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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
Buyside Digest is not affiliated with, and does not endorse, Longleaf Partners Small-Cap Fund. This analysis is provided for institutional research purposes only and is not investment advice.
"Southeastern's small-cap fund underperformed dramatically in Q2 as speculative AI-driven mania pushed Russell 2000 IT multiples up 25-40% while their concentrated value portfolio of 16 names trading at mid-50s% P/V declined 2.5%. The manager views current market conditions as bubble territory with both earnings and multiples at historic extremes, maintains high conviction their disciplined approach will prevail, and is actively engaging with management teams to accelerate value realization."
Longleaf Partners Small-Cap Fund returned -2.47% in Q2 2026 versus +21.49% for the Russell 2000, bringing YTD performance to -5.12% versus +22.57% for the index. The manager describes an increasingly speculative market where Russell 2000 IT P/E multiples rose over 25% in the quarter, with Value IT multiples up over 40%, driven by AI-related euphoria rather than fundamentals. This marks the first time in history that both earnings and price multiples have disconnected so far from long-run averages, creating dangerous market dynamics. The fund's 16 holdings trade at mid-50s% P/V with 11.7% cash, positioned in real estate, energy, and consumer businesses with strong free cash flow generation. The manager increased shareholder activism, achieving successful outcomes at Tripadvisor (+29% after asset sale announcement), Alexander's, and Empire State Realty Trust. They trimmed overvalued positions and added back at better prices, maintaining conviction that returns have been deferred, not foregone. Key holdings include CNX Resources, Boston Beer, and Liberty Capital Corp, with ongoing engagement efforts at Mattel and others to accelerate value realization.
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