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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Wasatch Small Cap Growth Strategy 2026 Q3 Investor Letter | Buyside Digest

Back to Fund Profile (Wasatch Small Cap Growth Strategy)

Primary Source Intelligence • Q3 2026 Letter Analysis

Wasatch Small Cap Growth Strategy Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Wasatch Small Cap Growth Strategy. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Annualized+9.87%

Positioning StanceCONSTRUCTIVE

Market CapSmallCap

GeographyUS

Digest Analysis

Quick Take

"Constructive on high-quality, self-funding small-cap growth compounders with positive earnings revisions, maintaining high conviction in $PAY, $RGEN, and $BROS despite broader macroeconomic and rate pressures."

Executive Summary

During the third quarter of 2026, the Wasatch Small Cap Growth strategy declined in absolute terms but outperformed its benchmark, the Russell 2000 Growth Index, which dropped -9.39%. Relative outperformance was primarily driven by resilient fundamental execution across holdings and intentional avoidance of speculative, non-earning artificial intelligence businesses that suffered severe multiple contraction. The portfolio remains structured around self-financing, profitable growth franchises, with management highlighting that 45% of Russell 2000 Growth Index constituents remain unprofitable and highly vulnerable to persistent capital costs. The macroeconomic environment was characterized by rising interest rates, inflation concerns, and geopolitical tensions, which triggered broad multiple compression across small-cap equities. Within the portfolio, management observed that forward-looking corporate health proved exceptionally resilient, noting that the share of portfolio companies receiving positive forward revenue estimate revisions of 3% or more reached a four-year high, while not a single portfolio holding received a downward revision. Individual performance was led by strong contributions from Paymentus Holdings, Repligen, and Global-e Online, each delivering earnings beats and raising full-year guidance. Conversely, performance was dampened by short-term sell-offs in high-quality AI infrastructure suppliers AAON and Nova Ltd., alongside beverage retailer Dutch Bros, which derated in tandem with discretionary restaurant peers despite reporting greater than 32% revenue growth and expanding same-shop sales.

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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 management team demonstrates solid conviction by anchoring allocations in cash-generative, self-funded businesses and explicitly holding through drawdowns in high-quality names like AAON, Nova, and Dutch Bros. Positions are evaluated on clear earnings and revision metrics, though exact percentage weightings are not disclosed.

Growth Outlook

58%

BearishBullish

Neutral (58%)

While management notes macro headwinds such as rising rates and consumer pressures on small caps, they express clear optimism regarding the resilience of profitable compounders and improving earnings revisions across their holdings.

Risk Appetite

62%

DefensiveAggressive

Balanced (62%)

The strategy maintains full net equity exposure to high-growth small caps while intentionally avoiding early-stage, pre-revenue speculative issues burdened by debt financing needs.

Capital Deployment

52%

De-riskingDeploying

Net Neutral (52%)

The strategy maintains existing high-conviction holdings through short-term sector rotations with neutral overall cash positioning and no signs of aggressive de-risking or major cash build-ups.

Forward Guidance

65%

CautiousExpansionary

Expansionary (65%)

Management emphasizes holding through cyclical market dislocations and leaning into companies with upward estimate revisions, signaling selective conviction and sustained deployment.

Language Signal

64%

BearishBullish

Balanced (64%)

The text features constructive terms such as solid operating results, guidance raises, intact unit economics, and attractive valuations, while measured against headwinds from interest rates and discretionary consumer caution.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

The managers clearly articulate macro threats including rising interest rates, inflation, squeezed consumer discretionary budgets, and the severe financing vulnerabilities facing the 45% of unprofitable Russell 2000 Growth constituents.

Opportunity Density

68%

ScarceAbundant

Abundant (68%)

The managers highlight an encouraging environment where upward estimate revisions among portfolio holdings reached multi-year highs and zero companies saw reductions, pointing to a healthy pipeline of quality small-cap opportunities.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

Management explicitly states that they are taking a multi-year long-term view with holdings such as Dutch Bros, prioritizing business runway and unit economics over quarterly multiple compression.