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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Madison Small Cap Fund 2023 Q4 Investor Letter | Buyside Digest

Back to Fund Profile (Madison Small Cap Fund)

Primary Source Intelligence • Q4 2023 Letter Analysis

Madison Small Cap Fund Quarterly Analysis

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

Fund Returns

QTD+11.2%

YTD+16.1%

Annualized+11.94%

Positioning StanceConstructive

Market CapSmallCap

GeographyUS

Digest Analysis

Quick Take

"Trailing the Russell 2000's 14% dash for trash rally that favored low-quality names over the fund's high-quality approach."

Executive Summary

Madison Small Cap Fund delivered an 11.2% return in Q4 2023, underperforming the Russell 2000's 14.0% return as small caps surged following benign inflation data. The quarter featured a dash for trash rally where low-quality names outperformed high-quality stocks, making it challenging for the fund's quality-focused approach. For the full year, the fund returned 16.1% versus the Russell 2000's 16.9%. The managers made significant portfolio changes, selling five positions and initiating five new investments including Confluent, Chord Energy, and Moelis & Company. Key contributors included consumer discretionary names like OneSpaWorld and Shake Shack, while consumer staples lagged despite stable fundamentals. GOGO was a notable detractor due to operational challenges, while SAIA was the top performer for the year. Looking ahead, the managers believe small cap valuations remain attractive relative to other asset classes, despite acknowledging geopolitical risks and the limitations of macro forecasting after 2023's unexpected economic resilience.

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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

72%

CautiousHigh

High Conviction (72%)

The fund demonstrates high conviction through concentrated holdings (46 total positions), specific position sizing with named top holdings, and detailed thesis explanations for new investments including private market value assessments for CFLT ($28) and LZ ($17). The managers provide specific catalysts and timeframes, such as GOGO recovery by second half 2024.

Growth Outlook

25%

BearishBullish

Bearish (25%)

The managers express cautious optimism about the soft landing possibility and acknowledge that recession fears were overblown in 2023. However, they also note significant geopolitical risks and emphasize the limitations of macro forecasting, creating a mildly positive but balanced outlook.

Risk Appetite

40%

DefensiveAggressive

Defensive (40%)

The fund made significant portfolio changes with five new positions initiated, suggesting selective risk-taking. However, the focus remains on high-quality names and the managers acknowledge being hurt by the low-quality rally, indicating a measured approach to risk rather than aggressive deployment.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

The fund engaged in significant rotation activity, selling five positions and initiating five new investments, but this represents capital rotation rather than net deployment. No cash level changes are mentioned, and the activity appears to be funded by sales of existing positions rather than deploying new capital.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

The managers express confidence in small cap valuations and made strategic new investments, but they emphasize selectivity and acknowledge various risks. The tone suggests selective deployment rather than aggressive capital allocation, with a focus on long-term opportunities.

Language Signal

20%

BearishBullish

Bearish (20%)

The letter contains balanced language with opportunities mentioned (attractive valuations, soft landing possibility) alongside risks (geopolitical concerns, macro uncertainty). The overall tone is measured with slightly more constructive than cautious language, but not overwhelmingly bullish.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

The managers acknowledge geopolitical risks both domestically and abroad, and emphasize the limitations of macro forecasting after being wrong about recession predictions. However, risk discussion is moderate and balanced with opportunity identification, not dominated by risk concerns.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

The managers see selective opportunities, initiating five new positions after careful research (following MC and LZ for years, scouring energy landscape for two years). They believe small cap valuations remain attractive relative to other asset classes, suggesting a reasonably rich but selective opportunity set.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The fund demonstrates a multi-year investment horizon, having followed some positions for years before investing and expecting CHRD to generate significant free cash flow over the next three years. The focus on private market valuations and fundamental analysis suggests a patient, long-term approach typical of value-oriented small cap investing.