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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Wasatch Long Short Alpha Fund 2026 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Wasatch Long Short Alpha Fund)

Primary Source Intelligence • Q3 2026 Letter Analysis

Wasatch Long Short Alpha Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Wasatch Long Short Alpha Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD-3.97%

Annualized+5.87%

Positioning StanceCONSTRUCTIVE

Market CapSMID Cap

GeographyUS

Digest Analysis

Quick Take

"Constructive on self-financing SMID-cap compounders with robust pricing power while shorting unprofitable, debt-reliant businesses exposed to rising rates and slowing AI speculative spend."

Executive Summary

During the third quarter of 2026, the Wasatch Long/Short Alpha Fund Investor Class returned -3.97% net of fees (-3.94% net for Institutional Class), demonstrating defensive outperformance against its primary benchmark, the Russell 2500 Index, which declined -6.37%. Relative outperformance was driven by solid underlying operational execution across self-financing long equity positions alongside successful short alpha generated from deteriorating, speculative business models tied to the artificial intelligence build-out. The strategy capitalized on its disciplined long/short structure to preserve capital amid broader equity weakness. Macroeconomic headwinds dominated the quarter as market participants grappled with rising interest rates, persistent inflation concerns, and escalating geopolitical tensions. The manager highlights a critical structural vulnerability across the small- and mid-cap landscape, noting that approximately 36% of companies within the Russell 2500 Index remain unprofitable. In a restrictive monetary environment where debt capital is increasingly punitive, highly leveraged and speculative businesses face acute refinancing hurdles. Consequently, the fund continues to rotate short exposure toward balance-sheet-strained enterprises while tilting long exposure toward businesses that generate organic free cash flow. Portfolio attribution reflected healthy dispersion across single-stock allocations. Top contributors on the long side included clinical research organization Medpace Holdings and e-commerce facilitator Global-e Online, while cyclical detractors included RBC Bearings and Casella Waste Systems. On the short side, the fund realized notable gains from battery-technology provider Fluence Energy following steep revenue guidance reductions and expanding projected EBITDA losses, offset by an industry-wide technical rebound in enterprise software that temporarily lifted short holding Asana.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

72%

CautiousHigh

High Conviction (72%)

The portfolio demonstrates high specificity through sized top ten equity positions, clear fundamental differentiation between self-financed longs and unprofitable shorts, and explicit guidance metrics showing zero downward revenue revisions. Conviction is moderated slightly by standard active diversification across long and short sleeves.

Growth Outlook

45%

BearishBullish

Neutral (45%)

Management maintains a cautious stance on broad equity indices given macroeconomic headwinds from interest rates, inflation, and high benchmark unprofitability. However, the manager is relatively constructive on the fund's idiosyncratic ability to generate positive alpha relative to the benchmark.

Risk Appetite

48%

DefensiveAggressive

Balanced (48%)

Positioning balances long equity exposure with an aggressive short book targeting structurally vulnerable, capital-intensive, and unprofitable businesses. Capital preservation through fundamental shorting reflects a disciplined, risk-mitigated portfolio posture.

Capital Deployment

52%

De-riskingDeploying

Net Neutral (52%)

Portfolio capital remains actively balanced across existing long holdings and targeted short positions, with no reported major shifts into cash or abrupt de-risking during the quarterly pullback.

Forward Guidance

65%

CautiousExpansionary

Expansionary (65%)

The manager indicates a clear action bias to lean into shorting unprofitable, debt-reliant Russell 2500 companies facing higher financing costs. Long exposure is maintained in companies demonstrating upward estimate revisions and internal funding capabilities.

Language Signal

58%

BearishBullish

Balanced (58%)

The letter balances optimistic terminology regarding portfolio company revisions and solid fundamentals with cautionary commentary surrounding speculative AI business models, rising rates, and broader market pullbacks.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

Meaningful risks are explicitly discussed, including sticky inflation, upward pressure on interest rates, geopolitical instability, and severe refinancing risks facing debt-laden corporate borrowers.

Opportunity Density

70%

ScarceAbundant

Abundant (70%)

A fertile short opportunity set is highlighted by the 36% unprofitable cohort within the Russell 2500 Index alongside high upward estimate revision breadth across select long holdings.

Time Horizon

68%

Short-TermLong-Term

Multi-Year (68%)

The investment approach centers on multi-year compounding for self-financing companies and long-term business model viability, looking past short-term quarterly margin fluctuations such as fuel cost inflation.