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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"The London Company Small Cap returned 12.6% net in Q2 but underperformed the Russell 2000's 21.5% as markets rewarded high-beta momentum over quality fundamentals. The manager maintains conviction in durable, high-quality businesses positioned to compound over full cycles."
The London Company Small Cap portfolio returned 12.6% net in Q2 2026, underperforming the Russell 2000's 21.5% gain as strength concentrated in high-beta, high-volatility names rather than quality fundamentals. The top beta quintile returned nearly 58% and drove most of the index gain, while only 25% of profitable small and mid cap companies beat the Russell 2500. The manager maintains conviction in their quality-focused approach, emphasizing durable businesses with strong cash generation, high returns on capital, and shareholder-oriented management. Key contributors included QLYS, CTS, and LSTR, benefiting from improving sentiment in cybersecurity and freight stabilization. The manager initiated MGRC, a specialty rental company with resilient cash flows and 20%+ returns on capital. Looking ahead, they express caution about elevated valuations, historic index concentration, fragile AI capex dynamics with negative hyperscaler free cash flow, and difficult Fed policy trade-offs. They believe periods of high-beta outperformance are prone to mean reversion and expect more modest equity returns ahead, positioning their quality-focused, high active share portfolio as valuable ballast and diversification for investors.
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