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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Constructive on idiosyncratic micro-cap and small-cap opportunities, adding high-conviction positions in Bank7 and McDermott International while capitalizing on corporate rights offerings and aggressive buybacks."
Alluvial Fund generated a positive return in the third quarter of 2026, delivering +12.0% net of fees year-to-date through September 30, 2026, outperforming broad market benchmarks during a turbulent quarter where equity indices fell roughly 7%. Since its inception on January 1, 2017, the partnership has achieved a net annualized compound return of 16.0% (323.6% cumulative net), meaningfully exceeding the Russell MicroCap Index's 9.6% annualized return. Portfolio allocation remains highly concentrated across special situations and value-oriented micro-cap and small-cap equities, led by the United States (59.8%) and the United Kingdom (27.2%), with Communications (26.8%) and Financials (15.3%) constituting the largest sector weightings. The investment landscape was characterized by an unwinding of market enthusiasm surrounding the AI, data center, and semiconductor complex, coupled with persistent macroeconomic strains including decade-high U.S. bond yields, historically elevated diesel fuel costs exceeding $6, and heightened geopolitical instability. Amid this uncertain environment, capital rotated toward cash-generative, defensive businesses insulated from cyclical downturns. The manager capitalizes on non-correlated corporate catalysts—including balance sheet recapitalizations, rights offerings, accretive acquisitions, and aggressive capital return programs—that create fundamental intrinsic value regardless of prevailing macroeconomic sentiment. Key portfolio actions during the quarter centered on corporate restructurings and distressed-to-value transitions. The fund participated in a $500 million rights offering for McDermott International, elevating the position to the second-largest holding at 8.8%. It established a notable new stake in Bank7 Corp. following its opportunistic acquisition of Century Financial Services through a court-sanctioned receivership auction, while ContextLogic funded an accretive acquisition via a rights offering to accelerate net operating loss tax asset utilization. These additions were funded in part by exiting NewPrinces SpA due to integration risk, alongside harvesting tax losses in Vistance Networks and Sylvamo.
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