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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 Q1 Investor Letter | Buyside Digest

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Primary Source Intelligence • Q1 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

QTD+4.87%

Annualized+11.47%

Digest Analysis

Quick Take

"Small cap fund outperformed by 241bps in Q1 on strong stock selection across sectors. Financials led performance recovery while AI infrastructure and Old Economy names with technology adoption potential drive positioning."

Executive Summary

The Mairs & Power Small Cap Fund gained 4.87% in Q1 2024, outperforming its benchmark by 241 basis points. The fund's thesis centers on exploiting the significant valuation discount in small cap stocks, which trade at a 32% discount to the broader market despite superior earnings growth projections. Stock selection drove outperformance across nearly every sector, with Financials leading contributions after experiencing stress in the prior year. Key contributors included Medpace, Tennant Company, and AZEK Company, while detractors included CVRx and Workiva. The managers made notable purchases in Knife River and added to Piper Sandler, positioning for M&A recovery. They exited Catalent following its acquisition announcement. The fund sees opportunities in AI infrastructure providers and Old Economy companies that can harness technology for productivity gains. Despite macro headwinds including inflation persistence and consumer spending concerns, the managers remain committed to their long-term investment philosophy, believing small cap valuations present compelling risk-adjusted returns for patient capital.

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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 concentrated positioning in named holdings with specific thesis explanations for each position. Managers provide detailed rationale for purchases like Knife River and additions to Piper Sandler, while explaining exits with clear reasoning. The 19 named positions with specific commentary and sizing decisions reflect solid conviction, though the diversified nature prevents a higher score.

Growth Outlook

25%

BearishBullish

Bearish (25%)

The managers express cautious optimism about market opportunities, particularly in small caps, but acknowledge significant macro headwinds including inflation persistence, consumer spending concerns, and manufacturing weakness. They see potential for market broadening beyond tech but remain measured in their outlook.

Risk Appetite

40%

DefensiveAggressive

Defensive (40%)

The fund maintains selective long positioning with notable purchases in Knife River and additions to Piper Sandler, while also exiting positions like Catalent and Physicians Realty Trust. The positioning reflects a measured risk appetite focused on specific opportunities rather than broad market exposure.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

The fund showed modest net deployment activity with notable purchases in Knife River and additions to existing positions like Piper Sandler and Clearfield, offset by exits from Catalent and Physicians Realty Trust. No new names were added to the portfolio, suggesting selective rotation rather than aggressive deployment.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

The managers indicate continued selective deployment in small cap opportunities and AI infrastructure providers, but emphasize patience and long-term focus rather than aggressive near-term deployment. They express confidence in their investment process but acknowledge macro uncertainties.

Language Signal

35%

BearishBullish

Bearish (35%)

Language is balanced with opportunity-focused terms like 'great opportunities,' 'attractive valuations,' and 'positive position' offset by risk language including 'concerns,' 'sluggish,' and 'gloomy outlook.' The net balance tilts slightly positive but remains measured.

Perceived Risk

55%

Low RiskElevated

Moderate Risk (55%)

The managers identify several specific macro risks including inflation persistence, consumer spending pressures, manufacturing weakness, and housing market concerns. They discuss credit card debt rising and 401(k) loan increases as warning signs, demonstrating moderate risk awareness without expressing alarm.

Opportunity Density

70%

ScarceAbundant

Abundant (70%)

The managers see abundant opportunities in small cap stocks trading at significant discounts, AI infrastructure providers, and Old Economy companies that can adopt technology. They specifically mention 'great opportunities' and identify multiple sectors showing potential for market broadening beyond technology.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The fund emphasizes long-term investing with explicit commitment to companies with durable competitive advantages and leveraging their investment philosophy across entire economic cycles. The addition to Clearfield despite 2023 underperformance exemplifies their long-term approach, though specific catalyst timelines suggest a 2-5 year investment horizon rather than permanent capital.