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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Diamond Hill Large Cap Fund returned 3.18% net in 3Q26, driven by stock selection in software and an overweight in energy, while the team executed an extensive portfolio reconstitution adding nine new positions."
During the third quarter of 2026, the Diamond Hill Large Cap Fund delivered a net return of 3.18%, outperforming the Russell 1000 Value Index return of 2.61%. Year-to-date, the strategy has generated a net return of 4.05% net of fees compared to 19.27% for its value benchmark. Relative outperformance was led by favorable stock selection within information technology, an underweight posture in utilities, and an overweight allocation in energy. Conversely, stock selection across industrials, health care, and consumer staples detracted from quarterly performance. Following a leadership transition on July 1, the portfolio management team aggressively restructured the strategy to align with highest-conviction holdings, initiating nine new positions and completely divesting 14 holdings. The team's macroeconomic outlook remains tempered by elevated broad-market equity valuations, which they forecast will suppress equity returns below historical averages over the coming five-year cycle. Macro volatility was driven by renewed Middle East conflict, elevating oil prices, alongside an abrupt uptick in benchmark interest rates sparked by the Federal Reserve's first rate hike since July 2023. These escalating borrowing costs placed immediate pressure on capital-intensive, rate-sensitive segments including residential construction, utilities, and real estate. In response, portfolio managers actively trimmed interest-rate-sensitive housing exposure and heavily cut defensive consumer staples allocations whose fundamental outlooks were deemed uninspiring. Portfolio capital was decisively redeployed toward dominant enterprises positioned as durable long-term beneficiaries of artificial intelligence infrastructure and enterprise software adoption. The managers initiated prominent new positions in Meta Platforms, Alphabet, Taiwan Semiconductor Manufacturing, JPMorgan Chase, Chevron, Stryker, Gartner, Transocean, and Ameren. Concurrently, underperforming or uninspiring holdings—such as Builders FirstSource, Accenture, General Mills, Humana, MetLife, Pfizer, and Texas Instruments—were entirely exited to concentrate capital into superior risk-adjusted compounders.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
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Growth Outlook
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