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Riverwater Partners, an investment management company, released its 'Small Cap Strategy' Q2 2026 investor letter.
The Small Cap Strategy underperformed the Russell 2000 in the second quarter as the benchmark experienced one of its strongest risk-on rallies in recent memory, although the strategy remained ahead year-to-date.
The quarter was defined by accelerating AI investment, energy market disruptions, and renewed investor appetite for higher-beta stocks, creating headwinds for the firm's quality-focused approach and healthcare positioning.
Despite this, stock selection contributed positively in energy, materials, and financials, while healthcare and consumer discretionary detracted due to the fund's disciplined avoidance of speculative businesses.
Looking ahead, the firm remains cautiously optimistic, focusing on opportunities created by market dislocations, including AI infrastructure enablers, select consumer companies, healthcare innovators, and energy businesses trading below intrinsic value.
The strategy continues to emphasize high-quality companies with strong management teams and attractive valuations, positioning the portfolio for a potential rotation away from speculative market leadership.
In addition, please check the Strategy's top five holdings to know its best picks in 2026.
In its second-quarter 2026 investor letter, Riverwater Partners Small Cap Strategy highlighted PDF Solutions, Inc. (NASDAQ:PDFS).
(NASDAQ:PDFS) provides proprietary software, physical intellectual property for integrated circuit designs, electrical measurement hardware tools, proven methodologies, and professional services.
(NASDAQ:PDFS) was -7.31% and its shares gained 117.56% over the past 52 weeks.
(NASDAQ:PDFS) has a market capitalization of $1.89 billion.
Riverwater Partners Small Cap Strategy stated the following regarding PDF Solutions, Inc. (NASDAQ:PDFS) in its Q2 2026 investor letter: "PDF Solutions, a provider of yield analytics and data software for semiconductor manufacturers, returned approximately 52% in the quarter.
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