In this Fund update, Mike Marzolf, lead manager of the Mairs & Power Small Cap Fund, and Chris Strom, co-manager, discuss the Fund’s returns, drivers of performance so far in 2025, new companies in the portfolio, and what to look for during the rest of the year. This was recorded on July 24, 2025.
Executive Summary
The Mairs & Power Small Cap Fund (MSCFX) has returned -8.33% year-to-date through June 30, 2025, underperforming the Russell 2000 Total Return (TR) Index (-1.79%) and the S&P SmallCap 600 TR Index (-4.46%).
The first half of 2025 was marked by macroeconomic volatility. Tariff uncertainty disrupted visibility for many small cap businesses, particularly those reliant on global supply chains. Additionally, instability in federal and venture capital funding further clouded the outlook for several portfolio companies. On a positive note, supply chains have largely normalized, and labor availability has improved, which are two constraints that weighed heavily on performance in prior periods.
Positive Stock Selection
Despite these headwinds, several core holdings delivered positive results. Clearfield (CLFD) benefited from improved broadband demand and lower channel inventory. Casey’s General Stores (CASY) continued to gain market share and expand into new geographies, though Fund's position in the company was trimmed due to valuation concerns. AAR Corp. (AIR) also contributed positively, driven by impressive execution and growth in its aviation services and software business.
New Holdings in the Period
The Fund added two new positions during the period: RadNet (RDNT), a Los Angeles-based provider of outpatient imaging services, offers cost-effective alternatives to hospital-based imaging and is expanding its digital health division, which leverages artifical intelligence (AI) for improved diagnostic accuracy. Cognex (CGNX), a Massachusetts-based leader in industrial automation, develops AI-powered computer vision systems used across logistics, automotive, and life sciences. Both companies were added at attractive valuations following early-year market weakness.
Sector Performance
Sector performance was mixed. Health Care, Information Technology, Materials, and Financials detracted from returns, while Consumer Staples, Consumer Discretionary, and Communication Services contributed positively. Within Health Care, Inspire Medical Systems (INSP) and Bio-Techne (TECH) were impacted by product transitions and concerns over federal research funding, respectively. Workiva (WK), a provider of ESG and financial reporting software, also underperformed due to global de-emphasis of ESG mandates and general weakness in software spending.
Outlook for the Rest of the Year
Looking ahead, the investment managers remain focused on long-term fundamentals. Small caps continue to trade at a significant discount to the S&P 500, presenting compelling opportunities for long-term investors. While tariffs remain a wildcard, companies are proactively working to pass on related costs. There is growing enthusiasm around automation and AI, which are expected to drive productivity gains across industries.
The investment team continues to rely on rigorous fieldwork and valuation discipline to identify companies with durable competitive advantages, or the potential to develop them. Evaluating performance over full economic cycles, the Fund managers maintain confidence that stock selection will drive long-term results.
Disclosures
Top 10 Fund Holdings (subject to change)
Expense ratio: 0.94%
The statements and opinions expressed are those of the speakers and are as of the date of this call. All information is historical and not indicative of future results and subject to change.
Cash flow is the net amount of cash and cash equivalents being transferred in and out of a company.
Russell 2000 TR Index is a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index.
S&P Small Cap 600 TR Index is an index of small-company stocks managed by Standard and Poor’s that covers a broad range of small cap stocks in the U.S. The index is weighted according to market capitalization and covers 3-4% of the total market for equities in the U.S. It tracks both the capital gains of a group of stocks over time and assumes that any cash distributions, such as dividends, are reinvested back in the index.
Morningstar Small Blend Category, as defined by Morningstar are stocks in the bottom 10% of the capitalization of the U.S. equity market which are defined as small cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate.
All investments have risks. The Small Cap Fund is designed for long-term investors. Equity investments are subject to market fluctuations and the Fund’s share price can fall because of weakness in thebroad market, a particular industry, or specific holdings. Investments in small and midcap companies generally are more volatile. International investing risks include among others political, social or economic instability, difficulty in predicting international trade patterns, taxation and foreign trading practices, and greater fluctuations in price than United States corporations. The Small Cap Fund may invest in initial public offerings by small cap companies, which can involve greater risks than investments in companies which are already publicly traded.
The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Funds may be lower or higher than the performance quoted. For the most recent month-end performance figures, visit the Funds’ website at www.mairsandpower.com, or call Shareholder Services at (800) 304-7404.The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus and summary prospectuses contain this and other important information about the Funds, and may be obtained by calling Shareholder Services at 800-304-7404, or by visiting www.mairsandpower.com. Read the prospectus and summary prospectuses carefully before investing.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance as of the most recent month end is available by calling 800-304-7404. Click Here for standardized performance.
The mention of specific securities is not intended as a recommendation or an offer of a particular security, nor is it intended to be a solicitation for the purchase or sale of any security.