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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Madison Mid Cap underperformed in Q2 2026 as markets became hyper-concentrated in AI infrastructure plays, with nine of the Russell Midcap's ten largest companies being direct AI beneficiaries. While the fund's AI-exposed holdings led performance, managers warn current euphoria reflects excessive risk appetite."
The Madison Mid Cap Fund returned 8.69% in Q2 2026, underperforming the Russell Midcap Index's 13.83% return as market performance became highly concentrated in AI infrastructure beneficiaries. Nine of the ten largest companies in the Russell Midcap Index are direct AI data center construction beneficiaries, with the largest rising 257% in the quarter. The fund's AI-exposed holdings (MKS, Amphenol, Arista Networks) led performance, benefiting from semiconductor capacity expansion, data center interconnect demand, and networking equipment growth. However, defensive businesses and asset-light companies perceived as AI-disruptable lagged. The managers express concern that current AI euphoria reflects excessive risk appetite and willingness to pay high prices for uncertain outcomes, warning that obvious winners today may not be winners tomorrow. They added to seven positions trading at attractive valuations that are being overlooked, including high-quality industrials facing cyclical headwinds and companies with solid fundamentals but depressed valuations. The portfolio is positioned in companies with excellent long-term growth prospects and resiliency to potential negative outcomes, with 36 holdings and 96.95% active share.
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