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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Maintained an equity overweight with conservative bond duration, rotating capital into defensible compounders and enterprise software while exiting maturing franchises experiencing competitive erosion."
During the first nine months of 2026, the Mairs & Power Balanced Fund generated a net return of 4.23%, underperforming its composite benchmark (60% S&P 500 Total Return Index and 40% Bloomberg U.S. Government/Credit Bond Index), which returned 6.42%, as well as its Morningstar peer category return of 5.94%. Equities asset allocation served as a modest positive contributor as the portfolio remained overweight equities while stocks outpaced bonds. However, equity stock selection trailed benchmarks, primarily driven by adverse performance in healthcare holdings, though partially offset by positive selection in technology. The fixed income sleeve outperformed its benchmark due to an emphasis on high-quality corporate credits over Treasuries and disciplined credit selection. The macroeconomic framework was shaped by persistent geopolitical turmoil in the Middle East that pushed crude oil near $100 per barrel and heightened inflation, alongside rising bond yields where the 10-year Treasury crossed 5.25%. Macro headwinds were reinforced by a 25 basis point rate hike by the Federal Reserve under Chair Kevin Warsh and growing concerns over the expansion of U.S. federal debt beyond $40 trillion. In response, the fund maintained a disciplined approach to the artificial intelligence buildout, warning of cyclical excess in commoditized hardware infrastructure while directing exposure toward software and enterprise adopters positioned for durable productivity gains. Portfolio turnover during the first nine months included establishing new positions in Palo Alto Networks, Waste Management, Cognex, Bentley Systems, and Arthur J. Gallagher. Concurrently, the fund eliminated six holdings—Salesforce, Qualcomm, Walt Disney, Sysco, Tennant, and Wells Fargo—alongside the exit of Bio-Techne following an acquisition announcement, citing gradual erosion in competitive positioning, diminishing profitability, and lower expected returns on capital.
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