The London Company's Mid Cap portfolio demonstrated a robust performance in the fourth quarter of 2025, significantly outpacing its benchmark. This success was driven by strategic stock selections and thoughtful sector allocations, allowing the portfolio to navigate a dynamic market environment characterized by strong earnings and evolving economic conditions. The investment strategy emphasizes high-quality companies with solid fundamentals, focusing on long-term value creation while actively managing risks. This approach is designed to ensure resilience and sustained growth amidst various market cycles.
Looking ahead, the investment landscape suggests a potential shift towards broader market leadership, where fundamental analysis and earnings growth will be paramount. The portfolio is strategically positioned to capitalize on these trends, maintaining a disciplined focus on companies with strong free cash flow and a commitment to downside protection. By selectively initiating new positions and exiting others based on thorough analysis of catalysts and risks, The London Company aims to continue delivering superior returns, adapting to market changes while adhering to its core investment philosophy.
Mid Cap Portfolio Outperforms in Q4 2025
In the final quarter of 2025, The London Company's Mid Cap portfolio achieved notable success, generating a 3.2% gross return (3.0% net) against a mere 0.2% increase in the Russell Midcap Index. This superior performance is largely attributable to astute stock picking and effective sector allocation. Key contributors to this strong showing included investments in Dollar Tree (DLTR), which saw significant gains following the divestiture of its Family Dollar business, removing a long-standing drag on its growth trajectory. The portfolio's strategic positioning allowed it to capture upward momentum while mitigating broader market fluctuations, reflecting a well-executed investment strategy focused on identifying undervalued opportunities and companies with strong growth potential.
This period also saw the initiation of a new position in Cooper Companies (COO), a global medical device firm recognized for its high customer switching costs and leadership in specialty lenses. This investment underscores the firm's commitment to companies with competitive advantages and resilient business models. Conversely, Pool Corporation experienced a downturn, with its shares trading lower amidst investor caution regarding discretionary home improvement spending, highlighting the ongoing vigilance required in managing consumer-cyclical exposures. The overall market backdrop featured robust U.S. equities, with the Russell 3000 and S&P 500 indices both posting gains, driven by strong earnings growth and strategic interest rate adjustments by the Federal Reserve, which provided a supportive environment for equities.
Navigating Market Dynamics with Fundamental Focus
The prevailing market sentiment suggests a potential transition towards a more fundamentals-driven environment, moving away from momentum or valuation-led rallies. The London Company's management believes that this shift favors their investment philosophy, which prioritizes companies with sustainable earnings growth and robust financial health. The portfolio is deliberately structured with a bias towards high-quality, mid-cap equities characterized by low leverage and strong free cash flow generation, a strategy designed to offer downside protection during periods of increased volatility or economic uncertainty. This disciplined approach seeks to identify businesses capable of compounding capital over the long term, regardless of short-term market noise.
Looking forward, the firm remains watchful for signs of economic deceleration and potential shifts in market leadership. By adhering to a rigorous valuation discipline, the portfolio aims to avoid speculative bubbles and maintain a focus on intrinsic value. The emphasis on high-quality businesses with strong competitive advantages, solid balance sheets, and consistent cash flows is expected to serve the portfolio well in a late-cycle economic environment. This strategic positioning, combined with an ongoing evaluation of macro-economic indicators and corporate fundamentals, ensures that the portfolio is well-prepared to adapt to changing market conditions and continue generating favorable risk-adjusted returns for investors.