3Q 2026 5Perspectives Ultra-Small Growth Commentary
Explore the 3Q 2026 Polen 5Perspectives Ultra-Small Growth commentary, including market views, portfolio positioning, and performance.
During the third quarter of 2026, the Polen 5Perspectives Ultra-Small Growth Composite Portfolio (the “Portfolio”) returned -17.05% net of fees, compared with the -12.15% return of the Russell Microcap Growth Index (the “Index”). Markets opened the quarter with a sharp, mechanically driven sell-off in AI-related equities and recovered to a fresh high in mid-August. A hawkish pivot from the Federal Reserve and a 25 basis point rate hike in September then pushed the Russell Microcap Growth into a roughly -10% correction.
How did the Polen 5Perspectives Ultra-Small Growth strategy perform in 3Q 2026?
The Portfolio returned -17.05% net of fees in the third quarter of 2026, compared with the -12.15% return of the Index. The top contributors to relative performance were Kodiak Sciences, Flotek Industries, and Hyperliquid Strategies. The most significant detractors from relative performance were Vishay Precision Group, Babcock & Wilcox, and CareDx, which the Portfolio did not hold.
| Qtr | YTD | 1 Yr | 3 Yr | 5 Yr | Since Inception (1-1-2020) | |
|---|---|---|---|---|---|---|
| Polen 5Perspectives Ultra-Small Growth (Gross) | -16.94 | 18.71 | 20.70 | 37.28 | 11.75 | 20.71 |
| Polen 5Perspectives Ultra-Small Growth (Net) | -17.05 | 18.26 | 20.11 | 36.25 | 10.81 | 19.67 |
| Russell Microcap Growth | -12.15 | 8.50 | 10.83 | 23.06 | 2.60 | 8.60 |
Performance shown represents results achieved at prior firms. As of 12-31-2025, the Polen U.S. Micro Cap Growth strategy has been renamed to Polen 5Perspectives Ultra-Small Growth. Andrew Cupps has served as the portfolio manager of the Polen 5Perspectives Ultra-Small Growth strategy (the “Strategy”) since inception. Mr. Cupps has been supported in his role as the portfolio manager of the Strategy by various individuals, including Kevin Leitner and Chris Bush. Mr. Leitner and Mr. Bush have worked on the Strategy since inception. At all times during his tenure as portfolio manager, Mr. Cupps has had ultimate decision-making authority with respect to the Strategy. Mr. Cupps, Mr. Leitner and Mr. Bush joined Polen Capital on June 30, 2025. The Strategy began in January 2020 and was managed by Advisory Research Investment Management. In March 2024, it transitioned to Bosun Asset Management, and subsequently in June 2025, it transitioned to Polen. Returns are presented gross and net of management fees and include the reinvestment of all income. Net of fee performance is calculated using either actual management fees or highest fees for fund structures. Prior to July 1, 2025, net of fee performance was calculated using highest fees. Current performance may be lower or higher. Periods over one-year are annualized. Past performance is not indicative of future results. Please reference the GIPS Report which accompanies the full commentary. The commentary is not intended as a guarantee of profitable outcomes. Any forward-looking statements are based on certain expectations and assumptions that are susceptible to changes in circumstances. Opinions and views expressed constitute the judgment of Polen Capital as of the date herein, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change.
What happened in markets during the quarter?
In the team’s view, the third quarter of 2026 was a clear example of markets testing investors’ convictions and challenging them to separate signal from noise amid a firehose of news and turbulent price moves.
The quarter opened with a meaningful air pocket in AI-related equities. A wave of hyperscaler earnings reports raised fresh questions about whether enormous AI-related capital expenditures would generate commensurate returns. Crowded positioning, elevated leverage, and forced selling quickly compounded these concerns. The result was one of the sharpest, most concentrated sell-offs the AI trade had experienced since the current cycle began in 2023, with semiconductor and AI infrastructure-related stocks bearing the brunt of the decline.
Sentiment began to stabilize as July came to a close and it became more apparent how much of the sell-off was mechanically driven. Continued evidence of robust hyperscaler spending plans, resilient enterprise demand, and strong earnings results helped restore confidence in the AI investment cycle. This lifted the Russell Microcap Growth Index to a fresh high by mid-August.
That strength proved short-lived as attention pivoted sharply toward inflation and monetary policy. Hawkish commentary from new Federal Reserve Chair Kevin Warsh raised the odds of a 25 basis point rate hike, which came in mid-September. From mid-August through the end of the quarter, the Russell Microcap Growth entered an approximately -10% correction.
The team notes that this kind of volatility can lead some investors to mistake signal for noise at the wrong times if they lack a robust process for navigating it. The team says it has worked to refine its process over the course of 26 years. It believes drawing on three disciplines (fundamental, thematic, and technical) provides an opportunity, especially when the signal is clouded by noise.
In the team’s view, the quarter’s volatility largely reflected a resetting of elevated positioning and expectations built during the first half of the year. It does not view the volatility as a broad deterioration in fundamentals across AI infrastructure and its adjacent themes. The team believes the underlying demand drivers across much of the ecosystem remain supportive.
What helped performance?
Kodiak Sciences is a clinical-stage biopharmaceutical company developing therapeutics for retinal diseases, including wet age-related macular degeneration (wet AMD), diabetic retinopathy, and retinal vein occlusion. Its shares nearly tripled in a single session in late September. The company reported positive topline results from its pivotal Phase 3 DAYBREAK study in wet AMD, in which both Zenkuda and KSI-501 met their primary endpoints with vision gains non-inferior to aflibercept (Eylea).
Kodiak reported that 54% of Zenkuda patients were on six-month dosing at one year. The company plans to seek regulatory approval in the fourth quarter, which could potentially bring it closer to commercialization if approved.
Flotek Industries is a technology-driven specialty chemistry and data analytics company serving the energy industry. It has increasingly pivoted toward higher-margin, recurring data and power services. Shares outperformed after a second-quarter report in which revenue grew 70% year-over-year and earnings came in well ahead of expectations.
Record revenue in Flotek’s Data Analytics segment led the results, and the segment became the largest contributor to gross profit for the first time. Management raised full-year guidance, then raised it again later in the quarter. It also announced a 10-year, roughly $400 million power services contract with Puerto Rico’s power authority, reinforcing investor confidence in the company’s transformation.
Hyperliquid Strategies is a digital asset treasury company focused on accumulating HYPE, the native token of the Hyperliquid blockchain, and generating yield through activities such as staking and validator participation. Shares outperformed as the HYPE token rallied sharply, with the stock more than doubling from its July low to reach a record high in September.
The company’s fiscal year-end results, reported in August, showed approximately $1.9 billion of HYPE holdings as of June 30, 2026, and no debt. The company also reported continued HYPE accumulation and share repurchases during the period.
What hurt performance?
Vishay Precision Group provides precision sensors, foil resistors, and measurement and weighing systems used across industrial, semiconductor, data center, and robotics applications. Shares fell sharply after fiscal second-quarter profitability came in well below expectations. An unfavorable product mix, delayed shipments, and foreign currency losses pressured margins and pushed the company to a net loss despite double-digit revenue growth.
The sell-off overshadowed record orders for precision resistors tied to AI-related semiconductor and data center demand and a book-to-bill ratio above one, suggesting demand remained resilient despite the weaker near-term profitability.
Babcock & Wilcox provides boilers, steam generation, and environmental and thermal technologies serving utility, industrial, and, increasingly, AI data center power customers. Shares extended a pullback from first-half highs. This came amid class action lawsuits related to the company’s disclosures concerning its Base Electron data center power project and investor concerns following an earlier equity offering.
During the quarter, the company reported second-quarter revenue growth of 130%, net income of $14.3 million compared with a net loss in the prior-year period, and backlog of $2.6 billion. It also increased its full-year adjusted EBITDA target. Shares initially rose following the earnings release but subsequently gave back those gains.
CareDx is a precision medicine diagnostics company providing testing services for transplant patients, with a growing presence in specialty oncology and cell therapy. The Portfolio did not hold the stock. Because it is a constituent of the Russell Microcap Growth Index, its sharp rally during the quarter detracted from relative performance.
The rally followed a second-quarter report in which revenue grew 52% to $132 million, earnings exceeded expectations, and management raised full-year revenue and adjusted EBITDA guidance. Favorable final Medicare coverage decisions for its transplant surveillance testing and the completed acquisition of oncology diagnostics provider Naveris added to investor enthusiasm.
How did the team change the Portfolio?
In 3Q 2026, the team increased the Portfolio’s exposure to Health Care and decreased its exposure to Industrials. The Health Care additions fall under a broader theme of Health Care Innovation, which encompasses Biotech and Medtech. More specifically, this includes themes like precision medicine/diagnostics, genomics, next generation therapeutics, and innovations that transform the delivery of care and improve on the standard of care.
The reduced Industrials exposure came as the team pared back exposures within the Electrification and AI infrastructure-related themes. The team still sees a meaningful opportunity for these picks and shovels “suppliers” to the AI build out. However, it has increasingly used these positions as a source of funds to add to the “appliers” of AI: companies seeking to leverage AI in powerful ways to drive efficiencies and bring innovation to many sectors of the economy.
The team views Health Care Innovation as among the best examples of this, though there are other notable themes under the “AI appliers” banner. As a result of these shifts, Technology remains the Portfolio’s largest sector exposure. Health Care overtook Industrials as the second largest sector exposure by the end of the quarter.
What is the team’s outlook?
The team describes the volatility of 3Q 2026 as consistent with what it has come to think of as “the pause that refreshes.” In its view, the volatility largely reflected a resetting of elevated expectations and related positioning built during the first half of the year, rather than a broad deterioration in fundamentals across AI infrastructure and its adjacent themes. The team believes the underlying demand drivers across much of the ecosystem remain supportive.
The team says its primary objective has always been optimizing around performance. Given the conditions present today, it seeks to best position the Portfolio to pursue attractive long-term performance. The team believes it is in the early stages of seeing a transition from the “suppliers” of AI, which provide infrastructure and components, to the “appliers,” the businesses leveraging AI to make their core businesses more productive and introduce new products and services.
The team sees meaningful opportunities for the suppliers in the quarters and years ahead amid this AI capex cycle. However, it believes the thematic timeliness, a distinct element of its process, has changed since Spring of this year. As a result, the team has incrementally shifted positioning toward the “appliers,” a powerful theme it believes has a more meaningful growth runway.
More broadly, the team believes the small cap universe in the US is home to some of the most innovative, dynamic companies and entrepreneurs in the world. It has found that its performance is fueled by the accelerating pace of change, which has provided opportunities largely irrespective of the prevailing market environment. The team has sought to build a process that harnesses change and disruption. It says this has only become more important amid the paradigm shift experienced with AI in recent years, and it expects that to continue.
Who manages the Polen 5Perspectives Ultra-Small Growth strategy?
The Polen 5Perspectives Ultra-Small Growth strategy is led by Drew Cupps, Head of Team, Portfolio Manager & Analyst, who has 34 years of industry experience.
Frequently asked questions
This commentary is very limited in scope and is not meant to provide comprehensive descriptions or discussions of the topics mentioned herein. Moreover, this commentary has been prepared without taking into account individual objectives, financial situations or needs. As such, this commentary is for informational discussion purposes only and is not to be relied on as legal, tax, business, investment, accounting or any other advice. Recipients of this commentary should seek their own independent financial advice. Investing involves inherent risks, and any particular investment is not suitable for all investors; there is always a risk of losing part or all of your invested capital.
No statement herein should be interpreted as an offer to sell or the solicitation of an offer to buy any security (including, but not limited to, any investment vehicle or separate account managed by Polen Capital). Recipients acknowledge and agree that the information contained in this commentary is not a recommendation to invest in any particular investment, and Polen Capital is not hereby undertaking to provide any investment advice to any person. This commentary is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Unless otherwise stated in this commentary, the statements herein are made as of the date of this commentary and the delivery of this commentary at any time thereafter will not create any implication that the statements are made as of any subsequent date. Certain information contained herein is derived from third parties beyond Polen Capital's control or verification and involves significant elements of subjective judgment and analysis. While efforts have been made to ensure the quality and reliability of the information herein, there may be limitations, inaccuracies, or new developments that could impact the accuracy of such information. Therefore, this commentary is not guaranteed to be accurate or timely and does not claim to be complete. Polen Capital reserves the right to supplement or amend these slides at any time, but has no obligation to provide the recipient with any supplemental, amended, replacement or additional information.
Any statements made by Polen Capital regarding future events or expectations are forward-looking statements and are based on current assumptions and expectations. Such statements involve inherent risks and uncertainties and are not a reliable indicator of future performance. Actual results may differ materially from those expressed or implied.
The Russell Microcap Growth Index is a market capitalization weighted index that measures the performance of the microcap growth segment of the U.S. equity universe. It includes Russell Microcap companies with higher price to book ratios and higher forecasted growth values. The index is maintained by the FTSE Russell, a subsidiary of the London Stock Exchange Group. The performance of an index does not reflect any transaction costs, management fees, or taxes. It is impossible to invest directly in an index. Past performance is not indicative of future results.
Source: All data is sourced from Bloomberg unless otherwise noted. All company-specific information has been sourced from company financials as of the relevant period discussed.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by Polen Capital Management, LLC. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Definitions:
Contribution to relative return: a measure of a security’s contribution to the relative return of a portfolio versus its benchmark index. The calculation can be approximated by the below formula, taking into account purchases and sales of the security over the measurement period. Please note this calculation does not take into account transactional costs and dividends of the benchmark, as it does for the portfolio. Contribution to relative return of Stock A = (Stock A portfolio weight (%) - Stock A benchmark weight (%)) x (Stock A return (%) – Aggregate benchmark return (%)).
Get insights from the 5Perspectives Growth team.
Receive commentaries, perspectives, and research from this investment team directly in your inbox.