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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"The Mairs & Power Balanced Fund gained 6.14% in the first half of 2026, slightly underperforming its benchmark. The fund leveraged market volatility to add quality compounders with durable competitive advantages at reasonable valuations, navigating sticky inflation, transitioning Federal Reserve leadership, and AI-driven infrastructure spending while positioning its fixed-income portfolio for downside mitigation."
The Mairs & Power Balanced Fund's core investment thesis is that long-term sustainable returns are best achieved by investing in companies with durable competitive advantages and attractive growth prospects selling at reasonable valuations, combined with rigorous bottom-up credit selection. During the first half of 2026, the Fund achieved a return of 6.14%, slightly underperforming its composite benchmark's return of 6.39%. This relative underperformance was primarily driven by the equities portfolio, where healthcare holdings like Abbott Laboratories and Medtronic, alongside financial services provider Fiserv, acted as key detractors. These headwinds were partially mitigated by strong performance from technology and materials holdings such as Texas Instruments, Entegris, and Littelfuse. The Fund actively managed its portfolio during the quarter, initiating new positions in Palo Alto Networks, Waste Management, Cognex, and AJ Gallagher, while fully liquidating holdings in Salesforce, Qualcomm, Sysco, Walt Disney, and Wells Fargo. In fixed income, the Fund outperformed its benchmark through a structural preference for corporate credits over Treasuries and diligent bottom-up security selection. Looking ahead, the managers remain cautious yet constructive, focus on downside protection, and position the fund to benefit from downstream AI monetization and stable labor markets.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Conviction is rated at 0.65. As a diversified balanced fund managing both fixed income and equity portfolios across multiple sectors, they do not run an extremely concentrated book. However, they demonstrate high conviction in their discipline by completely liquidating five prominent holdings where they saw competitive erosion.
Growth Outlook
The market outlook is constructive at 0.65. While the manager points to sturdy underlying economic fundamentals, broadening earnings expansion, and healthy valuations relative to earlier in the year, they temper their optimism with acknowledgments of persistent geopolitical conflicts and sticky inflation.
Risk Appetite
The fund's risk appetite is balanced at 0.55. While they maintain a modest overweight to equities, their core equity strategy deliberately avoids high-risk cyclical AI hardware companies in favor of durable, reasonably valued downstream operators with protected balance sheets.
Capital Deployment
The fund shows a moderate level of capital deployment (0.60). They took advantage of the second quarter's volatility to scale up high-conviction holdings and establish four new positions, while actively liquidating five others that had deteriorating competitive outlooks.
Forward Guidance
Forward guidance scores at 0.60. The manager provides clear, actionable descriptions of how they intend to handle the transition to AI monetization by focusing on downstream beneficiaries and avoiding overhyped hardware stocks. They have also explicitly prepared the fixed income book for strategic reallocation during any future market dislocations.
Language Signal
The language signal is moderately positive (0.60). Constructive terms detailing 'broadening earnings,' 'sturdy fundamentals,' and 'productivity tailwinds' are balanced by cautious macro assessments regarding 'sticky inflation,' 'Middle East conflict,' and the Fed wildcard.
Perceived Risk
Perceived risk is scored at 0.65. The manager dedicates significant portions of the outlook to systemic macro risks, including energy feedstock price volatility due to Middle East conflicts, policy communication uncertainties with the new Fed Chair, and the potential 'show me' phase risks of AI monetization.
Opportunity Density
Opportunity density is scored at 0.60. The managers express selectivity, noting that while the broader market faces high valuations and cyclical hype, they were able to find several highly attractive entry points in defensive compounders by capitalizing on recent price volatility.
Time Horizon
The time horizon is scored at 0.85. The fund's primary mandate is focused on long-term investing, ignoring short-term predictions of interest rates and credit cycles. They construct portfolios designed to withstand multi-year macro shifts and harvest returns from durable competitive compounders.
