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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Madison Small Cap Fund 2023 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Madison Small Cap Fund)

Primary Source Intelligence • Q3 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-6.1%

YTD+4.3%

Annualized+11.94%

Positioning StanceConstructive

Market CapSmallCap

GeographyUS

Digest Analysis

Quick Take

"Madison Small Cap Fund's quality-focused approach delivered modest underperformance in Q3 but maintains YTD outperformance. Recent weakness in holdings like GOGO and Magnite reflects temporary issues rather than fundamental deterioration."

Executive Summary

Madison Small Cap Fund declined 6.1% in Q3 2023, slightly underperforming the Russell 2000's 5.1% decline, but remains ahead year-to-date at 4.3% versus 2.5% for the index. The fund's underweight in Healthcare and lack of Energy exposure were key performance drivers. Top detractors included GOGO (maintenance-related subscriber issues), Magnite (advertising headwinds from strikes), and Model N (growth guidance disappointment), though managers view these as temporary setbacks. Strong performers included Ollies Bargain Outlet, benefiting from inflationary consumer behavior, and New Relic, which was acquired. Portfolio activity included adding JFrog and Hayward Holdings while exiting positions in Chemours, Concrete Pumping, Armstrong World Industries, and Radius Global Infrastructure. Looking forward, managers see the higher-for-longer interest rate environment as the primary risk but believe their quality-focused approach with strong balance sheets positions the portfolio well. They view small caps' historically low valuations relative to large caps as creating significant opportunity, particularly for their durable, profitable technology and industrial investments.

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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%)

Fund demonstrates moderate-high conviction through concentrated 46-position portfolio with named top holdings and specific position sizing (top 10 holdings comprise meaningful percentages). Managers provide detailed thesis explanations for individual positions and explicitly state comfort with all investments despite market challenges. However, some hedging language around temporary issues caps conviction below high levels.

Growth Outlook

25%

BearishBullish

Bearish (25%)

Managers acknowledge significant risks including higher-for-longer rates and potential hard landing, but frame small caps' historically low valuations as creating significant opportunity. They use optimistic language like 'It's hard to hurt yourself when you fall off the floor' while remaining realistic about challenges.

Risk Appetite

15%

DefensiveAggressive

Defensive (15%)

Portfolio remains fully invested but managers are paying particular attention to balance sheet quality as rates rise. They're selectively adding positions like JFrog and Hayward while exiting others due to end market concerns, showing measured risk appetite rather than aggressive deployment.

Capital Deployment

25%

De-riskingDeploying

De-risking (25%)

Managers added two new positions (FROG and HAYW) while exiting four others, representing active rotation rather than net deployment. They describe using proceeds from sales to fund new opportunities and increase existing positions like Olin Corp, indicating selective deployment activity but no clear cash level changes mentioned.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

Managers express eagerness to exploit opportunities in sectors that have pulled back and expect their quality investments to outperform in various scenarios. They're actively looking for opportunities while maintaining selectivity, showing mild deployment bias.

Language Signal

20%

BearishBullish

Bearish (20%)

Language balances opportunity-focused terms like 'significant opportunity,' 'attractive valuations,' and 'eager to exploit' with risk acknowledgment including 'largest risk,' 'uncertain environment,' and 'increasingly likely' contraction concerns. Slightly more opportunity-focused overall.

Perceived Risk

72%

Low RiskElevated

Elevated Risk (72%)

Managers explicitly identify higher-for-longer interest rates as the 'largest risk to the economy and stock market' and discuss fears of hard landing, commercial real estate contraction, and various sector-specific headwinds. Risk discussion is prominent throughout the letter with specific concerns detailed for multiple holdings and market segments.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

Managers see 'significant opportunity in small caps' due to historically low valuations and describe being 'eager to exploit' opportunities in sectors that have pulled back. They added two new positions and reference several acquisitions providing capital for quality investments, indicating selective but meaningful opportunity identification.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

Fund demonstrates multi-year investment horizon through focus on recurring revenue models, durable competitive positions, and expectation that companies will 'generate prodigious free cash flow over the next several years.' Managers look through temporary issues at holdings and position for eventual economic recovery, indicating 2-4 year thesis timeframes.