Navigating Volatility: A Deep Dive into Small Cap Performance
Quarterly Review: Market Overview and Fund Performance
U.S. equity markets rebounded in the second quarter of 2026, recovering from earlier declines. However, the Touchstone Small Cap Fund, specifically its Class A Shares (Load Waived), did not match the performance of its benchmark, the Russell 2000® Index, during this period.
Investment Selection: Key Factors Driving Decisions
The fund employs a meticulous bottom-up security selection methodology. This process involves evaluating potential investments against a proprietary quantitative framework that considers several critical financial metrics. These include a company's return on capital, its earnings relative to valuation, its capacity to generate free cash flow, and its return on equity.
Top Performers: Significant Contributions to the Fund
During the quarter, several holdings emerged as significant positive contributors to the fund's overall performance. Among these were Qualys, Inc. and CTS Corporation, both operating within the Information Technology sector, and Landstar System, Inc., which is part of the Industrials sector.
Underperformers: Factors Impacting Fund Returns
Conversely, certain investments detracted from the fund's performance. These included White Mountains Insurance Group, Ltd., from the Financials sector, and two Information Technology companies, Vontier Corp. and CCC Intelligent Solutions Holdings, Inc.
Portfolio Adjustments: Strategic Moves in Q2 2026
In response to market conditions and ongoing analysis, the fund made strategic adjustments to its portfolio. It reduced its holdings in Matson, Inc., an Industrials sector company, and Murphy USA, Inc., which is in the Consumer Discretionary sector. Additionally, the fund initiated a new position in McGrath RentCorp, an entity within the Industrials sector.
