In September, the strategy returned +2.90%, trailing the Russel 3000's +3.43% return. This month’s underperformance was primarily driven by negative stock selection and style effects, while size effects had a smaller impact. Here's a breakdown of the performance attribution:
Market Return: +3.40%
Size & Style Effects: -0.30%
Stock Selection Effect: -0.80%
Interaction Effect: +0.60%
Strategy Return: +2.90%
There were no changes to the strategy’s size and style allocation in September. We continue to hold a slight growth tilt and an overweight to large cap exposure. Small & Mid exposure remains modest, but we continue to monitor signals across size and style.
| Large | Small & Mid | Total | |
|---|---|---|---|
| V | 32% | 14% | 46% |
| G | 48% | 6% | 54% |
| Total | 80% | 20% | 100% |
Within size groups:
Lg Cap: 60% Growth / 40% Value
SMID Cap: 30% Growth / 70% Value
Our technical view remains mixed, with no clear conviction across most size and style segments:
Size: continues to move sideways with no clear leadership between large and small caps.
Large Cap Style: still favors growth over value, though the spread has narrowed slightly.
Mid Cap Style: remains directionless, with no strong conviction.
Small Cap Style: now shows value leadership, a shift from earlier in the year.
After months of recovery-driven outperformance, the recovery trade lost steam in September. We saw a strong bounce in unprofitable small caps, many of which are not held in the strategy due to quality filters. Meanwhile, our recovery signal, which is trained on past post-drawdown environments, showed signs of breakdown as leadership rotated away from traditional risk-on segments.
This signal, which typically favors high-recovery potential and improving fundamentals, was caught between bifurcating market segments—strong fundamental stocks underperformed relative to some high beta names.
Several names detracted this month, including:
Cal-Maine Foods
LPL Financial
Darden Restaurants
Additionally, not owning some of the outperforming Magnificent 7 names created further drag. We are evaluating adjustments to the portfolio construction policy that would allow inclusion of more mega cap growth names that score well in our models. This could help reduce tracking error and improve correlation to benchmark performance.
As of September 30, 2025, the Size & Style Responsive Tax-Aware strategy has returned 13.25% YTD, compared to the Russell 3000’s 14.22%. While the strategy slightly trails YTD, it has delivered strong consistency over longer time periods, outperforming over the 5-year period and keeping pace since inception.
Compliance Disclosure:
The Size and Style Responsive Tax-Aware strategy seeks to manage after-tax returns by incorporating tax considerations into trade decisions. For example, when possible, the strategy may defer realizing short-term gains to achieve long-term tax treatment, subject to client-specific constraints and objectives. Tax impact is a factor in implementation, but it does not override the strategy’s investment objectives.
Past performance, whether actual or hypothetical, does not guarantee future performance. Investment results and principal value will fluctuate, and clients' investments, when redeemed, may be worth more or less than their original cost. This communication is exclusively for investment advisors and financial professionals and is not intended for clients or the investing public.