Blab AI
Wasatch Micro-Cap Fund Beats Benchmark in Q1 2026 Despite Volatility, Red Violet a Key Detractor
The Wasatch Micro‑Cap Fund – Investor Class posted a 3.11 % decline in its first‑quarter 2026 performance, yet it outperformed the Russell Microcap Growth benchmark, which fell 4.25 %. The fund’s management attributed the relative outperformance to gains in industrials, consumer discretionary and financials, while information technology lagged behind.
Market volatility in the quarter was driven by geopolitical tension between the United States and Iran and by concerns that artificial‑intelligence (AI) tools could disrupt traditional software businesses. The fund’s portfolio remains described as a balanced‑risk mix, with a focus on companies that have strong fundamentals and the potential for long‑term growth.
Red Violet, Inc. (NASDAQ: RDVT) was highlighted as the fund’s main detractor relative to the benchmark. According to the investor letter, the company’s shares fell during the AI‑driven sell‑off that affected many software names, even though Red Violet reported strong results. The letter notes that Red Violet’s cloud‑native platform delivers identity‑intelligence and risk‑management solutions to financial, retail and law‑enforcement customers. The company’s business model is described as highly scalable, with fixed costs for the data used in background checks, and the letter expects margins to improve as more customers adopt the platform.
Red Violet’s financials for the quarter were also discussed. Revenue increased 17 % year‑over‑year to $25.8 million, and the company’s market capitalization was $777.4 million as of the quarter’s end. The fund’s letter stated that 19 hedge‑fund portfolios held Red Violet at the close of Q1 2026, up from 17 in the previous quarter.
Despite the sell‑off, the fund’s management expressed confidence that Red Violet is relatively insulated from AI disruption because of its proprietary technology and the difficulty of replicating its data‑driven insights. The letter also noted that the company was not on the fund’s list of the 40 most popular stocks among hedge funds heading into 2026.
The fund’s top‑five holdings list was not reproduced in the letter, but Red Violet was singled out as a significant position. The letter’s commentary suggests that the fund is still open to adding to its Red Violet allocation on the basis of the company’s growth prospects.
The broader macro‑environment in Q1 2026 was marked by a sharp decline in the Russell Microcap Growth index, which fell 4.25 %. The index’s performance was weighed down by a sector‑wide sell‑off in information technology, a trend that also affected many of the fund’s holdings. In contrast, industrials, consumer discretionary and financials provided positive contributions to the fund’s returns.
The fund’s expense ratio, as reported by Morningstar, is 1.64 %. The fund’s management maintains that its quantitative approach and risk‑management framework position it well for navigating periods of market stress.
In summary, the Wasatch Micro‑Cap Fund delivered a modest loss in Q1 2026 but still outperformed its benchmark. The fund’s performance was supported by gains in industrials, consumer discretionary and financials, while information technology lagged. Red Violet, Inc. was identified as the fund’s main detractor, yet the management believes the company’s technology and scalable business model provide a buffer against AI‑related risks.
The fund’s letter ends with a note that it will continue to monitor market conditions and adjust its holdings as necessary to maintain a balanced risk profile and capitalize on long‑term growth opportunities.
Market volatility in the quarter was driven by geopolitical tension between the United States and Iran and by concerns that artificial‑intelligence (AI) tools could disrupt traditional software businesses. The fund’s portfolio remains described as a balanced‑risk mix, with a focus on companies that have strong fundamentals and the potential for long‑term growth.
Red Violet, Inc. (NASDAQ: RDVT) was highlighted as the fund’s main detractor relative to the benchmark. According to the investor letter, the company’s shares fell during the AI‑driven sell‑off that affected many software names, even though Red Violet reported strong results. The letter notes that Red Violet’s cloud‑native platform delivers identity‑intelligence and risk‑management solutions to financial, retail and law‑enforcement customers. The company’s business model is described as highly scalable, with fixed costs for the data used in background checks, and the letter expects margins to improve as more customers adopt the platform.
Red Violet’s financials for the quarter were also discussed. Revenue increased 17 % year‑over‑year to $25.8 million, and the company’s market capitalization was $777.4 million as of the quarter’s end. The fund’s letter stated that 19 hedge‑fund portfolios held Red Violet at the close of Q1 2026, up from 17 in the previous quarter.
Despite the sell‑off, the fund’s management expressed confidence that Red Violet is relatively insulated from AI disruption because of its proprietary technology and the difficulty of replicating its data‑driven insights. The letter also noted that the company was not on the fund’s list of the 40 most popular stocks among hedge funds heading into 2026.
The fund’s top‑five holdings list was not reproduced in the letter, but Red Violet was singled out as a significant position. The letter’s commentary suggests that the fund is still open to adding to its Red Violet allocation on the basis of the company’s growth prospects.
The broader macro‑environment in Q1 2026 was marked by a sharp decline in the Russell Microcap Growth index, which fell 4.25 %. The index’s performance was weighed down by a sector‑wide sell‑off in information technology, a trend that also affected many of the fund’s holdings. In contrast, industrials, consumer discretionary and financials provided positive contributions to the fund’s returns.
The fund’s expense ratio, as reported by Morningstar, is 1.64 %. The fund’s management maintains that its quantitative approach and risk‑management framework position it well for navigating periods of market stress.
In summary, the Wasatch Micro‑Cap Fund delivered a modest loss in Q1 2026 but still outperformed its benchmark. The fund’s performance was supported by gains in industrials, consumer discretionary and financials, while information technology lagged. Red Violet, Inc. was identified as the fund’s main detractor, yet the management believes the company’s technology and scalable business model provide a buffer against AI‑related risks.
The fund’s letter ends with a note that it will continue to monitor market conditions and adjust its holdings as necessary to maintain a balanced risk profile and capitalize on long‑term growth opportunities.
