Strong performance Continues and Fundamentals Remain Strong!
The second quarter marked a strong rebound following the tariff-driven sell-off in March and April. Leading into this recovery, we consistently emphasized that the market was overlooking the fundamental strength of our portfolio companies, and we believe the market’s repricing of that strength is still in its early stages.
Our portfolio is anchored in businesses with sound balance sheets, solid growth, and strong earnings potential. Yet, despite these qualities, our holdings remain attractively valued. As we saw earlier this year, value alone doesn’t shield stocks from short-term volatility. However, as this quarter demonstrated, high-quality companies trading at discounted valuations often rebound more quickly and tend to lead over time.
Importantly, our portfolio looks nothing like the mega-cap tech names that dominate index funds. We believe that makes it an excellent complement to passive strategies, offering investors both diversification and long-term upside.
An Alternative to “Alternatives”
Wall Street loves selling private “alt” strategies, often with steep fees, long lockups, and limited liquidity. Investors are required to commit capital upfront, only to wait for it to be called often over more than a year. Once invested, their money can be tied up for 5–10 years, with little flexibility if life changes or performance disappoints. And even if returns lag, managers still collect 1–2% annual fees, plus a performance cut on any upside.
By contrast, our concentrated small-cap strategy is liquid, transparent, and accessible. Your capital is put to work immediately, you can access it anytime, and our fees are less cumbersome. Yes, public market investing comes with daily volatility and holding through market turmoil can be difficult. But with the proper long-term focus, helped by constant communication and information, the benefits of the strategy can compound over time.
Ultimately, performance matters most. And as the table above shows, we believe our long-term returns compare favorably if not supersede most of our competition.
To be clear, there are good reasons to invest in private markets: venture capital, distressed debt, well-managed private equity and illiquid assets often require a private structure. But today, much of what’s branded “alternative” is simply a more expensive, less flexible version of what we’re already doing, investing in high-quality businesses for long-term growth.
Small-Cap Valuations: A Historic Opportunity
Enhancing the opportunity of our successful strategy is the fact that small cap stocks are trading at historic discounts relative to large cap stocks:
- As of June 30, 2025, the Russell 2000 trades at a price-to-sales (P/S) ratio of approximately 1.0, while the S&P 500 trades at a P/S of around 3.1, based on Bloomberg and CME Group data.
- This valuation gap is near a 20-year high, according to CME Group, which notes that small-cap stocks have not been this discounted relative to large caps since the early 2000s.
This gap creates opportunity. While the Magnificent 7 have dominated headlines and flows, the rest of the market, particularly small caps, have been largely overlooked. Historically, such extremes in valuation dispersion have been followed by strong small-cap outperformance.
Why This Matters for Your Portfolio
Most investors in index funds are far more concentrated than they realize. Today:
- The “Magnificent 7” make up approximately 30% of the S&P 500
- …and nearly 50% of the Nasdaq 100
This is not great diversification, it’s concentration in a single factor: mega-cap tech.
Our portfolio looks nothing like these indexes. As a result, we believe it pairs well with passive strategies, offering meaningful diversification and improving the risk/return profile of a long-term portfolio.
Please call us with any questions or inquiries. We are here to help and would love to make our strategy an important part of your portfolio structure.
With gratitude,
Zack Perry
Small Cap Q2 2025 Commentary
Zack Perry
Strong performance Continues and Fundamentals Remain Strong!
The second quarter marked a strong rebound following the tariff-driven sell-off in March and April. Leading into this recovery, we consistently emphasized that the market was overlooking the fundamental strength of our portfolio companies, and we believe the market’s repricing of that strength is still in its early stages.
Our portfolio is anchored in businesses with sound balance sheets, solid growth, and strong earnings potential. Yet, despite these qualities, our holdings remain attractively valued. As we saw earlier this year, value alone doesn’t shield stocks from short-term volatility. However, as this quarter demonstrated, high-quality companies trading at discounted valuations often rebound more quickly and tend to lead over time.
Importantly, our portfolio looks nothing like the mega-cap tech names that dominate index funds. We believe that makes it an excellent complement to passive strategies, offering investors both diversification and long-term upside.
An Alternative to “Alternatives”
Wall Street loves selling private “alt” strategies, often with steep fees, long lockups, and limited liquidity. Investors are required to commit capital upfront, only to wait for it to be called often over more than a year. Once invested, their money can be tied up for 5–10 years, with little flexibility if life changes or performance disappoints. And even if returns lag, managers still collect 1–2% annual fees, plus a performance cut on any upside.
By contrast, our concentrated small-cap strategy is liquid, transparent, and accessible. Your capital is put to work immediately, you can access it anytime, and our fees are less cumbersome. Yes, public market investing comes with daily volatility and holding through market turmoil can be difficult. But with the proper long-term focus, helped by constant communication and information, the benefits of the strategy can compound over time.
Ultimately, performance matters most. And as the table above shows, we believe our long-term returns compare favorably if not supersede most of our competition.
To be clear, there are good reasons to invest in private markets: venture capital, distressed debt, well-managed private equity and illiquid assets often require a private structure. But today, much of what’s branded “alternative” is simply a more expensive, less flexible version of what we’re already doing, investing in high-quality businesses for long-term growth.
Small-Cap Valuations: A Historic Opportunity
Enhancing the opportunity of our successful strategy is the fact that small cap stocks are trading at historic discounts relative to large cap stocks:
This gap creates opportunity. While the Magnificent 7 have dominated headlines and flows, the rest of the market, particularly small caps, have been largely overlooked. Historically, such extremes in valuation dispersion have been followed by strong small-cap outperformance.
Why This Matters for Your Portfolio
Most investors in index funds are far more concentrated than they realize. Today:
This is not great diversification, it’s concentration in a single factor: mega-cap tech.
Our portfolio looks nothing like these indexes. As a result, we believe it pairs well with passive strategies, offering meaningful diversification and improving the risk/return profile of a long-term portfolio.
Please call us with any questions or inquiries. We are here to help and would love to make our strategy an important part of your portfolio structure.
With gratitude,
Zack Perry
Disclosure and Source
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy orcompleteness.Information, views and opinions are current as ofthe date ofthis presentation,are based on the information available atthe time, and are subjectto change based on marketand other conditions. Robertson Stephens assumes no duty to update this information. Unlessotherwise noted, any individual opinions presented are those of the author and not necessarilythose of Robertson Stephens. Performancemaybe compared to several indices.Indices are unmanaged and reflect the reinvestment of all income or dividends but do notreflectthe deduction of any fees orexpenses which would reduce returns. A complete list of RobertsonStephens Investment Office recommendations overthe previous 12 months is available upon request. Past performance does not guarantee future results.Forward-looking performance objectives,targets or estimates are not guaranteed and may notbe achieved.Investing entailsrisks, including possible loss of principal. Alternative investments are speculative and involve substantialrisks including significant loss of principal, high illiquidity, long time horizons, unevengrowth rates,high fees, onerous tax consequences,limitedtransparency and limited regulation.Alternative investmentsare not suitable for all investors and are only available to qualified investors. Please referto the private placement memorandumfor a complete listing anddescription ofterms and risks. Thismaterial is an investment advisory publication intended forinvestment advisoryclients and prospective clients only. Robertson Stephens onlytransactsbusiness in states in which it is properlyregistered or is excluded orexempted fromregistration.A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, amongotherthings, Robertson Stephens’business practices, services and fees, isavailable through the SEC’s website at:www.adviserinfo.sec.gov. ©2025 RobertsonStephensWealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark ofRobertson Stephens Wealth Management, LLC in the United States and elsewhere. © 2025 Robertson Stephens. Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
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