Q1 2026 Letter

The first quarter reminded us how quickly market dynamics can shift. The S&P 500 declined 4.3% on a total-return basis, marking its weakest quarter since 2022. However, the headline number masks a much more interesting story beneath the surface, and one that was considerably more favorable for diversified portfolios.

While the major index struggled, the U.S. small cap value stocks, as measured by AVUV, returned 8.6% for the quarter. International small cap value (AVDV) gained 6.3%. Even within U.S. large caps, the equal-weighted S&P 500 (RSP) was essentially flat at a loss of less than one percent. In other words, the average stock held up significantly better than an index dominated by its largest names.

Years of navigating and studying various market cycles have taught us to respect the risks of heavy concentration. The weakness in the S&P 500 this quarter was largely driven by a handful of mega-cap names facing stretched valuations, questions about AI spending, and geopolitical pressures.

While it is gratifying to see our diversification strategies and factor tilts provide a buffer during a stressful period, experience has also taught us never to take a single quarter's performance for granted. The market has a reliable habit of humbling anyone who thinks they have it all figured out.

Our focus remains strictly on the long term. We will keep managing your portfolio with the discipline required to weather unpredictable environments, making prudent adjustments only when the evidence demands it.

Thank you for your trust and confidence.

David M. Borowsky

Chief Investment Officer