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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Mairs & Power - Small Cap Fund 2024 Q2 Investor Letter | Buyside Digest

Back to Fund Profile (Mairs & Power - Small Cap Fund)

Primary Source Intelligence • Q2 2024 Letter Analysis

Mairs & Power - Small Cap Fund Quarterly Analysis

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.

Fund Returns

Annualized+11.47%

Digest Analysis

Quick Take

"Small cap fund outperformed benchmark despite challenging environment dominated by large cap concentration. Managers trimmed regional banks on commercial real estate concerns while adding to attractively valued positions."

Executive Summary

The Mairs & Power Small Cap Fund returned 2.20% in the first half of 2024, outperforming the S&P Small Cap 600 benchmark which declined 0.72%. The managers attribute performance to positive stock selection and sector allocation, with notable contributions from Casey's General Stores, MedPace Holdings, and Piper Sandler. The fund trimmed regional bank holdings due to commercial real estate credit concerns while adding to positions viewed as attractively valued. Small cap stocks currently trade at a 40% discount to the S&P 500 and 15% discount to their long-term average, despite analysts projecting higher earnings growth for small companies versus large caps. The managers express cautious optimism about potential Fed rate cuts, which could boost small company earnings by reducing borrowing costs. Market concentration remains extreme with seven stocks driving 64% of S&P 500 returns. The fund continues applying valuation discipline to find opportunities in well-run companies with durable competitive advantages trading at attractive prices.

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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 fund demonstrates moderate-high conviction through specific position sizing decisions, named holdings with clear rationales, and explicit trimming/adding actions. Managers provide detailed thesis explanations for individual positions and maintain concentrated exposure to their highest conviction ideas, though the diversified nature of the portfolio prevents a higher score.

Growth Outlook

25%

BearishBullish

Bearish (25%)

The managers express cautious optimism about future prospects, citing Fed progress on inflation and likelihood of rate cuts. However, they acknowledge economic slowdown and market concentration issues, balancing positive outlook with realistic assessment of current challenges.

Risk Appetite

15%

DefensiveAggressive

Defensive (15%)

The fund maintains selective positioning, trimming regional banks due to credit concerns while adding to attractively valued names. This reflects a measured approach rather than aggressive risk-taking, with emphasis on valuation discipline over broad deployment.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

The fund engaged in rotation activity, trimming regional banks and adding to other positions viewed as attractively valued. No cash level changes were disclosed, suggesting this was primarily reallocation rather than net deployment or de-risking.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

Managers indicate continued focus on finding opportunities in well-run companies at attractive valuations. They express confidence in their investment philosophy and process, particularly if market concentration broadens and rate cuts materialize.

Language Signal

20%

BearishBullish

Bearish (20%)

Language is balanced with more opportunity-focused terms like 'attractive valuations,' 'great opportunities,' and 'favorable' than risk language. However, caution is evident in discussions of credit expenses, market concentration, and economic slowdown.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

Managers acknowledge specific risks including high interest rates pressuring small companies, commercial real estate credit concerns for banks, and extreme market concentration. However, risks are discussed as manageable challenges rather than systemic threats.

Opportunity Density

75%

ScarceAbundant

Abundant (75%)

Despite challenging environment, managers continue to see 'great opportunities' in small companies with attractive valuations. They cite small caps trading at significant discounts while maintaining superior earnings growth prospects, suggesting abundant opportunity set.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

The fund emphasizes long-term investment philosophy and process, focusing on durable competitive advantages rather than near-term catalysts. While some positions have catalyst dependency, the overall approach suggests multi-year investment horizons typical of fundamental small cap investing.