Two roads diverged in a wood, and I –
Robert Frost, 1915
I took the one less traveled by,
And that has made all the difference.
Professional investors spend countless hours reviewing every portfolio decision whenever a market regime or sector rotation leads to a period of underperformance. Self-preservation, nervous clients, and the daily reminder of being on the wrong side of a trend can push a portfolio manager to abandon prior conviction and jump onto a momentum trade. Pier 88 prides itself on an investment culture that eschews short-term behavior and instead embraces a philosophy and process focused on the small and mid-cap innovators disrupting their respective industries. We believe investing in excellent businesses at terrific prices is a recipe for outsized gains, and the first half of 2026 illustrated that potential.
Good stock selection and solid risk management fueled the performance. The Lake Geneva Strategy benefitted from two portfolio companies being acquired, and from a market rotation out of large caps and into small caps. It seems clear that many institutional investors have not been positioned for a small cap rally — fund flows into small caps demonstrate a general lack of exposure, and they remain a long way from anything resembling standard allocations. We believe the vast disparity in market cap size between large caps and small/mid-caps, coupled with a valuation disconnect, will lead to more M&A and private equity activity for the foreseeable future.
Multiple sectors and themes contributed to the gains. The strategy holds technology names levered to the build-out of AI infrastructure, healthcare names using AI to improve the drug discovery process, cyber security companies seeing incremental demand, and rare earth, quantum computing, next generational aerospace and space companies. Importantly, no single equity position drove most of the performance. Our bias is to strategically size positions based on potential risk/reward, and we believe in being balanced across names, sectors and factors.
“Disruptive innovation” can be an overused term. Innovation is not a buzz word for Pier 88 — it is a founding principle. The market is punishing the stocks of companies deemed to be on the wrong side of the AI wave, and management teams want to be on the right side of AI disruption. As the market broadens and investors look for other ways to play these long-term secular themes, small and midcaps are beginning to outperform. Pier 88 took a less traveled path in building a portfolio of companies levered to the most exciting secular trends in the economy, and for the first half of 2026, that has made all the difference.
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The companies identified do not represent all of the companies purchased, sold or recommended for portfolios advised by Pier 88 Investment Partners, LLC. The reader should not assume that investment in any company was or will be profitable. Additional information including a list of all companies is available upon request.