Madison Small Cap Fund, managed by Madison Funds, released its Q2 2026 investor letter. A copy of the letter can be downloaded here. The small-cap market showed exceptional strength in Q2, largely due to anticipated peace in the Middle East. The Russell 2000 Index began to rally, propelled by Information Technology, Health Care, and Industrials. The Madison Small Cap Fund (Class I) returned 12.7% in the quarter, underperforming the Russell 2000’s 21.5% and Russell 2500’s 20.2%. While strong gains were seen in Info Tech investments, recent investments in underperforming software companies negatively impacted overall performance. Nevertheless, confidence in the long-term potential of these software investments remains high. The firm is optimistic about small caps, noting their recent outperformance over large caps, recovery in certain software sectors, and improvements in some housing stocks toward the end of the second quarter. Please review the Fund’s top five holdings to gain insights into their key selections for 2026.
In its Q2 2026 investor letter, Madison Small Cap Fund highlighted Shake Shack Inc. (NYSE:SHAK). Shake Shack Inc. (NYSE:SHAK) is a US based Shake Shack restaurants chains operator that offers burger, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. On July 16, 2026, Shake Shack Inc. (NYSE:SHAK) closed at $59.23 per share, reflecting a market capitalization of $2.53 billion. Shake Shack Inc. (NYSE:SHAK) posted a one-month return of 0.25%, while its shares lost 56.08% over the past 52 weeks.
Madison Small Cap Fund stated the following regarding Shake Shack Inc. (NYSE:SHAK) in its Q2 2026 investor update:
“Our worst performing sector by far was consumer discretionary, driven mostly by extreme weakness in Shake Shack Inc. (NYSE:SHAK). Although SHAK delivered solid same store sales, outperforming many other restaurants, the market’s expectations were even higher. Furthermore, management decided to accelerate new restaurant openings in the first quarter, which led to an increase in operating expenses that negatively impacted near term earnings and cash flow. Although management miscommunication on this decision was a contributing factor to the disappointment, we believe the shares are overly punished and represent very attractive value for a company that’s outperform peers on the revenue line with a massive opportunity for unit growth.”
Shake Shack Inc. (NYSE:SHAK) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 36 hedge fund portfolios held Shake Shack Inc. (NYSE:SHAK) at the end of the first quarter, compared to 41 in the previous quarter. While we acknowledge the risk and potential of Shake Shack Inc. (NYSE:SHAK) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Shake Shack Inc. (NYSE:SHAK) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
