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 Encompass Health Corporation (NYSE:EHC). Encompass Health Corporation (NYSE:EHC) is a leading inpatient rehabilitation services provider. On July 16, 2026, Encompass Health Corporation (NYSE:EHC) closed at $356.24 per share, reflecting a market capitalization of $4.35 billion. Encompass Health Corporation (NYSE:EHC) posted a one-month return of 15.96%, while its shares gained 3.33% over the past 52 weeks.
Madison Small Cap Fund stated the following regarding Encompass Health Corporation (NYSE:EHC) in its Q2 2026 investor update:
“Our largest healthcare position in Encompass Health Corporation (NYSE:EHC) was up only modestly in the quarter. We believe this continues to be an excellent long-term investment but the current market environment favors smaller, more volatile names. We continue to see value in the medical device space and are allocating more capital into these names when appropriate.”
Encompass Health Corporation (NYSE:EHC) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 44 hedge fund portfolios held Encompass Health Corporation (NYSE:EHC) at the end of the first quarter, compared to 50 in the previous quarter. While we acknowledge the risk and potential of Encompass Health Corporation (NYSE:EHC) 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 Encompass Health Corporation (NYSE:EHC) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Encompass Health Corporation (NYSE:EHC) and shared the list of best medical care facilities stocks to buy according to analysts. 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.
