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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Constructive on small-cap equities given historic valuation discounts and record forward earnings, pivoting capital from cyclical industrials and semiconductors into agentic AI software and commercial biotechnology."
During the third quarter of 2026, the Driehaus Micro Cap Growth Strategy declined 14.25% net of fees, underperforming its benchmark, the Russell Microcap Growth Index, which fell 12.15%. Year-to-date, the strategy has generated a net return of 15.27% net of fees, outpacing the benchmark's 8.50% gain by 677 basis points. For broader context, the Russell Microcap Index fell 7.20%, the Russell 2000 Index declined 7.23%, and the S&P 500 gained 2.3%. Cash ended the period at a modest 1.9%, reflecting a largely fully invested posture across 124 holdings with an active share of 79.09%. Macroeconomic headwinds were dominated by surging 10-year and 30-year Treasury yields eclipsing 5%, driven by resilient nominal GDP, massive hyperscaler capital expenditure, persistent inflation above target, fiscal deficit expansion, and the unwind of the Japanese yen carry trade. This rate shock prompted severe valuation multiple compression across high-momentum small-cap growth equities. Meanwhile, artificial intelligence and data center infrastructure names suffered a sharp factor unwind in July and August amid concerns over data center permitting, circular financing, and model economics, which the manager views as transient noise relative to durable compute demand. Portfolio activity centered on aggressive factor and sector rebalancing. The strategy meaningfully trimmed its overweight in industrials—reducing engineering, electrical equipment, and aerospace suppliers to a slight underweight—and reduced semiconductor and hardware exposure following significant outperformance. Proceeds were reallocated toward agentic software and cybersecurity holdings, as well as selected commercial-stage biotechnology and diagnostics opportunities. Key disclosed portfolio holdings include Praxis Precision Medicines, Spyre Therapeutics, Bandwidth, and Amylyx Pharmaceuticals.
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