As we mentioned in our Q4 2025 Quarterly commentary, we saw what we hope is the beginning of a genuine shift in risk attitudes. ARKK fell -10.87% for the quarter and that trend has continued into Q1 2026. If investors start paying more attention to fundamentals and valuations, which drive long-run returns, 2026 could be a terrific year for L2’s Active Strategies. Regardless of which “flavor” — from our Dividend & Income to our Large Cap Growth offerings — a return to basic investment principles could make our performance since inception even better.
When many investors are in a speculative frenzy, it is difficult for high conviction, low-turnover, valuation- and quality-aware, concentrated strategies like ours to shine. Yet such periods set the stage for significant return potential based on fundamentals, as the mania wanes and sanity and cash flows prevail. We have seen this repeatedly in the past, most recently in 2022. As a reminder, the ARKK ETF lost -67.0% in 2022 while the market was down -18.1%. Today, as in 2021, we continue to believe our stable of actively managed products — which have fared surprisingly well in this speculative environment — have their best days ahead of them.
While this recent phase of nonsensical speculative behavior has lasted much longer than the data suggests it should, that indicates the consequences will be that much more painful for those who have jumped on the speculation bandwagon. Without exception, the story is always the same: expensive, loss-making, and low-quality stocks fall while more rationally priced, quality stocks with decent to excellent growth profiles outperform. We completed our most recent rebalance which should present fresh entry points into high quality stocks while maintaining established positions at reasonable prices and exiting some names for better opportunities.
In this quarter’s systematic rebalance we are taking gains in some stocks while initiating a few new positions. Specifically:
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We explain our new position in Watts Water Technologies (NJR)
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Provide rationale for adding to our positions in New Jersey Resources Corp (NJR) and AAON Inc (AAON)
-
We are exiting our positions in Visteon Corp. (VC) and TXNM Energy Inc. (TXNM) to rotate into better opportunities in the space
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We are trimming our position in long time holding Comfort Systems Inc. (FIX), a name that continues to perform well for the strategy
L2 Midcap Select Trade Commentary Rebalance – February Q1 2026
Table of contents
When
February 15, 2026
Who
Matthew Malgari
Dr. Sanjeev Bhojraj
Nathan Przybylo
ASSET CLASS COMMENTS:
As we mentioned in our Q4 2025 Quarterly commentary, we saw what we hope is the beginning of a genuine shift in risk attitudes. ARKK fell -10.87% for the quarter and that trend has continued into Q1 2026. If investors start paying more attention to fundamentals and valuations, which drive long-run returns, 2026 could be a terrific year for L2’s Active Strategies. Regardless of which “flavor” — from our Dividend & Income to our Large Cap Growth offerings — a return to basic investment principles could make our performance since inception even better.
When many investors are in a speculative frenzy, it is difficult for high conviction, low-turnover, valuation- and quality-aware, concentrated strategies like ours to shine. Yet such periods set the stage for significant return potential based on fundamentals, as the mania wanes and sanity and cash flows prevail. We have seen this repeatedly in the past, most recently in 2022. As a reminder, the ARKK ETF lost -67.0% in 2022 while the market was down -18.1%. Today, as in 2021, we continue to believe our stable of actively managed products — which have fared surprisingly well in this speculative environment — have their best days ahead of them.
While this recent phase of nonsensical speculative behavior has lasted much longer than the data suggests it should, that indicates the consequences will be that much more painful for those who have jumped on the speculation bandwagon. Without exception, the story is always the same: expensive, loss-making, and low-quality stocks fall while more rationally priced, quality stocks with decent to excellent growth profiles outperform. We completed our most recent rebalance which should present fresh entry points into high quality stocks while maintaining established positions at reasonable prices and exiting some names for better opportunities.
SUMMARY:
In this quarter’s systematic rebalance we are taking gains in some stocks while initiating a few new positions. Specifically:
We explain our new position in Watts Water Technologies (NJR)
Provide rationale for adding to our positions in New Jersey Resources Corp (NJR) and AAON Inc (AAON)
We are exiting our positions in Visteon Corp. (VC) and TXNM Energy Inc. (TXNM) to rotate into better opportunities in the space
We are trimming our position in long time holding Comfort Systems Inc. (FIX), a name that continues to perform well for the strategy