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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Conestoga SMid Cap returned 7.04% but lagged the benchmark's 24.02% surge driven by extreme AI speculation in semiconductors and high-beta stocks. Portfolio fundamentals remained strong with sales and EBITDA growth exceeding benchmarks."
The Conestoga SMid Cap Composite returned 7.04% net in 2Q26 but trailed the Russell 2500 Growth Index's 24.02% return, marking the eighth-highest quarterly return in the benchmark's history. Market leadership was unusually narrow and concentrated in high-beta, high-momentum stocks, particularly AI-related semiconductors and data center infrastructure. Technology stocks surged 82.8%, with semiconductors up 95.6%, while Conestoga's software holdings remained roughly flat despite solid fundamentals. The firm's portfolio companies delivered sales growth of 10.4% and EBITDA growth of 14.3%, exceeding benchmark averages, demonstrating the divergence between stock prices and underlying business performance. Defense holdings led by Mercury Systems and data center cooling provider AAON were top contributors. The firm initiated positions in natural gas infrastructure to capitalize on LNG exports and data center power demand. Conestoga remains confident that high-quality characteristics currently out of favor will become increasingly valuable as speculative leadership normalizes and market breadth improves, particularly given the shifting interest rate environment.
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