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Efficiency Overview
Markets quickly clawed again March’s losses following the Iran ceasefire. The fund returned +20.8%, internet of charges, within the second quarter of 2026 — according to the Russell 2000’s +21.5%. We’re happy with these outcomes, particularly as we now have remained disciplined by avoiding the present speculative fervor surrounding AI shares and semiconductors.
High Performing Longs | 2Q26 Efficiency
Xometry Inc
XMTR
Xometry was hit exhausting within the first quarter following an excessively detrimental response to the introduced CEO transition and a weblog put up suggesting to dismantle community results. The corporate’s 1Q26 earnings report demonstrated that these considerations are untimely. Market income is rising from 33% to 40% year-over-year.
Bel Fuse Inc
BELFB
Bel Fuse delivered sturdy outcomes with gross sales up sharply year-over-year and issued higher-than-expected steerage. Efficiency mirrored sturdy demand in Aerospace & Protection and Networking markets.
Hirequest Inc
HQI
HireQuest benefited from an enhancing hiring atmosphere all through the quarter, with immigration enforcement tightening the labor market and rising demand for the corporate’s staffing providers. This momentum is supported by a decentralized mannequin that continues to outperform bigger rivals. The corporate’s energetic buyback program equal to roughly 40% of the free float.
VSE Corp
VSEC
VSE Corp superior following the Iran ceasefire and a big 1Q earnings beat. The corporate continues to scale its aviation aft including to its restore capabilities and increasing its international footprint.
Worst Performing Longs | 2Q26 Efficiency
Atlas Power Options Inc
AESI
Atlas Power Options declined alongside broader vitality weak point following indicators of progress in resolving Center East tensions. basin sand place as differentiated and anticipate important working leverage if home completion exercise improves.
Stride Inc
LRN
Stride shares pulled again in mid-June following the lack of the Lone Star On-line Academy contract in Texas, which was not renewed by the District. This represented an impression of roughly 5% of the corporate’s projected whole enrollment for the interval. Whereas this improvement was a headwind, that in previous related contract losses, a significant portion of scholars typically migrated to different Stride-powered applications.
Limbach Holdings Inc
LMB
Limbach shares meaningfully underperformed the broader market, declining ~30% post-earnings because of supply timing points and reflecting the impression of final yr’s lower-margin Pioneer Energy acquisition. Regardless of these headwinds, administration reaffirmed full-year steerage and highlighted extraordinarily sturdy orders. We anticipate shares to rebound as these points resolve.
SECURE Waste Infrastructure Corp
SES
SECURE Waste Infrastructure Corp introduced it was being acquired through the quarter and was a slight detrimental contributor because of the quarter.
Market returns over the previous yr have been dictated much less by long-term earnings energy and extra by technical components: tradable float, the mechanical affect of ETFs, and social-media-driven demand for shares of corporations positioned to learn from incremental supply-chain bottlenecks. On the identical time, the financial system has proved remarkably resilient by a number of shocks, and trillions of {dollars} in beforehand unanticipated capital expenditure are fueling actual progress. In our view, greater earnings, margins, and valuations are warranted.
The query is what occurs to that capex if its basis cracks. Governments are actually delaying frontier fashions, giving open-source and Chinese language alternate options time to shut the hole and pressuring the enterprise fashions of the main AI labs. Ought to OpenAI (OPENAI) or Anthropic (ANTHRO) encounter financing difficulties, the ensuing write-downs may set off important downward earnings revisions and decelerate the capex wave, at the same time as mannequin capabilities hold enhancing.
In opposition to this backdrop, we keep our view that AI equities are in a bubble. Nevertheless, there may be nothing stopping this from turning into the biggest bubble in historical past. Previous technological booms and market bubbles by no means threatened the core of data work; this one might. If the prevailing narrative holds that capital will displace labor at scale, the logical commerce is to personal the house owners of that capital. We do not make that commerce. As an alternative, we’re concentrating capital in high-conviction positions in missed corners of the market the place mispricing persists.
Anecdotally, we’re observing information staff turning into extra productive than ever, as AI eliminates the friction of back-office duties akin to accounting, tax, authorized, and compliance. We consider this democratization of infrastructure will act as a large, secular tailwind for the broader financial system. In the meantime, valuations of companies working outdoors the AI theme are as compelling as we now have seen in a while, as traders promote high-quality compounders to unencumber capital for the subsequent AI bottleneck beneficiary. Because of this, our internet lengthy publicity stays on the excessive finish of our typical vary.
Charles P. Murphy, CFA
Managing PartnerPortfolio Supervisor
Kurt A. Probe, CFA
Companion
Andrew Wang
Companion
References
1. Gross Pure Alpha is a metric we use internally to watch our inventory choice efficiency. Gross Pure Alpha = Gross Return – Leverage Contribution – Beta Contribution. Leverage Contribution = Gross Return – [Gross Return / Average Gross Exposure (when greater than 100%)]. Beta Contribution = Russell 2000 Index Return x Common Internet Publicity.
2. Alpha is a Beta-Adjusted Alpha calculation. Alpha = Internet Return – (Fund Beta x Russell 2000 Index Return)
Editor’s Notice: The abstract bullets for this text had been chosen by Searching for Alpha editors.
