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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Constructive on franchise small-cap compounders with resilient profit cycles, rotating capital out of capital-intensive AI infrastructure enablers toward resilient vertical software platforms, energy services, and differentiated healthcare innovators."
Artisan Small Cap Fund posted weak absolute and relative performance in Q3 2026, with the Investor Class (ARTSX) returning -9.75% net of fees, underperforming the Russell 2000 Growth Index benchmark return of -9.39%. Year to date, the strategy has generated a net return of 10.65%, trailing the benchmark's 10.71% net gain. The broader market environment witnessed small caps underperforming large caps by 880 basis points—one of the widest quarterly deficits in index history—driven by rising bond yields, a more hawkish central bank posture following the Federal Reserve's 25-basis-point interest rate increase, and sharp factor rotations away from higher-beta, long-duration growth assets. The investment team noted heightened macroeconomic crosscurrents, characterized by the 30-year Treasury yield reaching multi-decade highs, elevated oil prices surpassing $100 per barrel, and mounting scrutiny surrounding the capital intensity and return timeline of artificial intelligence infrastructure investments. Within the portfolio's defined power alleys, health care served as the sole positive contributor (+6.4% absolute return; ~250 bps relative contribution), while industrials (-140 bps relative impact) and information technology detracted due to supply chain frictions and hardware delivery bottlenecks in data center ecosystems. Portfolio turnover remained active as the managers initiated 15 new Garden positions while harvesting 19 campaigns. Key actions included initiating positions in Glaukos, Manhattan Associates, and 10x Genomics, alongside scaling up exposure to Weatherford International and Vita Coco. Conversely, the fund completely exited positions in Ionis Pharmaceuticals following Phase 3 clinical trial setbacks, ServiceTitan due to decelerating transaction growth and management turnover, and Birkenstock amid rising consumer discounting and promotional activity.
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