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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Core Leaders returned 12.24% in Q2 but lagged the S&P 500's 15.20% due to underweight semiconductor exposure during an 88% sector rally. The managers view unprecedented investor crowding and 11x sales valuations as unsustainable despite strong AI infrastructure fundamentals."
The Davenport Core Leaders Fund returned 12.24% in Q2 2026, trailing the S&P 500's 15.20% gain due to underweight positioning in semiconductors, which experienced an unprecedented 88% quarterly rally. The semiconductor industry now represents a record 19% of the S&P 500 and trades at 11x next 12-month sales, up from 5x in early 2023. While the managers acknowledge strong near-term fundamentals for AI infrastructure, they express concern about extreme investor crowding and the fundamental risk that AI model revenue may not support the entire value chain. Top contributors included Marvell Technology, Palo Alto Networks, and UnitedHealth Group, while Accenture detracted on concerns about structural challenges from AI-driven consulting budget shifts. The managers trimmed outperformers and added to quality names like Constellation Energy and Berkshire Hathaway, viewing them as better risk/reward opportunities. They initiated Stryker as a high-quality medical device compounder. The team remains committed to intrinsic value investing despite significant opportunity cost, believing current market concentration and valuation extremes are unsustainable. They expect eventual market broadening to favor their quality-focused, diversified portfolio of compounding businesses.
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