Q2 2025 COMMENTARY

HUNTER QSV STRATEGIES – Q2 2025

The US equity market experienced significant volatility in Q2 2025, largely driven by President Trump's tariff announcements and their subsequent impacts. Markets experienced extreme turbulence in early April when the president announced his "Liberation Day" tariffs, followed by a turning point when President Trump unexpectedly declared a 90-day pause for reciprocal tariffs on countries seeking negotiated settlements, triggering a substantial market rally. In this rally, lower-quality companies, as represented by the Russell Dynamic Indexes, significantly outperformed the shares of higher-quality and more defensive companies, as represented by the Russell Defensive Indexes.

This low-quality rally presented significant headwinds to the Hunter strategies in the quarter. As a result, our stock selection presented a significant drag on each of our strategies. We take full responsibility of this fact and its impact on our clients’ results for the quarter. While a quarter is a brief period to measure the skill of a manager, we are unsatisfied with the performance we have delivered, yet we maintain confidence in our investment discipline over full market cycles.

Hunter QSV Small Cap lagged the returns of the Russell 2000 Value and the Russell 2000 Indexes during the quarter. Security selection in Industrials, Information Technology, and Consumer Discretionary companies most notably detracted from performance. An underweight in Utilities, where we generally do not find companies producing high returns on invested capital, helped relative performance, as did being overweight in Technology companies, where high returns on invested capital are more prevalent.

QSV Small Cap Top Contributors

The investment banking advisory firm Evercore Inc. (EVR) was the leading contributor to performance in Q1 as its shares rose 35.7%. EVR reported earnings for the trailing quarter that were higher than expected. Backlogs are at record levels and client engagement is strong. EVR has a global reach and its merger and acquisition and restructuring advisory business are highly profitable, generating strong margins and returns on capital without the need for financing activities. EVR produces returns on invested capital of 15%.

Advanced Energy Industries (AEIS) rose more than 39%, supported by revenue and earnings near the top end of management’s guidance. Advanced Energy is the leading supplier of power delivery subsystems for semiconductor manufacturing customers including Applied Materials and Lam Research. Precision power conversion is a core competency of the company and its addressable market opportunities in industrial, medical, and data-center computing are also expanding. The company’s strong free cash flows support payments of dividends and share buybacks. We trimmed our position in AEIS during the quarter based on valuation.

QSV Small Cap Top Detractors

Helen of Troy (HELE) was the leading detractor from performance during the quarter. As a company that imports most of their products from tariff targeted countries, investors punished the name, and it was down by over 46%. The decline was swift, and we opted not to join the panic selling and, instead, added to our position. HELE offers innovative consumer discretionary brands that are organized into its Home & Outdoor and Beauty & Wellness segments. We believe the characteristics that attracted us to the company are still intact. HELE generates returns on invested capital of 11% and its shares sell at a significant discount to our view of intrinsic value.

Business-to-business uniform and workplace supplier Vestis Corporation (VSTS) detracted from performance as its shares fell by over 42%. Market declines were self-inflicted by management missteps that led to lost customers and operational inefficiencies, and the fall was swift and painful. VSTS faced significant challenges in Q2 2025, reporting revenues and earnings below expectations, and Q3 guidance also disappointed. We added to our position on weakness and are optimistic about VSTS’ new management team and the industry in which the company operates. The new CEO, Jim Barber, joined from UPS where he was Chief Operating Officer.

QSV Small Cap Portfolio New Buys and Sells

Higher than usual turnover of holdings occurred in Small Cap during the quarter as market volatility presented opportunities to upgrade the portfolio. The two largest exits were contract research organization Medpace Holdings Inc. (MEDP), and professional employer organization Insperity, Inc. (NSP). The two largest additions to the portfolio were Quaker Houghton (KWR), a provider of industrial process fluids, and auto-dimming mirror manufacturer Gentex (GNTX).

Hunter QSV Mid Cap quarterly performance trailed returns of the Russell Mid Cap Value and the Russell Mid Cap Indexes. Company selection weakened returns, with the most notable detraction in Industrial and Information Technology companies. An underweight in Utilities, where we generally do not find companies producing high returns on invested capital, aided performance, as did an overweight in Industrial and Technology companies, where high returns on invested capital are more prevalent.

QSV Mid Cap Top Contributors

Shares of the integrated petroleum refiner HF Sinclair Corporation (DINO) rose 26.62%, supported by strong operating results and an optimistic outlook. DINO operates in high margin refining markets, particularly in the Midwest and Rocky Mountain regions, where competition is lower than on the Gulf Coast. The company owns a stake in Holly Energy Partners (HEP), ensuring secure pipeline access and transportation for crude oil and refined products. DINO’s investments in renewable diesel and biofuels position it well for future low-carbon fuel regulations and government incentives.

Equity exchange and market services provider NASDAQ (NDAQ) also contributed to performance during the quarter as its shares rose more than 18%. Unlike traditional exchanges that rely primarily on trading fees, NDAQ has diversified into market data, analytics, software, and regulatory technology, resulting in recurring revenues that represent 60% of total revenues. This shift towards subscription-based, recurring revenue streams has reduced its dependence on trading volumes, making earnings more stable.

QSV Mid Cap Top Detractors

Shares of Chemed Corporation (CME) were the leading detractor to performance during the quarter. CME delivered lower than expected earnings and lowered its guidance for the full year 2025. Additionally, CME was impacted by Medicare reimbursement limits that are expected to limit revenuesin its industry leading VITAS hospice division for the year. We continue to like the strong margins and free cash flow that come from CME’s VITAS and Roto Rooter businesses. The company produces returns on invested capital of 28% and its shares sell at a meaningful discount to our measure of intrinsic value.

Campbells Company (CPB) fell more than 22%, impacting performance in Q2. Lower than expected operating sales growth and weak organic sales, particularly in its Snacks business, weighed on shares, as did rising input costs and margin pressure. CPB has a 150-year history as a leading manufacturer of branded food products, most notably soup. We like the company’s brand advantage, its commitment to seeking efficiencies in its business, and its investment in product innovation. CPB shares trade at a significant discount to our estimate of intrinsic value.

QSV Mid Cap New Buys and Sells

Three positions were exited, and one was added to Mid Cap in the quarter. Core Laboratories (CLB), a provider of reservoir description and production enhancement services for the oil and gas industry, contract research organization Medpace Holdings Inc. (MEDP), and Pool Corporation (POOL), a provider of pool maintenance products, were sold. SPS Commerce (SPSC), a provider of cloud-based supply chain management services, was added.

Hunter QSV Select underperformed the returns of the Russell 2500 Value and Russell 2500 Indexes during the quarter. Select is a high conviction strategy that holds the best ideas from our QSV Small Cap and QSV Mid Cap strategies. Security selection drove the majority of the strategy’s underperformance, with most meaningful detraction in Industrial, Financials, and Information Technology companies. Company selection in Materials holdings aided performance. Overweights to Information Technology and Industrials companies helped relative performance, while our overweight to Real Estate detracted.

QSV Select Top Contributors

Shares of the integrated petroleum refiner HF Sinclair Corporation (DINO) were the leading contributor to the performance of QSV Select and are discussed in our Mid Cap commentary above. Shares of Progress Software (PRGS), also contributed to performance during the quarter. PRGS equips other businesses with software tools to build and run their own critical applications. Its customers primarily consist of independent software vendors and more than 1700 partners, including IBM, MSFT, and Oracle, which use their tools to build apps for end customers. High switching costs lead to 80% recurring revenues and net retention rates of nearly 100%. PRGS produces returns on invested capital of 14% and its shares currently trade well below our estimate of intrinsic value.

QSV Select Top Detractors

Shares of Alexandria Real Estate Equity (ARE) fell more than 20% as the company reduced its forward guidance, citing slower-than-expected re-leasing activity and lease-up of vacancies. Operational challenges were further reflected in a drop in occupancy rates and an increase in 2025 interest expenses due to delayed construction activities. ARE is a leading provider of specialized real estate for life sciences and technology sectors.

Shares of professional employer organization Insperity, Inc. (NSP) fell during the quarter, detracting from performance. Quarterly results were negatively impacted by higher healthcare costs and the company lowered its guidance for the full year 2025. We continue to like the industry in which NSP operates, which benefits from increasing regulatory complexity at the state and local levels, but chose to exit the company for better ideas.

QSV Select New Buys and Sells

Core Laboratories (CLB), a provider of reservoir description and production enhancement services for the oil and gas industry, contract research organization Medpace Holdings Inc. (MEDP), and, as mentioned above, Insperity, Inc. (NSP), were sold during the quarter. We added financial data and portfolio analytics provider FactSet Research Systems (FDS) and medical device provider Globus Medical (GMED).

OUR FOCUS ON THE LONG TERM

Revisiting our Q1 commentary, we made some calls that have proven to be right and others – at least in the short term – quite wrong. We were wrong (this time) that small caps lead in market rallies. Large cap stocks clearly resumed their leadership over small and mid-cap companies. We were also wrong, as noted previously, in our selection of certain stocks for each QSV strategy. It has been a confounding market, and we aim to do better going forward.

We were correct in pointing out that periods of volatility offer the chance to buy high quality stocks on sale, and we did that, making upgrades in each strategy. We also hold tight to the accuracy of our statement that strong balance sheets matter in tough times. This did not lead to an outperformance in Q2 as lower quality stocks won the day, but we know from managing clients’ portfolios over more than two decades together that high quality prevails over the long term. And we believe that the multitude of risks investors face today require a keen focus on owning businesses with strong balance sheets and the ability to produce high returns on invested capital.

Disclaimer

Returns are for the respective composites of Hunter Capital Management. Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the Hunter QSV Small Cap strategy are compared to the historical performance of the Russell 2000 Indices as they are widely used benchmarks for small capitalization securities. The returns of the Hunter QSV Mid Cap strategy are compared to the historical performance of Russell Midcap Indices as they are widely used benchmarks for mid capitalization securities. The returns of the Hunter QSV Select strategy are compared to the historical performance of the Russell 2500 Indices as they are widely used benchmarks for SMID capitalization securities. An investment with Hunter Capital Management should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between Hunter products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do Hunter products. Lastly, Hunter may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

Hunter Capital Management is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

Q4 2024 Commentary

Q4 2024 Commentary

The fourth quarter capped a second consecutive calendar year of leadership by large cap technology stocks, with the “Magnificent 7” companies being joined by Broadcom to become the “BATMMAAN” confederation of stocks that have dominated market performance. Returns for small and mid-cap value indexes ended in negative territory for the quarter as markets pulled back during a dismal December that reflected expectations for fewer interest rate cuts from the Federal Reserve in 2025 and rising bond yields. Across market capitalizations – large, mid, and small – lower quality stocks, as represented by the Russell Dynamic Indexes, outperformed higher quality stocks, as represented by the Russell Defensive Indexes. Against this backdrop, QSV’s Small Cap, Mid Cap and Select strategies each underperformed their respective benchmarks for the quarter and full calendar year.

More information including since-inception performance for each QSV strategy may be found at www.qsvequity.com.

QSV Strategy Quarterly Performance

QSV Small Cap returned -1.51% and -1.60%, gross and net of fees, respectively, trailing the Russell 2000 Value Index return of -1.06% and the Russell 2000 Index return of 0.33%. Security selection in Healthcare and Consumer Discretionary companies helped performance. An overweight to Healthcare, along with security selection in Information Technology and Consumer Staples companies detracted from returns.

QSV Small Cap Top Contributors

As in Q3 2024, Doximity, Inc. (DOCS) was the leading contributor to performance in Q4, supported by continued strong revenue and earnings, highlighted by a 24% increase in revenues from the company's top twenty clients on a trailing 12-month basis. DOCS offers a suite of tools that support an online community for physicians, nurse practitioners and physicians’ assistants, enabling them to coordinate patient care, conduct patient visits and manage their careers. DOCS benefits from strong network effects with over 80% of U.S. physicians using the platform. The company has returns on invested capital of 18%.

Automotive parts producer Dorman Products Inc. (DORM) rose more than 15%, as revenue and earnings growth exceeded expectations, and the company updated its full year guidance to reflect higher expected earnings. DORM is a supplier of original equipment parts and has a unique competitive advantage in the development of products where it gets feedback from its network of repair technicians that identify failure prone parts. Management's growth plans and the rising average age of vehicles in the U.S. supports a positive long-term outlook for Dorman’s products. DORM has returns on invested capital of 11%.

QSV Small Cap Top Detractors

MGP Ingredients Inc. (MGPI) was the leading detractor during the quarter as sales slowed in both its branded spirits and ingredients businesses and management lowered guidance. Management noted weakening conditions in the American Whiskey category, with elevated inventories and slower growth leading to lower demand. MGPI is one of the five largest distilleries in the United States and has grown sales and profits through its acquisitions of branded portfolios. MGPI has plans to optimize its cost structure in response to lower production volumes. The company produces returns on invested capital of 13%.

Value-based care provider Astrana Health Inc. (ASTH) detracted from performance during the quarter as shares dropped on decreased utilization and the news of its largest acquisition to-date, Prospect Health. We see the purchase as accretive to earnings and believe there will be synergies beyond the market’s expectations. ASTH works directly with physicians to deliver patient-centered care while using their feedback to lower costs. The company delivers 8% returns on invested capital and shares sell at a significant discount to QSV’s estimate of intrinsic value.

QSV Small Cap Portfolio New Buys and Sells

Shares of Caretrust REIT Inc. (CTRE), an operator of skilled nursing, seniors housing and other healthcarerelated properties, were purchased, as were shares of Cognex Corporation (CGNX), a provider of machine vision technologies that improve efficiency and quality in industrial end markets. Generac Holdings (GNRC) was sold for valuation reasons and retail commercial real estate operator Netstreit Corporation (NTST) was sold in favor of better ideas.

QSV Mid Cap returned -2.95% and -3.19%, gross and net of fees for the quarter, trailing the -1.75% return of the Russell Mid Cap Value Index and the Russell Mid Cap Index return of 0.62%. Security selection in Healthcare and Consumer Discretionary companies helped performance. Company selection in Information Technology detracted from performance, as did selection and an overweight to Industrials companies.

QSV Mid Cap Top Contributors

Paycom Software Inc. (PAYC) was the leading contributor to performance as shares rose by over 23%. Paycom's unified platform appeals to midsize and enterprise clients that prefer an all-in-one payroll and human capital management solution. PAYC benefits from high switching costs, which has resulted in a 93% client retention rate. The company has approximately 5% penetration of its total addressable market, which we believe it can expand. PAYC has returns on invested capital of 25%.

GPS-enabled hardware and software provider Garmin Ltd. (GRMN) also contributed to performance during the quarter as its shares rose 18%. The company significantly beat earnings estimates and raised its full year earnings guidance by over 10%. Garmin has diverse end market exposure in wearables, marine, automotive and aviation, with its premium priced fitness and outdoor products representing most revenues. The company produces returns on invested capital of 18%.

QSV Mid Cap Top Detractors

Shares of Booz Allen Hamilton (BAH) fell more than 20% on fears that its double-digit growth may be at risk following the loss of two top ten programs over the past year. Concerns also exist due to the change in administrations and geopolitical tensions, which could impact end market visibility. Quarterly results included double digit revenue growth, strong margins, and improved guidance for the full fiscal year. BAH produces returns on invested capital of 14%. We remain confident in BAH due to its scale advantages as a provider of artificial intelligence, cybersecurity, data analytics, and augmented reality projects for the Department of Defense that, like all U.S. government contracts, are subject to elevated levels of scrutiny that serve as barriers to entry for competitors.

Semiconductor manufacturer Monolithic Power (MPWR) fell during the quarter over fears of a potential market share loss at Nvidia, to whom MPWR sells components for its Blackwell processors. MPWR does not expect it will lose market share in this market and predicts a resurgence in demand going into 2025. While Nvidia is important to MPWR, its business is well diversified into industrial, automotive, computing, storage, and consumer products. The company produces returns on invested capital of 22% and its shares sell at a significant discount to our measure of intrinsic value.

QSV Mid Cap New Buys and Sells

Exploration and production company APA Corporation (APA) was sold to fund a better idea during the quarter. That idea is Halliburton (HAL), North America’s largest oilfield service company as measured by market share, during the quarter. Other trims were made to existing positions based upon valuation and our convictions in the fundamentals of the businesses.

QSV Select returned -1.99% and -2.23%, gross and net of fees, trailing the returns of the Russell 2500 Value and Russell 2500 Indexes of -0.26% and 0.62%, respectively. Select is a high conviction strategy that holds QSV’s best ideas from our Small Cap and Mid Cap strategies. Security selection was positive in Healthcare and Consumer Discretionary names. Company selection detracted from returns in Consumer Staples and Financials companies, while an overweight to Financials added to performance.

QSV Select Top Contributors

Doximity Inc. (DOX) was the leading contributor to performance during the quarter and is discussed above in our Small Cap commentary.

Paycom Inc. (PAYC) was a top contributor to performance and is discussed above in our Mid Cap commentary.

QSV Select Top Detractors

MGP Ingredients Inc. (MGPI) was the leading detractor during the quarter and is discussed in our Small Cap commentary above.

Booz Allen Hamilton (BAH) was the second leading detractor during Q4 and is discussed in our Mid Cap commentary.

QSV Select New Buys and Sells

Limited trading was done in QSV Select during the quarter, with trims and additions made to address valuations and quality upgrades. Shares of Caretrust REIT Inc. (CTRE), an operator of skilled nursing, seniors housing and other healthcare-related properties, were purchased, funded by the proceeds from the sale of retail commercial real estate operator Netstreit Corporation (NTST).

Our Focus on the Long Term

We begin 2025 with cautious optimism for the markets and for the stocks of quality small cap and mid cap companies, in particular. Risks exist, as always, and we go about our company analysis and portfolio construction with our eyes wide open. The new administration brings uncertainty, with the potential positives of lowered regulation, reduced corporate tax rates, and the renewed animal spirits that could increase IPO and merger and acquisition activity. Tariffs offer a mixed bag of potential positives – reshoring of business, increased revenues for the government – and the potential negative impact of inflationary cost increases for consumers and a challenging global trade environment.

One risk that gives us less concern is the refrain of “unforgiving valuations” cited about our stock markets. As investors in quality small and mid-cap stocks, analyzed and valued one by one, we see opportunities that stand in contrast to the high valuations of the market indexesthat have become momentum driven. Smaller companies’ valuations are meaningfully lower than U.S. large caps. Some of this is justified due to the lack of profitability of many smaller companies and the higher borrowing costs they incur, yet we continue to find companies with strong balance sheets, free cash flows, and high returns on invested capital that have been overlooked while investors have been infatuated with big tech. We will continue to invest with optimism in these businesses and invite you to do so alongside us.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors. Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the QSV Small Cap strategy are compared to the historical performance of the Russell 2000 Indices as they are widely used benchmarks for small capitalization securities. The returns of the QSV Mid Cap strategy are compared to the historical performance of the Russell Midcap Indices as they are widely used benchmarks for mid capitalization securities. The returns of the QSV Select strategy are compared to the historical performance of the Russell 2500 Indices as they are widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the QSV products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do QSV products. Lastly, QSV may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To view a GIPS report, please visit www.qsvequity.com.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.