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.