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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Madison Mid Cap Fund 2026 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Madison Mid Cap Fund)

Primary Source Intelligence • Q3 2026 Letter Analysis

Madison Mid Cap Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Madison Mid Cap Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD-2.15%

YTD+1.62%

Annualized+10.01%

Positioning StanceCONSTRUCTIVE

Market CapMid Cap

GeographyUS

Digest Analysis

Quick Take

"Madison Mid Cap Fund returned -2.09% net in Q3 2026, outperforming the Russell Midcap Index's -3.00% decline, driven by strength in healthcare and Gartner, while initiating positions in Arthur J. Gallagher and Revvity and exiting CDW."

Executive Summary

During the third quarter of 2026, the Madison Mid Cap Fund (Class I) returned -2.09% net of fees, outperforming the benchmark Russell Midcap Index, which declined -3.00% net. Year-to-date, the fund posted a net return of +1.74% compared to +11.84% for the benchmark. The strategy maintained a concentrated portfolio of 36 holdings with an active share of 96.92%, holding 44.19% of net assets across its top 10 positions and carrying a 4.50% cash allocation. Performance was led by relative resilience in healthcare holdings and technology advisory firm Gartner, while cyclical and interest-rate-sensitive holdings detracted. The macroeconomic environment shifted over the quarter as persistent energy costs and rising interest rates placed downward pressure on economically sensitive and rate-sensitive businesses. This resulted in sharp market-wide rotations, with over half of the Russell 3000 constituents experiencing drawdowns exceeding 20% since June. The manager also observed that the market's intense focus on AI data center infrastructure capital spending has led to severe valuation compression across high-quality, capital-light business models, presenting selective entry opportunities as the data center capital expenditure cycle matures. Portfolio activity was marked by the establishment of new positions in insurance broker Arthur J. Gallagher & Co. and life sciences tools provider Revvity, capitalizing on market concerns around AI disruption and business transformation. The fund also increased its weighting in analytical instruments supplier Waters Corporation following asset acquisitions. Capital for these additions was generated in part by completely exiting the long-standing position in IT reseller CDW Corporation after waning confidence in management's handling of reinvestment requirements.

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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

62%

CautiousHigh

Moderate (62%)

Market Conviction

Madison maintains a focused portfolio of 36 holdings with 44.19% concentrated in the top 10 positions and an active share of 96.92%. Conviction is supported by decisive portfolio action such as completely exiting CDW after a decade-long hold and establishing new positions in Arthur J. Gallagher and Revvity. However, the moderate overall holding count and acknowledgment of widespread macro risks keeps the score within the moderate band.

52%

BearishBullish

Neutral (52%)

Growth Outlook

The manager expresses a balanced view, pointing out that corporate profits remain resilient despite higher energy costs and interest rates. While mindful of late-cycle capital expenditure dynamics in AI infrastructure, they identify mispriced opportunities in capital-light businesses. This balances structural optimism with caution regarding broader economic crosscurrents.

58%

DefensiveAggressive

Balanced (58%)

Risk Appetite

The strategy stays almost fully invested with only 4.50% in cash, leaning into out-of-favor capital-light businesses depressed by AI disruption fears. However, management refrains from excessive risk-taking, maintaining exposure to proven compounders and high-quality franchises rather than speculative beta.

55%

De-riskingDeploying

Net Neutral (55%)

Capital Deployment

Capital deployment was net neutral to mildly active, with cash standing at 4.50%. Portfolio activity consisted of reallocating capital from the complete divestiture of CDW directly into new holdings Arthur J. Gallagher and Revvity, along with an add to Waters Corporation.

65%

CautiousExpansionary

Expansionary (65%)

Forward Guidance

Madison outlines clear deployment intentions targeting a handful of compelling capital-light businesses whose valuations have been reset lower by AI concerns. The managers demonstrated this orientation through selective new buys (Gallagher, Revvity) and position additions (Waters). Their forward bias remains selectively constructive on quality compounders.

56%

BearishBullish

Balanced (56%)

Language Signal

The letter balances positive descriptors such as 'solid organic growth,' 'strong bookings,' 'sound fundamentals,' and 'compelling opportunities' against notable macro cautions including 'sticky inflation,' 'rising interest rates,' 'weak consumer sentiment,' and 'persistent macro-economic headwinds.' The net tone leans slightly constructive.

66%

Low RiskElevated

Elevated Risk (66%)

Perceived Risk

Management articulates a substantial list of identifiable macroeconomic risks, highlighting sticky inflation, elevated energy prices, rising interest rates, weak consumer sentiment, geopolitical friction, and eventual cyclical peaks in AI infrastructure capital expenditures. Over 50% of broad market constituents suffering drawdowns of 20% or more reinforces this heightened perception of risk.

60%

ScarceAbundant

Selective (60%)

Opportunity Density

The manager views the investable opportunity set as selective rather than broadly expansive, highlighting a 'handful of very compelling opportunities' created by valuation resets in capital-light business models. They contrast this selective landscape with the overcrowded and potentially peaking AI data center capital cycle.

82%

Short-TermLong-Term

Decade+ (82%)

Time Horizon

The investment philosophy emphasizes a multi-year to decade-long orientation, explicitly citing a 'decade plus ownership time horizon' in CDW and evaluating holdings on their ability to navigate multiple business cycles. Positions are chosen for enduring fundamental moats rather than short-term quarterly catalysts.