Please see below for a discussion of the Osterweis Opportunity Fund’s recent performance and our near-to-medium term market outlook.
Performance (as of December 31, 2025)
| QTR | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception (10/1/2012) | |
|---|---|---|---|---|---|---|
| OSTGX | 3.26 | 0.27 | 15.04 | 1.18 | 13.38 | 13.37 |
| Russell 2000 Growth Index | 1.22 | 13.01 | 15.59 | 3.18 | 9.57 | 10.45 |
All figures in this table reflect percentages. Periods longer than 1 year are annualized.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling (866) 236-0050. Gross/Net expense ratio as of March 31, 2025: 1.19% / 1.12%. The Adviser has contractually agreed to waive certain fees through June 30, 2026. The net expense ratio is applicable to investors. See additional disclosures at the end of the letter.
Market Recap
The fourth quarter capped off another strong year in the markets, as the AI boom and three rate cuts by the Fed propelled many indices, including the Russell 2000 Growth, to all-time highs. The Osterweis Opportunity Fund performed well during the quarter, returning 3.3% and outpacing the benchmark, which returned 1.2%. However, the Fund lagged for the full year, returning 0.3% versus 13% for the Russell.
2025 was an unusual year for small cap growth stocks, as investment themes, rather than fundamentals, seemed to be the primary driver of returns. (A similar phenomenon occurred after the pandemic, when virtually all work from home technology stocks rallied regardless of quality.) The big themes in 2025 of course included AI, but also much more speculative industries such as flying taxis and quantum computing. Biotech was another beneficiary of the thematic market, gaining 40% in 2025, and some of the best performers had the weakest fundamentals. Retail investors compounded the situation, as many of the biggest winners became meme stocks, pushing valuations even higher.
As usual, we deliberately avoided speculative companies last year, as we do not believe the returns they generated are sustainable. We continued to focus on profitable, rapidly growing companies that are benefitting from secular tailwinds, which has always been our approach, and we firmly believe it is essential for long-term success.
Portfolio Attribution
Security Selection
Our outperformance during the quarter was driven primarily by security selection, particularly our picks in the Information Technology, Health Care, Financial, and Consumer Discretionary sectors. On the downside, our holdings in Real Estate and Industrials delivered negative absolute and relative returns.
Our Information Technology stocks contributed most to our outperformance, led by our semiconductor investments in MACOM and SiTime. MACOM is a leading manufacturer of analog semiconductor products serving the telecommunications, data center, defense, and industrial markets. We have owned MACOM in the past and re-established our position after the stock price began lagging despite strong fundamentals, which we felt created an attractive risk-reward opportunity. The company has a diversified business mix across data center and industrial & defense with a trusted, U.S. Department of Defense accredited foundry. The company delivered strong Q4 results, with revenue up 30% and 29% EPS growth. Looking ahead, management anticipates continued momentum in its data center segment and steady growth in defense.
SiTime Corp is a semiconductor company that has revolutionized the market for timing devices with its MEMS-based silicon solutions, which act as the precise "heartbeat" for advanced electronics. The stock performed well during the quarter, propelled by 45% growth, led by 115% growth in its data center segment, reflecting the surging demand from AI applications. The company is successfully increasing its dollar content in these systems by selling more integrated and higher-value clocking solutions. In addition to its data center business, SiTime has a second growth driver: its chips are featured in Apple’s latest iPhone Air and could potentially expand to other models in 2026.
Our biggest detractor within Information Technology was Guidewire, a software company that provides a platform for property and casualty (P&C) insurance carriers to manage their core operations, including policy administration, billing, and claims management. Despite strong fundamental results, the stock lagged due to high investor expectations, so we trimmed the position.
Stock selection in Health Care also added significant value, and the sector delivered our highest absolute returns during the quarter. Guardant Health, a provider of blood-based diagnostic tests for cancer, performed particularly well, driven by strong Q3 results. Its core oncology business grew revenues 30% vs. 20% in the previous quarter, an acceleration driven by innovative product enhancements. Furthermore, its colon cancer screening tests continued to perform well, growing 50% sequentially from Q2. While shares were up significantly in 2025, we remain bullish on the business, as Guardant continues to lead the charge in converting oncology testing from tissue to blood.
Waystar Health, a provider of revenue management software for hospitals, was our biggest laggard within Health Care during the quarter. Q3 results were strong, but during its earnings call the company cited concerns about lower health care utilization rates going forward (largely due to the elimination of Affordable Care Act subsidies). In addition, a peer company reported poor Q3 results late in the year, which exacerbated the situation and triggered a violent selloff of the stock. However, we have spoken to the company about the utilization rates, and we believe it is trying to manage expectations by offering conservative guidance. We also believe the current valuation more than accounts for the risk, and the market is underestimating its growth opportunities, particularly for their AI products. We expect the share price to recover when it announces Q4 results this month.
In the Financial sector, our biggest contributor was Chime, a leading online bank. The company’s cost-effective, mobile-first, cloud-native infrastructure allows it to offer underbanked populations a wide variety of free banking services, including no overdraft fees, no minimum balances, and no monthly or ATM fees. Chime also offers payday advances with no interest. The company’s top-line revenue continues to increase above 30% annually, and its profit margins are above 65%. We believe Chime can triple its revenue per customer over the next five years, substantially boosting its market capitalization and equity returns. We did not have any material laggards in this sector during the quarter.
CAVA, the Mediterranean restaurant chain, was the top performer in the Consumer Discretionary sector in the fourth quarter. The stock was under pressure for much of 2025, along with the entire restaurant industry, due to slowing growth trends. But CAVA’s sales stabilized in the fourth quarter, prompting investors to recognize they had become too negative, and the share price rebounded nicely. Looking ahead, CAVA is planning to expand to 1,000 units in the United States by 2032, which is a solid growth target relative to its current base of ~450.
The biggest laggard in the Consumer Discretionary sector was footwear manufacturer Birkenstock, which provided guidance for fiscal year 2026 that was below expectations, despite reporting a strong third quarter that exceeded both top- and bottom-line estimates. The company cited production constraints, which would limit volume growth to ~10%, and a shift to selling through wholesalers, as customers now prefer buying in-store versus online. We believe the softer Q3 guidance will prove to be conservative and the stock is set up for a solid 2026.
Our lone position in Real Estate during the fourth quarter, FirstService, was the portfolio’s largest negative contributor. The company specializes in residential management and storm restoration, but it struggled following a soft Q3, as its newly acquired commercial roofing business experienced a slower than expected conversion of its backlog. Additionally, certain large projects have been on hold following a volatile macro environment. This has been happening for several quarters, and the lack of progress has been disappointing. We expect growth to bottom in Q4 and then pick back up, driven by expansion in its remaining business lines.
Within Industrials, CECO Environmental, a provider of equipment to treat wastewater and contaminants at manufacturing and power plants, once again led performance in the sector. The company reported strong order growth in Q3, again eclipsing $200 million, while revenues grew 45% annually. Additionally, late in the quarter the company announced a large $135 million order for a Texas power facility, suggesting Q4 orders should be over $300 million. We remain excited about the momentum in the business, and we believe it is an excellent way to gain exposure to high-growth areas of the economy like power generation, reshoring, and water management.
TREX Company, a leader in composite decking, was our biggest laggard in Industrials during the fourth quarter, as an increasingly competitive environment and weaker end-market trends led to poor Q3 results. TREX saw business fall off after Labor Day, which is inconsistent with results from other peers and surveys. It was quite surprising and may be a function of its higher DIY business. Regardless, this contradicts our thesis, so we exited the position.
Sector Allocation
Sector allocation was also additive to our relative performance during the fourth quarter. Our overweight to Health Care had the biggest positive impact, and our medical device and life science companies recovered nicely during the period. Our underweight to Industrials and zero weights to Materials, Communications Services, and Utilities were also additive to our relative performance. However, our overweights to Information Technology and Consumer Staples were a drag.
Portfolio Positioning & Outlook
As we begin the new year, we are optimistic that fundamentals will once again be the primary driver of returns in the small cap growth market. Historically, thematic markets tend to run their course in roughly 12 months, and the fourth quarter appeared to be the beginning of a return to normalcy.
Looking ahead, we believe there are plenty of growth areas in the economy for 2026 and beyond. We recently published a piece that discusses our top five secular trends for the near-to-medium term, including: AI, Drones, Robotics, Liquid Biopsies, and Fintech. As always we are laser-focused on finding category leaders in each sector before they become widely discovered, and the piece discusses some of our favorite companies in each area.
We thank you for your continued confidence in our management.
James Callinan, CFA
Chief Investment Officer – Small Cap Growth
Featuring
James Callinan, CFA
Chief Investment Officer – Small Cap Growth
Jim Callinan, a partner at Osterweis, is the Lead Portfolio Manager for the small cap growth strategy. Throughout his career he has focused on investing in companies that are early in their growth cycles. This experience has been the foundation of our high conviction, valuation-aware approach to investing in small cap growth companies.
Prior to Osterweis, Jim was the Co-Founder & Chief Investment Officer at RS Investments. He also founded the RS Growth Group LLC in 1996 and managed the RS Emerging Growth Fund from 1996 until 2010. In 1999 Jim was named Morningstar’s Domestic Stock Manager of the Year.*
Jim served as portfolio manager for the Putnam OTC Emerging Growth Fund from 1994 to 1996 and began his career at Putnam Investments as an equity research analyst in 1987. He joined Osterweis in 2016 and brought with him the Emerging Growth Partners, LP, a concentrated small cap growth strategy he founded at RS in 2006.
Jim graduated from Harvard College with a B.A. in Economics, New York University with an M.S. in Accounting, and Harvard Business School with an M.B.A. He holds the CFA designation and is a member of the Weatherbie Capital Advisory Board. Outside of work, Jim enjoys spending time with his family, travelling, and golfing.
*Morningstar Managers of the Year are determined by a combination of qualitative research by Morningstar’s manager research analysts; risk-adjusted medium- to long-term performance track records; and performance in the calendar year.
For more information about this strategy, please send us an email or call us at (800) 700-3316.
Related Insights
This commentary contains the current opinions of the authors as of the date above, which are subject to change at any time, are not guaranteed, and should not be considered investment advice. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Performance prior to December 1, 2016 is that of another investment vehicle (the “Predecessor Fund”) before the commencement of the Fund’s operations. The Predecessor Fund was converted into the Fund on November 30, 2016. The Predecessor Fund’s performance shown includes the deduction of the Predecessor Fund’s actual operating expenses. In addition, the Predecessor Fund’s performance shown has been recalculated using the management fee that applies to the Fund, which has the effect of reducing the Predecessor Fund’s performance. The Predecessor Fund was not a registered mutual fund and so was not subject to the same operating expenses or investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower.
Mutual fund investing involves risk. Principal loss is possible. The Osterweis Opportunity Fund may invest in unseasoned companies, which involve additional risks such as abrupt or erratic price movements. The Fund may invest in small and mid-sized companies, which may involve greater volatility than large-sized companies. The Fund may invest in IPOs and unseasoned companies that are in the early stages of their development and may pose more risk compared to more established companies. The Fund may invest in ETFs, which involve risks that do not apply to conventional funds. Higher turnover rates may result in increased transaction costs, which could impact performance. From time to time, the Fund may have concentrated positions in one or more sectors subjecting the Fund to sector emphasis risk. The Fund may invest in foreign and emerging market securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets.
The Russell 2000 Growth Index (Russell 2000G) is a market-capitalization-weighted index representing the small cap growth segment of U.S. equities. The index does not incur expenses, is not available for investment, and includes the reinvestment of dividends.
The S&P 500 Index is widely regarded as the standard for measuring large cap U.S. stock market performance. The index does not incur expenses, is not available for investment, and includes the reinvestment of dividends.
References to specific companies, market sectors, or investment themes herein do not constitute recommendations to buy or sell any particular securities.
There can be no assurance that any specific security, strategy, or product referenced directly or indirectly in this commentary will be profitable in the future or suitable for your financial circumstances. Due to various factors, including changes to market conditions and/or applicable laws, this content may no longer reflect our current advice or opinion. You should not assume any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Osterweis Capital Management.
Complete holdings of all Osterweis mutual funds (“Funds”) are generally available ten business days following quarter end. Holdings and sector allocations may change at any time due to ongoing portfolio management. Fund holdings as of the most recent quarter end are available here: Opportunity Fund Complete Holdings (as of 12/31/2025).
The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting www.osterweis.com/statpro. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.
Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [OCMI-872099-2026-01-23]
