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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Wasatch Small Cap Growth Strategy 2024 Q2 Investor Letter | Buyside Digest

Back to Fund Profile (Wasatch Small Cap Growth Strategy)

Primary Source Intelligence • Q2 2024 Letter Analysis

Wasatch Small Cap Growth Strategy Quarterly Analysis

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

Fund Returns

Annualized+9.87%

Digest Analysis

Quick Take

"Wasatch Small Cap Growth underperformed in Q2 2024 despite AI beneficiary Nova leading contributions. Five Below's theft and inflation issues weighed on performance."

Executive Summary

Wasatch Small Cap Growth Strategy declined during Q2 2024 and underperformed the Russell 2000 Growth Index, which fell -2.92%. The strategy's performance was driven by narrow AI optimism, with Nova Ltd. being the top contributor as it benefited from increased semiconductor inspection requirements for AI applications. Boot Barn and TransMedics also contributed positively. Conversely, Five Below was the largest detractor due to theft issues and inflation pressures on lower-income customers, while SiteOne faced competitive threats from Home Depot and Sprout Social dealt with industry-wide software sales slowdown. The managers executed portfolio transactions representing about 5% of assets, adding Addus HomeCare and exiting Rapid7. Despite small-cap underperformance relative to large-caps, the team remains confident in their bottom-up fundamental approach, noting their companies continue generating double-digit revenue and earnings growth. They believe the market will eventually favor small-caps over large-caps, as current large-cap outperformance is driven by just a few colossal tech stocks. The portfolio companies are projected to grow revenues in the low teens and earnings in the mid-to-high teens at sensible valuations.

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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%)

The managers demonstrate moderate-to-high conviction through specific position sizing discussions, named holdings with detailed thesis explanations, and clear buy/sell decisions. They provide specific commentary on 8 named positions with reasoning for each, though the diversified nature of the small-cap strategy and some hedged language around macro uncertainty prevents a higher score.

Growth Outlook

25%

BearishBullish

Bearish (25%)

The managers express cautious optimism about small-cap prospects long-term, believing the market will eventually favor small-caps over large-caps. However, they acknowledge current headwinds including inflation, interest rates, and recession concerns, resulting in a mildly positive but tempered outlook.

Risk Appetite

15%

DefensiveAggressive

Defensive (15%)

The portfolio shows selective risk management with trimming of AI-euphoric positions like Nova and measured portfolio turnover of about 5%. The managers are neither aggressively deploying nor defensively positioned, maintaining a balanced approach with some risk control measures.

Capital Deployment

48%

De-riskingDeploying

Net Neutral (48%)

Portfolio activity was limited to about 5% of assets with one new buy and one complete sell, representing rotation rather than net deployment. The trimming of Nova on strength and measured approach to new positions suggests neutral to slightly cautious capital deployment.

Forward Guidance

10%

CautiousExpansionary

Cautious (10%)

The managers indicate a patient, monitoring stance with their bottom-up approach. They're selectively adding positions like Addus HomeCare but also exiting others like Rapid7, suggesting a cautious deployment bias rather than aggressive action.

Language Signal

20%

BearishBullish

Bearish (20%)

Language is balanced between opportunity recognition (attractive fundamentals, reasonable valuations, growth prospects) and risk acknowledgment (recession concerns, inflation pressures, competitive threats). Slightly more constructive than bearish overall.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

The managers acknowledge several specific risks including inflation persistence, interest rate concerns, potential recession signals, and competitive threats to individual holdings. However, these are discussed as manageable headwinds rather than systemic threats, representing moderate risk awareness.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

The managers express confidence in their current portfolio companies and their growth prospects, noting companies are projected to grow revenues in low teens and earnings in mid-to-high teens. They see selective opportunities like Addus HomeCare while maintaining conviction in existing holdings, suggesting a reasonably rich opportunity set within their small-cap focus.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The strategy demonstrates a multi-year investment horizon with holdings like SiteOne owned for several years and TransMedics owned primarily for long-term competitive advantages. The managers emphasize patience and expect their outlook for companies like Sprout Social to be rewarded over time, indicating a 2-5 year investment timeframe typical of growth strategies.