Small Cap Q4 2025 Commentary

Strong Results Continue

2025 was an excellent year for our investments and the fifth year out of six in which we beat the Russell 2000, the general small cap index. Performance, since inception, has been exceptional both relative to the small-cap index and compared with most public-market indexes.

From the beginning, my goal has been simple but demanding: compound capital at greater than 15% over rolling five-year periods. With compounded returns exceeding 23%, we have meaningfully surpassed that objective.

These results were not achieved through a smooth linear path. They required discipline and patience from our clients. A concentrated portfolio naturally experiences periods of underperformance interspersed with stretches of strong outperformance. The timing and duration of either are unpredictable, which makes a long-term mindset essential to capturing the strategy’s full value.

Deviation Is the Point

Deviation from the index is a feature, not a bug, of this strategy.

The Small Cap Strategy is designed to play two complementary roles in client portfolios:

1. Generate superior long-term returns, and
2. Provide meaningful diversification from core market indexes.

We have succeeded on both fronts since launching in January of 2020.

2025 Recap: Early Innings

While 2025 performance was strong, I continue to believe our holdings remain significantly undervalued.

The largest contributor, Energy Fuels (UUUU), delivered a stellar, if volatile, year. Even so, I believe the market still underappreciates the company’s strategic position in uranium and rare earth elements. Energy Fuels stands out not only for its ability to produce quickly, but also for its low-cost production profile, strong balance sheet, and experienced management team.

Importantly, 2025 was not just an Energy Fuels story. Most other holdings also posted strong results, with nearly all investments meaningfully outperforming the index.

The notable exception was BGC Group (BGC). Interestingly, BGC carried the portfolio in 2024 but was largely flat in 2025. Its underperformance is puzzling because earnings grew roughly 30%, causing the P/E ratio to compress to under 8x. The company continues to generate cash, repurchase shares, and reinvest for long-term growth.

It is not unusual for the market to overlook small-cap success stories for extended periods. While this can be frustrating, history suggests that if fundamentals prove sustainable, the market eventually rewards investors.

2026 Predictions . . .

Yogi Berra famously said, “Predictions are hard, especially about the future.” After recent years in markets and geopolitics, it’s hard to disagree.

Fortunately, my strategy does not rely on predicting markets or macroeconomic outcomes. Instead, it focuses on identifying a small number of businesses with strong long-term prospects, durable balance sheets, and the ability to operate across a wide range of economic conditions.

My expectations over the next couple of years are below and they make me optimistic:

• Portfolio companies should continue to grow revenue, earnings, and cash flow.
• If those fundamentals materialize, markets should eventually reprice the stocks higher, even if the timing is unpredictable.
• The number of holdings is likely to grow as we whittle down our largest positions. Over the past two years, the portfolio became more concentrated for good reasons:
  • Our highest-conviction ideas warranted larger allocations.
  • Diversification was preserved, as our two largest holdings, BGC and UUUU, have no fundamental overlap, a fact underscored by their divergent performance over the past two years.

Valuable Characteristics for the Modern Portfolio

I believe our Small Cap Strategy plays an increasingly important role in the modern portfolio. With markets dominated by large-cap indexes, algorithmic trading, and short-term speculation, it has become difficult to find a consistent, fundamentally driven approach that offers both attractive returns and genuine diversification.

Since its inception, this strategy has navigated a pandemic, a liquidity-fueled rally, a bear market, and ongoing geopolitical uncertainty. Through these cycles, it has delivered strong performance while remaining meaningfully differentiated from traditional indexes.

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We’re always here to answer any questions, please don’t hesitate to call or email.

With Kind Regards,

Zack Perry