital approach.
