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 in 2025, new companies in the portfolio, and what to look for in 2026. This was recorded on January 27, 2026.
Executive Summary
The Mairs & Power Small Cap Fund (MSCFX) delivered a 3.98% return in 2025, compared with 12.81% for the Russell 2000 and 6.02% for the S&P SmallCap 600. Despite trailing the major small cap benchmarks, small cap stocks broadly began outperforming the S&P 500 in the spring of 2025, marking a notable broadening in market participation. As a result, the Fund managers believe the Fund is well positioned if this trend continues.
Throughout 2025, small cap companies' growth and margin constraints eased, improving visibility into those companies' fundamentals. At the same time, a speculative rally in high‑growth technology and infrastructure‑related stocks, areas where the Fund has minimal exposure due to limited earnings visibility, created a relative performance headwind.
Stock Selection
Despite these headwinds, several core holdings delivered positive results. Exact Sciences (EXAS) benefited from demand for its Cologuard product and the company was ultimately acquired by Abbott Laboratories late in the year. Medpace (MEDP) also a contributor, benefiting from improved clinicial trial activity and GLP-1 momentum. Finally, nVent Electric (NVT) was a positiver performer due to data center demand and a strategic acquisition that supported growth prospects.
On the negative side, Inspire Medical Systems (INSP), CVRx (CVRX), and MGP Ingredients (MGPI) were the largest relative detractors from performance. Inspire experienced ongoing challenges tied to its latest product transition, CVRx was impacted by management turnover and a difficult technology implementation, and MGP Ingredients continues to work through a deep inventory cycle impacting the bourbon industry.
New Holdings
The Fund added six new positions during the year: RadNet (RDNT), Cognex (CGNX), Trek Company (TREK), Patrick Industries (PATK), James Hardie Industries (JHX), and Bentley Systems (BSY).
Sector Performance
Relative performance was pressured by select Health Care, Technology, Materials, and Industrials holdings. These headwinds were partially offset by strength in Consumer Staples, Consumer Discretionary, Utilities, Energy, and Real Estate sectors.
Looking Ahead
Looking ahead, the Fund managers noted several trends supporting a positive outlook for small caps in 2026. First, easing inflation, driven by healthier supply chains and improved labor availability, should provide small cap companies with some relief compared to recent years. Second, there is an expectation for interest rates to decline further, which could meaningfully benefit smaller companies due to their greater reliance on variable‑rate borrowing. Finally, tariff impacts are stabilizing, with some costs being offset by productivity improvements, including adoption of automation and artificial intelligence.
These combined conditions are contributing to a rebound in earnings estimates for small cap companies, with additional growth expectations ahead. At the same time, high‑quality small cap stocks remain attractively valued relative to large caps, creating a compelling opportunity for disciplined, long‑term investors.
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.
Foreside Fund Services, LLC. is the Distributor for the Mairs & Power Funds
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.
Scott Howard is a registered representative of Foreside Fund Services, LLC.
Pete Slattery is a registered representative of Foreside Fund Services, LLC.
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.