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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Madison Small Cap Fund 2024 Q1 Investor Letter | Buyside Digest

Back to Fund Profile (Madison Small Cap Fund)

Primary Source Intelligence • Q1 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

Annualized+11.94%

Digest Analysis

Quick Take

"Madison Small Cap Fund outperformed significantly in Q1 2024 with 11.4% returns versus 5.2% for Russell 2000, driven by quality bias and strong industrial stock selection."

Executive Summary

The Madison Small Cap Fund delivered strong Q1 2024 performance, returning 11.4% versus 5.2% for the Russell 2000, driven by stock selection and sector allocation favoring higher quality names. Industrial stocks led outperformance, particularly Core and Main, while Cogent Communications was the worst relative performer despite the managers' confidence in its strategic position handling 25% of global internet traffic. The fund initiated two new positions: Mueller Water Products, positioned to benefit from federal infrastructure spending on America's aging water systems, and HashiCorp, a cloud migration software provider with strong competitive positioning. They exited PTC after a remarkable 23-year hold that generated 22x returns, illustrating the potential of their PMV process. Looking forward, managers see continued relative value in small caps versus large caps but express caution given recent strength. They plan to continue pruning gains while emphasizing the need to find new investment ideas. Current overweights in Industrials, Consumer Staples, and Technology reflect bottom-up security selection rather than sector calls.

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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 discussions, detailed PMV estimates for new holdings ($25 for MWA, $40 for HCP), and willingness to hold positions for decades (23 years for PTC). However, the 46-position portfolio and hedged language about market conditions prevent a higher score.

Growth Outlook

25%

BearishBullish

Bearish (25%)

The managers express a constructive view on small caps versus large caps, seeing relative value opportunities. However, they temper this optimism with caution due to recent market strength, indicating a mildly positive but measured outlook.

Risk Appetite

10%

DefensiveAggressive

Defensive (10%)

The fund is positioned with overweights in Industrials, Consumer Staples, and Technology, but managers are actively pruning gains and being selective. This suggests a cautious risk appetite despite maintaining equity exposure.

Capital Deployment

0%

De-riskingDeploying

De-risking (0%)

The fund sold two positions and initiated two new positions during the quarter, representing capital rotation rather than net deployment. Managers explicitly state they will continue pruning gains, indicating neutral deployment activity.

Forward Guidance

0%

CautiousExpansionary

Cautious (0%)

The managers plan to continue pruning gains when appropriate and emphasize finding new ideas, indicating a balanced approach with no clear directional bias toward aggressive deployment or defensive positioning.

Language Signal

15%

BearishBullish

Bearish (15%)

Language includes positive terms like 'relative value,' 'optimistic,' and 'constructive' but is balanced with cautionary language about recent strength and the need for selectivity. Slightly more positive than negative overall.

Perceived Risk

45%

Low RiskElevated

Moderate Risk (45%)

Managers acknowledge caution due to 'almost relentless strength' in markets and emphasize the need for selectivity. Risk discussion is moderate, mentioning market conditions but not dwelling on systemic threats or detailed downside scenarios.

Opportunity Density

60%

ScarceAbundant

Selective (60%)

The fund continues to see relative value in small caps versus large caps and successfully identified new investment opportunities in water infrastructure and cloud software. However, managers emphasize it is 'vital' to continue finding new ideas, suggesting opportunities require more effort to identify.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The fund's 23-year hold of PTC demonstrates genuine long-term orientation. Managers discuss multi-year themes like infrastructure spending and digital transformation, and their PMV process focuses on long-term value realization rather than near-term catalysts.