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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Cautious on elevated broad-market valuations and rising rate pressures, leaning into high-quality healthcare and industrials while initiating longs in $GNRC, $RIG, and $ESAB."
The Diamond Hill Mid Cap Strategy declined 3.83% net of fees in the third quarter of 2026, trailing the Russell Midcap Index benchmark return of -3.00%. Year-to-date, the strategy has generated a net return of 1.80%. Portfolio relative performance was led by an overweight allocation and favorable security selection in health care, whereas selection headwinds in industrials and energy, alongside an underweight stance in information technology, detracted from quarterly results. Management maintained disciplined exposure, continuing to favor high-quality franchises while selectively taking advantage of market dislocations toward the lower end of the mid-cap spectrum. The macroeconomic landscape was characterized by renewed monetary tightening and geopolitical headwinds. Small and mid-cap equities faced significant downward pressure in September following the Federal Reserve's first interest rate hike in three years and a sharp rise in Treasury yields. Concurrently, escalating conflict with Iran elevated crude oil and energy prices, heightening input cost pressures across consumer-facing, housing, and industrial sectors. In response, the strategy continued to rotate out of rate-sensitive and discretionary consumer segments in favor of less economically vulnerable businesses with durable cash flow profiles. Portfolio activity reflected selective capital redeployment into idiosyncratic opportunities with favorable risk/reward asymmetric payoffs. The team initiated new positions in welding solutions provider ESAB, offshore driller Transocean, and backup power manufacturer Generac. Conversely, the fund completely liquidated holdings in Hartford Insurance Group after shares approached intrinsic value, while divesting Toro and MGM Resorts International to reallocate capital into higher-conviction opportunities across health care and industrials.
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