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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Madison Small Cap Fund 2024 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Madison Small Cap Fund)

Primary Source Intelligence • Q3 2024 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+6.3%

Annualized+11.94%

Digest Analysis

Quick Take

"Madison Small Cap Fund underperformed in Q3 but managers remain optimistic about Industrial holdings positioned for housing recovery as rate easing begins. Added Workiva at significant discount to intrinsic value."

Executive Summary

The Madison Small Cap Fund returned 6.3% in Q3 2024, underperforming the Russell 2000's 9.3% return due to allocation and selection effects. The managers made minimal portfolio changes, adding only Workiva, a cloud-based compliance software provider trading at a material discount to their $100 intrinsic value assessment. The fund maintains overweights in Consumer, Industrials, and Information Technology sectors based on finding high-quality businesses at attractive valuations. Despite recent underperformance, the managers are optimistic about Industrial holdings tied to housing, citing structural undersupply and potential benefits from central bank rate easing. Many Industrial stocks await signs of construction industry bottoming, with project starts potentially accelerating in early 2025. The fund's Information Technology holdings have significantly outperformed, driven by investments made during 2022 when the sector was out of favor. While macro uncertainty exists around labor market strength, consumer spending remains resilient supported by higher wages and wealth effects from strong markets and housing 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%)

Managers provide detailed analysis of Workiva with specific intrinsic value target of $100 per share and clear thesis. They maintain concentrated overweights in specific sectors based on fundamental analysis. However, the diversified 46-holding portfolio and measured language prevent a higher conviction score.

Growth Outlook

25%

BearishBullish

Bearish (25%)

Managers express optimism about specific sectors (Industrials tied to housing, Technology) and cite potential catalysts like rate easing and construction recovery. However, they acknowledge macro uncertainty around labor market strength, creating a mildly positive but cautious outlook.

Risk Appetite

15%

DefensiveAggressive

Defensive (15%)

Portfolio positioning remained largely unchanged with very few changes made in Q3. Only one new investment (Workiva) was added, suggesting a selective and measured approach rather than aggressive risk-taking or defensive positioning.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

Very minimal deployment activity with only one new position (Workiva) added during the quarter. Managers state they made 'very few changes' to positioning, indicating largely neutral capital deployment with slight positive bias from the single addition.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

Managers indicate they are watching for signs of construction industry inflection and are positioned for housing recovery. They express readiness to benefit from potential catalysts in early 2025, showing mild deployment bias toward specific themes.

Language Signal

20%

BearishBullish

Bearish (20%)

Language includes positive terms like 'optimistic,' 'significant residential construction cycle,' and 'attractive valuations,' balanced against 'macro uncertainty' and 'depressed' sectors. Net positive but measured tone throughout.

Perceived Risk

35%

Low RiskElevated

Moderate Risk (35%)

Managers acknowledge 'macro uncertainty' specifically around labor market strength and durability, but frame it as limited concern given resilient consumer spending. Risk discussion is present but not central to the letter's narrative.

Opportunity Density

60%

ScarceAbundant

Selective (60%)

Managers found one compelling new investment (Workiva) and express optimism about existing holdings in specific sectors. They cite finding 'high-quality businesses at discounts to intrinsic value' but selective approach suggests moderate rather than abundant opportunity set.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

Managers discuss multi-year themes like housing construction cycle 'lasting several years' and reference their five-year tenure at Madison. Workiva investment based on 'sticky' software with 'durables growth runways' suggests patient, multi-year investment horizon.