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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Fairlight underperformed in Q2 2026 amid market strength but maintains conviction in quality compounders. The fund highlights academic evidence that rapid asset growers underperform by 8-20% annually, using key holding Halma as a case study in capital discipline."
Fairlight Global Small & Mid Cap Fund returned 5.2% in Q2 2026 but underperformed its benchmark by 6.3% for the quarter and 18.5% year-to-date. The fund's investment philosophy centers on quality businesses earning outsized returns on capital with characteristics allowing persistence, purchased with valuation discipline. The letter examines academic research showing companies in the top decile of asset growth delivered only 5% annual returns versus 18% for slow growers, highlighting behavioral risks where companies and investors mistake cyclical tailwinds for structural shifts. Key holding Halma exemplifies proper capital allocation, with its photonics business growing 52% in FY2026 driven by hyperscale data center demand. Rather than accelerating expansion in this narrow market, management is directing windfall cash flows into R&D and acquisitions in out-of-favor sectors with reasonable valuations, maintaining strict returns hurdles. Management guides for 30% photonics growth ahead based on order visibility rather than extrapolating hyperscaler capex, explicitly characterizing this as a cyclical tailwind while reaffirming unchanged long-term compounding ambitions for the broader group.
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