Riverwater Partners, an investment management company, released its “Small Cap Strategy” Q1 2025 investor letter. A copy of the letter can be downloaded here. The Small Cap Core Strategy outperformed the Russell 2000 in Q1 2025, driven by strong stock selection and sector allocation. Within this strategy, the firm focuses on bottom-up fundamental research rather than making top-down macroeconomic bets. While much of the market discourse today is centered on tariffs and U.S. fiscal policy, the firm’s focus remains on identifying high-quality companies. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.
In its first-quarter 2025 investor letter, Riverwater Partners Small Cap Strategy highlighted stocks such as Bowhead Specialty Holdings Inc. (NYSE:BOW). Bowhead Specialty Holdings Inc. (NYSE:BOW) is a specialty property and casualty insurance products provider. The one-month return of Bowhead Specialty Holdings Inc. (NYSE:BOW) was -0.85%, and its shares gained 48.57% of their value over the last 52 weeks. On June 27, 2025, Bowhead Specialty Holdings Inc. (NYSE:BOW) stock closed at $37.29 per share, with a market capitalization of $1.222 billion.
Riverwater Partners Small Cap Strategy stated the following regarding Bowhead Specialty Holdings Inc. (NYSE:BOW) in its Q1 2025 investor letter:
“Our interest in Bowhead Specialty Holdings Inc. (NYSE:BOW) stems from its strategic positioning in the attractive specialty insurance market, particularly within the Excess and Surplus (E&S) space. Their business model balances a “craft” approach for complex, individual risks with the newly launched “flow” business, Baleen, which targets smaller, hard-to-place risks using a tech-enabled platform. Critically, Bowhead leverages its strategic partnership with American Family (AmFam), utilizing AmFam’s “A” rating, to help grow.
The investment thesis here is compelling: BOW can capitalize on the favorable pricing environment in E&S and strong growth prospects in the specialty insurance market, leveraging their underwriting expertise without the burden of significant exposure to adverse development from older soft-market years due to their relatively recent inception. We anticipate that this focus will drive rapid and profitable premium growth, leading to material increases in both earnings per share (EPS) and book value per share. While it’s important to note their reliance on net investment income due to currently lower underwriting margins, the potential for margin expansion as the business scales, coupled with the ramp-up of the innovative Baleen platform, makes BOW an interesting opportunity for sustained growth and potentially above-average valuation multiples.”
An insurance agent at their desk consulting a customer about property & casualty insurance.
Bowhead Specialty Holdings Inc. (NYSE:BOW) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held Bowhead Specialty Holdings Inc. (NYSE:BOW) at the end of the first quarter, which was 27 in the previous quarter. While we acknowledge the potential of Bowhead Specialty Holdings Inc. (NYSE:BOW) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Bowhead Specialty Holdings Inc. (NYSE:BOW) and shared Wasatch Micro-Cap Fund’s views on the company. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of BOW as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
