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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Constructive on small- and micro-cap value equities trading at wide historical valuation discounts, maintaining elevated micro-cap exposure while navigating post-rate-hike sentiment shifts and AI infrastructure demand."
The Bailard Small Cap Value Strategy delivered a total return of -6.92% net of fees during the third quarter of 2026, trailing the Russell 2000 Value Index return of -4.91% by 2.0% and placing the fund in the 52nd percentile of its peer universe. On a year-to-date basis, the strategy has generated a net return of 15.93% net of fees compared to 17.05% for the benchmark. Portfolio composition remained deliberately diversified across 292 holdings with an average market capitalization of $3,419.5 million, maintaining an active overweight in micro-cap equities at 35.5% relative to the index's 15.9%, while allocating 64.5% to small-cap equities. The macroeconomic environment was shaped by shifting monetary policy expectations following the Federal Reserve's interest rate hike on September 16, which prompted investors to lock in profits after a preceding twelve-month surge of over 40%. Management views fears of sustained higher borrowing costs and an eventual economic slowdown as excessive. Small-cap value currently trades at a 22% discount to its 20-year average price-to-earnings multiple, offering substantial relative valuation appeal over small-cap growth's 1% discount, large-cap value's 10% premium, and large-cap growth's 15% premium. From a quantitative factor and sector attribution perspective, the portfolio does not take concentrated single-stock positions, relying instead on multi-factor behavioral models. Quarterly performance was hindered by negative factor performance in its proprietary anchoring bias metrics as investor sentiment rotated sharply away from price momentum toward deep value. Subsector models in REITs and regional banks generated modest positive active returns, whereas pharmaceutical, biotech, utility, and insurance models faced mild headwinds.
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