Market Overview
2026
Q1
U.S. Market: Calm to Crosscurents
The year began in a near “Goldilocks” environment, with resilient growth, moderating inflation and expectations for continued easing supporting a broadening equity rally. Small caps led early performance, benefiting from improving sentiment and attractive relative valuations. As the quarter progressed, the AI narrative intensified, driving a more thematic and momentum-driven environment and increasing dispersion across sectors.
The geopolitical escalation in late February marked a clear turning point. The conflict in the Middle East and the resulting surge in oil prices reintroduced inflationary pressures and led to a repricing of interest rate expectations. Volatility increased materially, although market drawdowns remained relatively contained given the magnitude of the shock.
Markets became increasingly driven by headline risk and sentiment, resulting in elevated volatility and sharp rotations across sectors. Sector dispersion was extreme, with energy and materials significantly outperforming while consumer and interest-rate-sensitive sectors lagged, further reinforcing the divergence between thematic momentum and company-specific fundamentals.
Canadian Market: A Strong Opening, A Narrow Finish
The quarter began with a supportive macroeconomic backdrop, with resilient growth and expectations for continued easing supporting equity markets. Small caps outperformed large caps, reinforcing the case for a shift in market leadership.
However, performance quickly became concentrated in commodities. Precious metals and energy were the dominant drivers, supported by geopolitical tensions and rising oil prices, resulting in a highly concentrated and momentum-driven environment where index performance was driven by a narrow group of sectors.
Global Market, Global Divergence
Globally, the quarter followed a similar trajectory, beginning in a favorable macro environment before transitioning into a more volatile and narrative-driven phase. The AI theme remained a dominant driver of capital flows, contributing to increased dispersion across sectors and regions.
The geopolitical shock introduced additional uncertainty, particularly through its impact on energy markets and inflation expectations. While the U.S. remained relatively insulated, other regions were more exposed, with Japan standing out positively and China presenting a more mixed outlook.
Canadian Market: A Strong Opening, A Narrow Finish
The quarter began with a supportive macroeconomic backdrop, with resilient growth and expectations for continued easing supporting equity markets. Small caps outperformed large caps, reinforcing the case for a shift in market leadership.
However, performance quickly became concentrated in commodities. Precious metals and energy were the dominant drivers, supported by geopolitical tensions and rising oil prices, resulting in a highly concentrated and momentum-driven environment where index performance was driven by a narrow group of sectors.
Global Market, Global Divergence
Globally, the quarter followed a similar trajectory, beginning in a favorable macro environment before transitioning into a more volatile and narrative-driven phase. The AI theme remained a dominant driver of capital flows, contributing to increased dispersion across sectors and regions.
The geopolitical shock introduced additional uncertainty, particularly through its impact on energy markets and inflation expectations. While the U.S. remained relatively insulated, other regions were more exposed, with Japan standing out positively and China presenting a more mixed outlook.
Quarterly results by strategy
Canadian Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Canadian Small Cap Composite, compared to the S&P/TSX Canadian Small Cap Index and the S&P/TSX Composite Index (as at March 31, 2026).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
*Note: Results are the BMO Small Cap Blended Weighted Index from June 30, 1992 to December 31, 1999 and thereafter the S&P/TSX Canadian Small Cap Index.
** Note : June 30, 1992
Portfolio Positioning
During the first quarter of 2026, our Canadian Small Cap strategy navigated an increasingly disconnected and momentum-driven market environment. While the broader market delivered strong absolute returns, performance was heavily concentrated in commodities and speculative segments, creating a challenging backdrop for our disciplined, fundamentals-driven approach.
The quarter began in a supportive macro environment, with resilient economic growth, moderating inflation and expectations for continued monetary easing. However, market behavior shifted meaningfully as the AI theme and, later in the quarter, geopolitical tensions in the Middle East drove a sharp increase in oil prices and a surge in commodity-related equities. This resulted in extreme index concentration, with the Materials sector alone reaching over 40% of the benchmark.
From a portfolio standpoint, both asset allocation and security selection were headwinds. Our underweight exposure to Materials and Energy, combined with a broad-based rally in lower-quality and speculative stocks, detracted from performance. In addition, valuation compression across our technology holdings, driven by AI-related concerns, further weighed on returns despite strong underlying fundamentals and continued operational execution.
Operationally, our portfolio companies continued to perform well. Many of our holdings delivered strong earnings growth and maintained solid balance sheets, high returns on capital and attractive long-term growth profiles. However, as seen in prior commodity-driven cycles, market returns during the quarter were largely disconnected from company-specific fundamentals.
Our significant Q1 contributors to performance:
- 5N Plus benefited from strong momentum in specialty semiconductors, supported by growing demand in renewable energy and space applications, as well as expanding long-term supply agreements and capacity growth.
- MDA Space delivered solid performance driven by robust revenue growth, a strong backlog and increasing visibility on future contract wins, supported by continued expansion in the global space industry.
- Knight Therapeutics performed well following strong earnings results, with significant growth in revenue, EBITDA and free cash flow driven by recent acquisitions and a strengthening product pipeline.
These contributors reflected our focus on companies with durable structural advantages, recurring revenue, and improving financial profiles.
- D2L was impacted by weaker-than-expected results in its non-core segment and broader multiple compression across the software sector, despite maintaining strong positioning in its core markets.
- Kneat.com experienced valuation pressure alongside the broader software sector, despite continued growth in revenue, recurring revenues and expanding market share in highly regulated industries.
- goeasy detracted significantly following a negative operational update and the withdrawal of guidance, leading to a full exit from the position.
- Pet Valu & AutoCanada: Consumer discretionary holdings were impacted by concerns around rising energy prices and potential pressure on consumer spending, despite unchanged long-term fundamentals.
Portfolio Changes
We remained active during the quarter, using market volatility to further strengthen the long-term quality and positioning of the portfolio while taking advantage of valuation dislocations across several sectors.
New Positions
- We initiated new positions in Medical Facilities Corporation and Colliers International Group, both offering resilient business models, attractive industry positioning and compelling long-term growth opportunities.
Position Increases
- We increased our exposure to several high-conviction holdings, including Pet Valu, Lumine Group and D2L, where recent weakness created attractive entry points relative to long-term fundamentals.
Position Trims
- We trimmed positions in MDA Space, AutoCanada and 5N Plus following strong share price performance and for position sizing considerations.
Full Exits
- We exited GDI Integrated Facilities following its privatization, as well as Winpak, Sylogist and goeasy in order to reallocate capital toward higher-conviction opportunities.
Overall, portfolio activity during the quarter remained consistent with our disciplined investment approach, focused on maintaining exposure to high-quality businesses while actively managing valuation, risk and long-term return potential.
Outlook
The current speculative and momentum-driven environment may persist for some time, particularly as lower interest rates continue to support risk assets and commodity-related sectors. The near-parabolic rise in precious metals and junior mining stocks reflects a market environment that remains detached from company-specific fundamentals.
While this backdrop has created near-term headwinds for our strategy, we remain highly confident in our long-term investment approach. Historically, periods driven by speculative excesses, commodity rallies and low-quality leadership have ultimately reversed, with fundamentally strong companies significantly outperforming over full market cycles.
We believe the current underperformance of our Canadian small-cap strategy represents a compelling buying opportunity. Our portfolio continues to exhibit strong fundamentals, including high ROE/ROIC, clean balance sheets, attractive margins and a conservative five-year earnings growth outlook that remains well above benchmark levels.
Valuations remain particularly attractive. Our portfolio is currently trading at an estimated 23.3% discount to intrinsic value, a level comparable to previous periods of significant market dislocation, including the COVID lows and the 2008–2009 financial crisis.
We are also seeing increasing evidence that strategic and financial buyers recognize this valuation disconnect. M&A activity has accelerated meaningfully in recent months, highlighted by the privatization proposal received for GDI Integrated Facility Services at a significant premium. We believe this could represent the beginning of a broader wave of privatizations across the Canadian small-cap universe.
Portfolio Changes
We remained active during the quarter, using market volatility to further strengthen the long-term quality and positioning of the portfolio while taking advantage of valuation dislocations across several sectors.
New Positions
- We initiated new positions in Medical Facilities Corporation and Colliers International Group, both offering resilient business models, attractive industry positioning and compelling long-term growth opportunities.
Position Increases
- We increased our exposure to several high-conviction holdings, including Pet Valu, Lumine Group and D2L, where recent weakness created attractive entry points relative to long-term fundamentals.
Position Trims
- We trimmed positions in MDA Space, AutoCanada and 5N Plus following strong share price performance and for position sizing considerations.
Full Exits
- We exited GDI Integrated Facilities following its privatization, as well as Winpak, Sylogist and goeasy in order to reallocate capital toward higher-conviction opportunities.
Overall, portfolio activity during the quarter remained consistent with our disciplined investment approach, focused on maintaining exposure to high-quality businesses while actively managing valuation, risk and long-term return potential.
Outlook
The current speculative and momentum-driven environment may persist for some time, particularly as lower interest rates continue to support risk assets and commodity-related sectors. The near-parabolic rise in precious metals and junior mining stocks reflects a market environment that remains detached from company-specific fundamentals.
While this backdrop has created near-term headwinds for our strategy, we remain highly confident in our long-term investment approach. Historically, periods driven by speculative excesses, commodity rallies and low-quality leadership have ultimately reversed, with fundamentally strong companies significantly outperforming over full market cycles.
We believe the current underperformance of our Canadian small-cap strategy represents a compelling buying opportunity. Our portfolio continues to exhibit strong fundamentals, including high ROE/ROIC, clean balance sheets, attractive margins and a conservative five-year earnings growth outlook that remains well above benchmark levels.
Valuations remain particularly attractive. Our portfolio is currently trading at an estimated 23.3% discount to intrinsic value, a level comparable to previous periods of significant market dislocation, including the COVID lows and the 2008–2009 financial crisis.
We are also seeing increasing evidence that strategic and financial buyers recognize this valuation disconnect. M&A activity has accelerated meaningfully in recent months, highlighted by the privatization proposal received for GDI Integrated Facility Services at a significant premium. We believe this could represent the beginning of a broader wave of privatizations across the Canadian small-cap universe.
U.S. Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small Cap Composite (in U.S. dollars), compared to the Russell 2000 Small Cap Index and the S&P 500 Index (as at March 31, 2026).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : June 30, 2000
Portfolio Positioning
During the first quarter of 2026, our U.S. Small Cap strategy navigated one of the most speculative and sentiment-driven market environments we have experienced in recent years. While the broader market delivered strong returns, performance leadership remained concentrated in low-quality, thematic and momentum-driven areas of the market, creating a difficult backdrop for our disciplined, fundamentals-driven investment approach.
The quarter began in a supportive “Goldilocks” environment, with resilient economic growth, moderating inflation and expectations for continued monetary easing supporting risk assets and driving strong small-cap performance. However, as the quarter progressed, the AI theme intensified significantly, fueling broad speculation and indiscriminate buying in anything perceived to be exposed to AI infrastructure or deployment.
At the same time, a growing narrative around AI disruption created widespread selling pressure across software, services and several knowledge-based industries, despite little evidence of actual business deterioration. A large portion of our portfolio was impacted by this broad-based multiple compression, even as many holdings continued to report strong earnings growth and invest actively in AI to strengthen their competitive positioning.
The geopolitical escalation in the Middle East late in the quarter added another layer of volatility, driving a sharp increase in oil prices and leading to significant outperformance in Energy and Materials — sectors where we maintain little to no exposure given our quality criteria. Combined with the broad AI-related derating across many of our holdings, this created a particularly challenging environment for our investment style.
Despite this difficult backdrop, portfolio fundamentals remained exceptionally strong. Our holdings once again delivered a very high earnings beat rate, along with consistent double-digit growth in revenues, EBITDA and earnings per share. In many cases, the underperformance of our holdings was driven almost entirely by valuation multiple compression rather than deteriorating business fundamentals.
Significant contributors to performance in Q1 were:
- DigitalOcean was the strongest contributor during the quarter, benefiting from accelerating demand for AI infrastructure and cloud solutions. Strong earnings and improving growth expectations further supported investor enthusiasm.
- Modine Manufacturing performed strongly following the sale of its legacy automotive-related business and continued momentum tied to AI infrastructure and data center cooling demand. Strong earnings and favorable guidance further supported the stock.
- StoneX benefited from elevated volatility in financial markets and strong contribution from recent acquisitions, leading to another strong earnings beat and improved growth expectations.
- Laureate Education, Grand Canyon Education and Phoenix Education delivered positive returns despite broader AI-related concerns surrounding the education sector, supported by continued strong operational execution.
Stocks that detracted from performance in Q1 were:
- EPAM Systems, Paylocity, CCC Intelligent Solutions, SPS Commerce, Blackbaud and Five9: Software and IT services holdings experienced broad-based valuation compression as investor concerns around AI disruption intensified, despite continued solid fundamentals and operational performance.
- Hamilton Lane, Maximus, Charles River Laboratories & Tetra Tech were negatively impacted by the broadening AI disruption narrative into sectors such as consulting, asset management, engineering and business services, despite limited evidence of actual business risk.
- Vital Farms was impacted by concerns surrounding elevated conventional egg prices and near-term industry dynamics, despite the company’s strong long-term growth profile and attractive market positioning.
- Consumer Staples & Consumer Discretionary Holdings: More broadly, sentiment-driven weakness across several consumer-oriented names also weighed on relative performance during the quarter.
Portfolio Changes
We remained highly active during the quarter, using elevated volatility and market dislocations to further strengthen the quality and long-term positioning of the portfolio.
New Positions
- We initiated new positions in Option Care Health and Vital Farms, two high-quality businesses with strong competitive positioning, attractive long-term growth opportunities and compelling valuation profiles.
Position Increases
We increased exposure to several existing high-conviction holdings, including Planet Fitness, Charles River Laboratories, Paylocity, CCC Intelligent Solutions, RadNet, Maximus, Hamilton Lane, Privia Health and Houlihan Lokey, where recent weakness created attractive entry points relative to long-term fundamentals.
Full Exits
We exited positions in Grocery Outlet, Installed Building Products and DoubleVerify in order to redeploy capital into opportunities offering more attractive long-term risk-reward profiles.
Position Trims
We trimmed positions in several strong performers, including StoneX, Primoris Services, DigitalOcean, Modine Manufacturing, Ensign Group and Laureate Education, primarily for valuation discipline and position sizing purposes.
Overall, portfolio activity during the quarter remained focused on maintaining exposure to high-quality businesses while taking advantage of short-term market dislocations to enhance long-term return potential.
Outlook
The market environment has become increasingly uncertain following the geopolitical escalation in the Middle East and the resulting impact on oil prices, inflation expectations and interest rates. At the same time, speculative enthusiasm surrounding AI continues to drive significant momentum and disconnects between stock prices and company fundamentals.
Despite this backdrop, we believe the current environment increasingly favors a return toward company-specific fundamentals as the primary driver of stock performance. Historically, periods characterized by speculative excesses and low-quality leadership have ultimately been followed by strong relative outperformance from fundamentally driven strategies.
We remain highly confident in the quality and positioning of our portfolio. Financial quality metrics across the strategy remain exceptionally strong, with robust earnings growth, high returns on capital, strong margins and attractive balance sheets. At the same time, our portfolio is currently trading at an estimated 20% discount to intrinsic value, representing one of the most attractive valuation levels seen in the past two decades outside of major market dislocations.
While the timing of a shift back toward fundamentals remains uncertain, we believe the current setup represents a compelling long-term opportunity for investors. Our strategy has historically performed particularly well following periods of speculative and low-quality market leadership, and we remain confident that the strength of our portfolio companies will ultimately be recognized over time.
Position Increases
We increased exposure to several existing high-conviction holdings, including Planet Fitness, Charles River Laboratories, Paylocity, CCC Intelligent Solutions, RadNet, Maximus, Hamilton Lane, Privia Health and Houlihan Lokey, where recent weakness created attractive entry points relative to long-term fundamentals.
Full Exits
We exited positions in Grocery Outlet, Installed Building Products and DoubleVerify in order to redeploy capital into opportunities offering more attractive long-term risk-reward profiles.
Position Trims
We trimmed positions in several strong performers, including StoneX, Primoris Services, DigitalOcean, Modine Manufacturing, Ensign Group and Laureate Education, primarily for valuation discipline and position sizing purposes.
Overall, portfolio activity during the quarter remained focused on maintaining exposure to high-quality businesses while taking advantage of short-term market dislocations to enhance long-term return potential.
Outlook
The market environment has become increasingly uncertain following the geopolitical escalation in the Middle East and the resulting impact on oil prices, inflation expectations and interest rates. At the same time, speculative enthusiasm surrounding AI continues to drive significant momentum and disconnects between stock prices and company fundamentals.
Despite this backdrop, we believe the current environment increasingly favors a return toward company-specific fundamentals as the primary driver of stock performance. Historically, periods characterized by speculative excesses and low-quality leadership have ultimately been followed by strong relative outperformance from fundamentally driven strategies.
We remain highly confident in the quality and positioning of our portfolio. Financial quality metrics across the strategy remain exceptionally strong, with robust earnings growth, high returns on capital, strong margins and attractive balance sheets. At the same time, our portfolio is currently trading at an estimated 20% discount to intrinsic value, representing one of the most attractive valuation levels seen in the past two decades outside of major market dislocations.
While the timing of a shift back toward fundamentals remains uncertain, we believe the current setup represents a compelling long-term opportunity for investors. Our strategy has historically performed particularly well following periods of speculative and low-quality market leadership, and we remain confident that the strength of our portfolio companies will ultimately be recognized over time.
U.S. Small-Mid Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small-Mid Cap Composite (in U.S. dollars), compared to the Russell 2500 Small Cap Index (as at March 31, 2026).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : September 30, 2017
Portfolio Positioning
During the first quarter of 2026, our U.S. SMID Cap strategy operated in an exceptionally volatile and sentiment-driven market environment shaped by geopolitical instability, rising energy prices and continued speculation surrounding the AI investment cycle. While the broader market environment became increasingly uncertain, market leadership remained concentrated in narrow, momentum-driven segments tied to AI infrastructure, energy and commodities.
The escalation of conflict in the Middle East and the disruption to global shipping routes materially altered the macroeconomic backdrop during the quarter. Oil prices surged, inflation expectations rose and bond yields moved sharply higher as markets rapidly repriced expectations for Federal Reserve rate cuts. The resulting volatility created significant pressure across interest-rate-sensitive and consumer-facing sectors while energy and materials significantly outperformed.
At the same time, the AI trade continued to dominate market behavior. While technology hardware and semiconductor-related companies benefited from an unprecedented infrastructure boom, software and several knowledge-based industries experienced severe multiple compression as investor concerns around AI disruption intensified. Our long-standing overweight exposure to software became a meaningful headwind during the quarter, despite continued strong operational execution across many holdings.
Importantly, the underperformance across several portfolio companies was driven far more by valuation compression and shifting sentiment than deteriorating fundamentals. Many of our holdings continued to deliver strong earnings growth, solid free cash flow generation and resilient operating performance despite the increasingly challenging backdrop.
As a result, we have been actively reassessing portfolio exposures, particularly within software, while maintaining our focus on high-quality businesses with strong pricing power, resilient balance sheets and attractive long-term cash flow characteristics. We continue to believe the current environment is creating compelling opportunities for disciplined, fundamentals-driven active management.
Substantial contributors to our Q1 performance include:
- Modine Manufacturing delivered exceptionally strong performance driven by accelerating demand tied to AI infrastructure and data center cooling solutions. The announced spin-off of its Performance Technologies business further improved the company’s positioning as a focused, higher-growth HVAC and thermal management provider.
- Silicon Labs benefited significantly from its acquisition by Texas Instruments in an all-cash transaction at a substantial premium, representing a successful outcome following multiple years of ownership.
- StoneX performed strongly amid elevated volatility across commodity, equity and debt markets, supported by robust earnings growth and contributions from the R.J. O’Brien acquisition.
- DigitalOcean continued to benefit from accelerating AI cloud demand, with strong earnings results and significantly improved forward growth expectations supporting a sharp re-rating in the stock.
A number of holdings detracted materially, largely due to valuation compression despite stable fundamentals:
- Vital Farms was the largest detractor following disappointing guidance and concerns surrounding the sustainability of recent margins, leading to severe multiple compression despite continued confidence in the long-term investment thesis.
- EPAM Systems experienced significant derating following conservative revenue guidance and continued investor concerns surrounding AI disruption within IT services, despite growing AI-related revenue and improving operational execution.
- Planet Fitness came under pressure following softer-than-expected forward guidance, despite continued solid operating performance and healthy same-store sales growth.
- Software Holdings : More broadly, software and IT services holdings continued to face indiscriminate selling pressure as investors increasingly questioned the long-term impact of AI on the sector, resulting in substantial multiple compression across the portfolio.
Portfolio Changes
We remained highly active during the quarter, using elevated volatility and market dislocations to reposition the portfolio toward businesses offering stronger long-term visibility, resilient fundamentals and attractive valuation support.
New Positions
We initiated new positions in Stevanato Group, Mueller Water and RadNet. These businesses provide exposure to long-term structural themes including healthcare infrastructure, water infrastructure modernization and AI-enabled healthcare diagnostics.
Position Increases
We selectively increased exposure to high-conviction holdings where recent market weakness created compelling valuation opportunities relative to long-term fundamentals and cash flow potential.
Position Trims
We trimmed or reduced exposure across several software holdings as part of a broader effort to reduce overall sector concentration and manage risk amid ongoing uncertainty surrounding AI disruption and multiple compression.
Full Exits
- We exited Installed Building Products, Grocery Outlet, Houlihan Lokey and WillScot Holdings during the quarter. Subsequent to quarter-end, we also exited Five9 and Paylocity as part of our continued repositioning within software exposure.
Overall, portfolio activity remained focused on balancing long-term growth opportunities with prudent risk management in an increasingly uncertain macroeconomic and market environment.
Outlook
Despite the turbulent start to the year, we remain constructive on the outlook for U.S. SMID caps and continue to believe that market leadership is gradually broadening beyond mega-cap technology. The underlying U.S. economy remains resilient, supported by healthy corporate profitability, continued AI-related capital expenditure and a still-solid labor market.
At the same time, the current environment has created significant valuation dislocations across the small- and mid-cap universe. Many high-quality businesses with strong balance sheets, durable competitive advantages and attractive long-term growth profiles are trading at historically compelling valuation levels due to broad macro-driven selling pressure.
We also believe the current speculative and momentum-driven environment bears strong similarities to previous low-quality market periods experienced following the 2003, 2010 and 2020 rallies. Historically, such periods have ultimately been followed by strong outperformance from fundamentally driven, high-quality strategies once market attention returns to earnings quality, cash flow generation and valuation discipline.
While near-term volatility may remain elevated given geopolitical uncertainty, inflation concerns and evolving AI narratives, we believe the current environment presents a particularly attractive setup for active management. With the portfolio trading near historically attractive valuation levels despite structurally superior growth and profitability characteristics, we remain highly confident in the long-term opportunity ahead.
Portfolio Changes
We remained highly active during the quarter, using elevated volatility and market dislocations to reposition the portfolio toward businesses offering stronger long-term visibility, resilient fundamentals and attractive valuation support.
New Positions
We initiated new positions in Stevanato Group, Mueller Water and RadNet. These businesses provide exposure to long-term structural themes including healthcare infrastructure, water infrastructure modernization and AI-enabled healthcare diagnostics.
Position Increases
We selectively increased exposure to high-conviction holdings where recent market weakness created compelling valuation opportunities relative to long-term fundamentals and cash flow potential.
Position Trims
We trimmed or reduced exposure across several software holdings as part of a broader effort to reduce overall sector concentration and manage risk amid ongoing uncertainty surrounding AI disruption and multiple compression.
Full Exits
- We exited Installed Building Products, Grocery Outlet, Houlihan Lokey and WillScot Holdings during the quarter. Subsequent to quarter-end, we also exited Five9 and Paylocity as part of our continued repositioning within software exposure.
Overall, portfolio activity remained focused on balancing long-term growth opportunities with prudent risk management in an increasingly uncertain macroeconomic and market environment.
Outlook
Despite the turbulent start to the year, we remain constructive on the outlook for U.S. SMID caps and continue to believe that market leadership is gradually broadening beyond mega-cap technology. The underlying U.S. economy remains resilient, supported by healthy corporate profitability, continued AI-related capital expenditure and a still-solid labor market.
At the same time, the current environment has created significant valuation dislocations across the small- and mid-cap universe. Many high-quality businesses with strong balance sheets, durable competitive advantages and attractive long-term growth profiles are trading at historically compelling valuation levels due to broad macro-driven selling pressure.
We also believe the current speculative and momentum-driven environment bears strong similarities to previous low-quality market periods experienced following the 2003, 2010 and 2020 rallies. Historically, such periods have ultimately been followed by strong outperformance from fundamentally driven, high-quality strategies once market attention returns to earnings quality, cash flow generation and valuation discipline.
While near-term volatility may remain elevated given geopolitical uncertainty, inflation concerns and evolving AI narratives, we believe the current environment presents a particularly attractive setup for active management. With the portfolio trading near historically attractive valuation levels despite structurally superior growth and profitability characteristics, we remain highly confident in the long-term opportunity ahead.
Global Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Global Small Cap Fund, compared to the MSCI ACWI Small Cap Index in CAD (as at March 31, 2026).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : July 31, 2022
Portfolio Positioning
During the first quarter of 2026, our Global Small Cap strategy operated in an increasingly thematic and momentum-driven market environment dominated by AI narratives and geopolitical developments. While global equity markets initially benefited from a supportive macro backdrop, performance dispersion widened materially as investor positioning increasingly outweighed company-specific fundamentals.
The quarter began in a favorable “Goldilocks” environment, with resilient economic growth, moderating inflation and expectations for continued monetary easing supporting risk assets globally. However, enthusiasm surrounding the AI infrastructure buildout intensified significantly throughout January and February, driving strong rallies in technology hardware, semiconductors and related “pick-and-shovel” beneficiaries. While we maintained exposure to several beneficiaries of this trend, the breadth and magnitude of the thematic rally created a relative headwind for the strategy.
At the same time, fears surrounding potential AI disruption expanded aggressively across multiple industries following the release of new AI models and industry reports. This resulted in indiscriminate derating across areas such as business services, education, transportation, financials and life sciences, despite limited evidence of actual business deterioration. A significant portion of the portfolio was impacted by this narrative-driven multiple compression during the quarter.
As geopolitical tensions escalated in March, market leadership shifted and fundamentals gradually began to reassert themselves. The quality and resilience of our holdings became increasingly evident as market volatility increased toward quarter-end.
From a positioning standpoint, we continue to focus on high-quality companies benefiting from structural growth themes, including AI infrastructure, industrial automation and digital transformation. Geographically, we have been increasing exposure toward Asia, particularly Japan, where improving corporate governance, domestic demand and attractive valuations continue to support a compelling long-term opportunity set.
In Q1 2026, key portfolio performers included these names:
- DigitalOcean was the strongest contributor during the quarter following strong earnings results and significantly improved growth guidance driven by accelerating AI-related demand. The company continues to benefit from increasing adoption of AI cloud infrastructure and recurring inference-related workloads.
- Modine Manufacturing performed strongly as investors continued to favor companies exposed to AI infrastructure and data center buildout. The announced divestiture of its legacy automotive-related business further strengthened the company’s positioning as a pure-play HVAC and thermal management provider.
- 5N Plus benefited from continued momentum in specialty semiconductors and renewable energy demand, supported by expanded supply agreements, strong backlog visibility and growing strategic positioning in space and semiconductor-related applications.
Several holdings detracted during the quarter due to sentiment and market structure rather than fundamental impairment:
- Vital Farms was impacted by normalization in egg prices and investor concerns surrounding the sustainability of recent margins, leading to significant multiple compression despite continued strong operational execution.
- Vusion experienced a sharp derating driven by concerns around slowing growth following major rollout deployments, despite continued record results, strong backlog growth and increasing contribution from higher-margin software and value-added solutions.
- EPAM Systems came under pressure following conservative revenue guidance and broader AI disruption concerns impacting the IT services sector. Despite this, the company continues to benefit from growing enterprise AI adoption and maintains strong long-term positioning.
Broader AI Disruption Narrative
More broadly, multiple sectors across the portfolio experienced indiscriminate selling pressure as investors increasingly priced in AI-related disruption risks regardless of underlying company fundamentals.
Portfolio Changes
We remained active during the quarter, using volatility and thematic dislocations to further strengthen the long-term positioning of the portfolio while selectively increasing exposure to structural growth opportunities.
New Positions
We initiated new positions in RadNet, Shift Holdings and Riken Keiki. These companies provide exposure to long-term structural themes including healthcare diagnostics, AI-enabled software testing, industrial automation and semiconductor-related infrastructure.
Position Increases
We selectively added to existing positions where market weakness created attractive valuation opportunities, particularly among companies negatively impacted by AI disruption fears despite continued strong fundamentals and earnings momentum.
Position Trims
We trimmed select holdings that experienced significant valuation expansion during the quarter, maintaining discipline around position sizing and long-term return potential.
Full Exits
We exited MDA following strong performance and achievement of our target valuation after approximately two years of ownership. We also exited Intercos, where we saw lower long-term relative return potential compared to newer opportunities being added to the portfolio.
Overall, portfolio activity remained focused on identifying mispriced growth opportunities, misunderstood AI exposure and high-quality businesses trading at attractive discounts to intrinsic value.
Outlook
The global macro environment has become increasingly complex following the escalation of geopolitical tensions in the Middle East and the resulting uncertainty surrounding inflation, energy prices and interest rates. At the same time, the AI investment cycle continues to dominate market behavior, creating a highly bifurcated environment where perceived AI beneficiaries command premium valuations while many other companies are discounted regardless of fundamentals.
Despite this backdrop, we believe the current environment is highly favorable for disciplined, bottom-up investing. Broad factor-driven moves and sentiment-driven dislocations are creating meaningful gaps between market prices and intrinsic value across multiple sectors and regions.
We remain particularly constructive on opportunities in Japan, where improving corporate governance, domestic demand and exposure to global AI capex continue to support strong long-term fundamentals. At the same time, we remain selective in Europe and focused on companies with strong competitive positioning and global relevance in China and broader Asia.
Importantly, our portfolio fundamentals remain exceptionally strong. The portfolio is currently trading at a significant discount to intrinsic value despite superior returns on equity, lower leverage and stronger growth characteristics relative to the benchmark. We believe the current disconnect between fundamentals and valuations represents one of the most compelling long-term opportunities we have seen in recent years.
Portfolio Changes
We remained active during the quarter, using volatility and thematic dislocations to further strengthen the long-term positioning of the portfolio while selectively increasing exposure to structural growth opportunities.
New Positions
We initiated new positions in RadNet, Shift Holdings and Riken Keiki. These companies provide exposure to long-term structural themes including healthcare diagnostics, AI-enabled software testing, industrial automation and semiconductor-related infrastructure.
Position Increases
We selectively added to existing positions where market weakness created attractive valuation opportunities, particularly among companies negatively impacted by AI disruption fears despite continued strong fundamentals and earnings momentum.
Position Trims
We trimmed select holdings that experienced significant valuation expansion during the quarter, maintaining discipline around position sizing and long-term return potential.
Full Exits
We exited MDA following strong performance and achievement of our target valuation after approximately two years of ownership. We also exited Intercos, where we saw lower long-term relative return potential compared to newer opportunities being added to the portfolio.
Overall, portfolio activity remained focused on identifying mispriced growth opportunities, misunderstood AI exposure and high-quality businesses trading at attractive discounts to intrinsic value.
Outlook
The global macro environment has become increasingly complex following the escalation of geopolitical tensions in the Middle East and the resulting uncertainty surrounding inflation, energy prices and interest rates. At the same time, the AI investment cycle continues to dominate market behavior, creating a highly bifurcated environment where perceived AI beneficiaries command premium valuations while many other companies are discounted regardless of fundamentals.
Despite this backdrop, we believe the current environment is highly favorable for disciplined, bottom-up investing. Broad factor-driven moves and sentiment-driven dislocations are creating meaningful gaps between market prices and intrinsic value across multiple sectors and regions.
We remain particularly constructive on opportunities in Japan, where improving corporate governance, domestic demand and exposure to global AI capex continue to support strong long-term fundamentals. At the same time, we remain selective in Europe and focused on companies with strong competitive positioning and global relevance in China and broader Asia.
Importantly, our portfolio fundamentals remain exceptionally strong. The portfolio is currently trading at a significant discount to intrinsic value despite superior returns on equity, lower leverage and stronger growth characteristics relative to the benchmark. We believe the current disconnect between fundamentals and valuations represents one of the most compelling long-term opportunities we have seen in recent years.
