Conestoga Capital Advisors, an asset management company, released its second-quarter 2026 investor letter. A copy of the letter can be downloaded here. The letter reports a positive market shift towards Small Caps, with the Russell 2000 Index achieving its best first half since 1991 and the Russell 2000 Growth Index up 25.7% in Q2, fueled by AI enthusiasm and semiconductor stocks. However, market leadership was uneven, with high-beta stocks outperforming while quality companies lagged, affecting Conestoga's strategies. Management is confident that speculative leadership won't endure as monetary policy tightens and expects high-quality growth businesses to regain prominence as market leadership broadens. The Conestoga SMid Cap Composite returned 7.04% (net) in the second quarter, underperforming the Russell 2500 Growth Index, which returned 24.02%. A combination of factor and sector-specific headwinds drove the underperformance, along with stock selection challenges, particularly within Technology and Industrials. In addition, please check the Strategy's top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, Conestoga Capital Advisors highlighted Forgent Power Solutions, Inc. (NYSE:FPS) as a newly added position in the SMid Cap composite. Forgent Power Solutions, Inc. (NYSE:FPS) is a leading industrial company that designs and manufactures electrical distribution equipment used in data centers, the power grid, and energy-intensive industrial facilities. On August 5, 2026, Forgent Power Solutions, Inc. (NYSE:FPS) closed at $38.49 per share, reflecting a market capitalization of $11.72 billion. Forgent Power Solutions, Inc. (NYSE:FPS) posted a one-month return of -15.28%.
Conestoga Capital Advisors stated the following regarding Forgent Power Solutions, Inc. (NYSE:FPS) in its Q2 2026 investor letter:
"Forgent Power Solutions, Inc. (NYSE:FPS) designs and manufactures highly engineered electrical equipment and integrated power solutions for data centers, utilities, and industrial markets. We were attracted to the company's accelerating market share gains, expanding margins, and exposure to long-term electrification and AI-driven infrastructure investment. Strong demand, record backlog, and differentiated engineering capabilities position the company to continue growing faster than its end markets while increasing cash flow as recent capacity investments are utilized."
Forgent Power Solutions, Inc. (NYSE:FPS) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 76 hedge fund portfolios held Forgent Power Solutions, Inc. (NYSE:FPS) at the end of the first quarter. While we acknowledge the potential of Forgent Power Solutions, Inc. (NYSE:FPS) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
In another article, we discussed Forgent Power Solutions, Inc. (NYSE:FPS) and shared Spyglass Growth Strategy's perspective on the company. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.