In 2025, the market saw a notable surge in the UBS High Short Interest Index, climbing over 25% within the initial two weeks, while broader market indices remained relatively stable. This period was characterized by a sustained short squeeze that fueled low-quality stock performance, a trend that presented a considerable hurdle for the Fund. Despite these market dynamics, the Fund's strategic emphasis on value investing allowed it to outperform growth-oriented stocks. This was particularly evident as the Russell 2000 Value Index achieved a 3.3% return in the fourth quarter, highlighting a beneficial market rotation towards value.
The Fund's performance was significantly influenced by specific stock selections, with Bruker, Hub Group, and Advanced Energy Industries acting as key accelerators for returns. Conversely, Integer Holdings, Valvoline, and American Woodmark negatively impacted the portfolio, primarily due to revised financial guidance, margin pressures, and broader sectoral challenges. Looking ahead to 2026, the Fund's positioning is a testament to its meticulous bottom-up investment approach, featuring moderate overweights in the industrial, consumer staples, and materials sectors. Simultaneously, it maintains slight underweights in the financial, communication services, and consumer discretionary sectors, reflecting a nuanced strategy to navigate anticipated market conditions.
This careful sector allocation and stock picking underscore a commitment to fundamental value and long-term growth. The team remains optimistic about the potential for continued market normalization and the emergence of compelling valuation opportunities within the small-cap segment. By adhering to a disciplined investment philosophy that prioritizes robust companies with strong underlying fundamentals, the Fund is well-prepared to capitalize on evolving market landscapes. This approach fosters resilience and aims to deliver sustained value to investors.