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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Madison Small Cap Fund underperformed the Russell 2000's 21.5% Q2 rally, returning 12.7% as AI-driven tech and biotech surged. Recent software investments and healthcare positions dragged performance despite strong conviction in their long-term value."
The Madison Small Cap Fund returned 12.7% in Q2 2026, underperforming the Russell 2000's 21.5% return as the small-cap market staged a powerful rally following the cessation of Middle East hostilities. The underperformance was driven by the fund's inability to keep pace with the AI capital spending boom that propelled Information Technology and Healthcare sectors, particularly biotech stocks which returned 25%. While the fund's Info Tech investments including Knowles Corp. and Power Integrations posted strong absolute gains, recent investments in beaten-down software companies remained a drag despite growing manager confidence in their long-term opportunity. Healthcare investments struggled, with Option Care facing specialty drug profitability challenges and Encompass Health posting only modest gains. Consumer discretionary was the worst performing sector, driven by extreme weakness in Shake Shack despite solid same-store sales. The managers executed an active quarter, selling three positions and adding four new investments including Indie Semiconductor, Extreme Networks, Belden, and Madison Air Solutions. Looking forward, they are encouraged by small-cap leadership over large caps, signs of software recovery, and potential housing market improvement as commodity prices collapse.
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