Here’s What Drove Madison Small Cap Fund to Invest in Hexcel Corp. (HXL)

Madison Investments, an investment advisor, released its “Madison Small Cap Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The third quarter was difficult for the Small Cap Fund.  The small-cap index’s performance was broad-based. The Madison Small Cap Fund (class Y) was down 1.3% in the quarter, significantly underperforming the benchmarks. The underperformance was driven by stock selection and exacerbated by a very speculative market. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, Madison Small Cap Fund highlighted stocks such as Hexcel Corporation (NYSE:HXL). Hexcel Corporation (NYSE:HXL) manufactures carbon fibers, structural reinforcements, honeycomb structures, resins, and composite materials and parts for commercial aerospace, space and defense, and industrial applications. The one-month return of Hexcel Corporation (NYSE:HXL) was -3.08%, and its shares gained 15.30% of their value over the last 52 weeks. On November 20, 2025, Hexcel Corporation (NYSE:HXL) stock closed at $70.55 per share, with a market capitalization of $5.616 billion.

Madison Small Cap Fund stated the following regarding Hexcel Corporation (NYSE:HXL) in its third quarter 2025 investor letter:

“The small cap team initiated a new investment position in Hexcel Corporation (NYSE:HXL). Hexcel is a global leader in advanced composite materials, specializing in the production of carbon fiber reinforcements, resin systems, and honeycomb structures. These materials are critical for lightweight, high-performance applications, particularly in the commercial aerospace, space, and defense sectors. Hexcel’s products are used in aircraft frames, wings, engines, and other structural components, offering strength and durability while significantly reducing weight. Major clients include aerospace giants like Airbus and Boeing. We like the duopoly market structure and deep moats of Hexcel’s business. The cycle has been in a prolonged downtrend due to the COVID supply chain shocks, creating bottlenecks in engines and the struggles of Boeing and Spirit Aerosystems. We believe these headwinds are now largely behind us. The competitive moats in this business are significant. Capital intensity is relatively high, while incumbency and vertical integration provide a huge competitive advantage. Certification in wing and fuselage requires massive regulatory approval, which leads to even higher switching costs. Furthermore, the industry has a benign competitive structure, with Japanese firm Toray being the only other direct, scaled composite material competitor, having a combined share in wing and fuselage that approaches 90% and holding sole-sourced positions with original equipment manufacturers (OEMs). We believe the intrinsic value for this franchise is $85.”

In another article, we covered Hexcel Corporation (NYSE:HXL) and shared the list of stocks those were soaring by double digits. In addition, please check out our hedge fund investor letters Q3 2025 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.