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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Positioned defensively against sticky inflation and 5% Treasury yields by rotating out of cyclical capital goods into high-conviction software, life sciences tools, and specialty insurance, viewing micro-cap valuation consolidation as a compelling multi-year entry point."
Next Century Growth Investors' Micro Cap Growth Composite declined 13.68% net of fees in the third quarter of 2026, underperforming the Russell Microcap Growth Index return of -12.14% net of fees, while preserving strong outperformance year-to-date with a 28.34% net gain versus the benchmark's 8.50%. The quarter saw an aggregate pullback across smaller capitalization growth equities, catalyzed by a valuation retrenchment in early-cycle leadership areas and compounded by a sharp jump in interest rates and energy prices. Portfolio allocations ended the quarter with a 4% cash weighting alongside overweights in Technology (28%) and Industrials (27%), balanced against underweights in Health Care (29% vs. 40% benchmark), Financials (3%), and Consumer Discretionary (1%). Macroeconomic headwinds resurfaced as geopolitical turmoil in the Middle East disrupted shipping corridors and pushed Brent crude back near $100 per barrel. Resurgent energy inputs pressured headline inflation, prompting the Federal Reserve to implement a 25 basis point policy rate hike and pushing the 10-year Treasury yield above 5%. Although broader corporate earnings exhibited resilient fundamental expansion and capital spending in AI infrastructure and domestic re-industrialization remained robust, elevated borrowing costs disproportionately weighed on small- and micro-cap businesses dependent on external financing. Portfolio activity reflected continued selective repositioning away from highly valued hardware and infrastructure names toward attractively priced opportunities. The strategy initiated 11 new positions across technology (WK, SOPH, NVEC, BAND, AMBQ), health care (WAY, URGN, SGHT), financials (PLMR, ASIC), and energy (FTK). Conversely, 9 positions were liquidated to zero, including technology holdings (UCTT, ICHR, BRUN), consumer stocks (LINC, UTI, LGCY), industrial providers (LMB, EQPT), and managed care operator ALHC.
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