In the second quarter of 2026, the Diamond Hill Small-Mid Cap Strategy delivered a net return of 9.73%, while the Russell 2500 Index experienced a 20.26% increase during the same period. This commentary highlights the significant movements within the portfolio, noting both strong performers and strategic exits, reflecting an active management approach to capitalize on market opportunities and mitigate risks.
Several companies made notable contributions to the portfolio's performance. Regal Rexnord, an electrical product manufacturer, saw its shares climb following robust earnings driven by strong demand from data centers. Humana, a prominent healthcare services and insurance provider, particularly in Medicare Advantage, also demonstrated strong outperformance, attributed to its solid first-quarter results and better-than-anticipated Medicare rate increases, which helped align pricing with cost trends. Additionally, new positions were initiated in Equifax and Verisk Analytics. These companies were selected for their provision of essential, deeply integrated data services, characterized by strong pricing power, consistent growth, and limited competition, which are expected to support resilient revenue and margin profiles. On the other hand, the portfolio strategically exited its position in Wix.com. This decision was prompted by the company's underwhelming first-quarter 2026 results, a slowdown in its core business growth due to AI-driven coding advancements, and reduced revenue guidance for 2026, signaling considerable fundamental challenges. Furthermore, Devon Energy was added to the portfolio, succeeding previous holding Coterra Energy after its acquisition.
This quarter underscores the importance of diligent portfolio management, adapting to both company-specific developments and broader market trends. By continually evaluating and adjusting holdings, the strategy aims to optimize returns while navigating dynamic market conditions. The proactive management of the portfolio, by investing in resilient businesses and divesting from those facing headwinds, demonstrates a commitment to long-term value creation. Such disciplined decision-making is crucial for fostering sustainable growth and responding effectively to evolving economic landscapes, ultimately enhancing investor confidence and market integrity.
