Strategic Evolution: From Small-Cap Gem to Large-Cap Departure
Aristotle Small Cap Equity Fund's Fourth Quarter Performance and Market Insights
In the final quarter of 2025, the Aristotle Small Cap Equity Fund (Class I-2) saw a modest return of 1.96%, slightly underperforming the Russell 2000 Index's 2.19% total return. This period was characterized by a buoyant U.S. small-cap market, which benefited from attractive valuations, an upturn in earnings, a broader market engagement, and a shift in investor focus away from mega-cap stocks. The fund's security selection positively impacted its overall performance, though allocation effects presented a slight drag.
Westinghouse Air Brake Technologies Corporation: A Success Story Outgrows Its Category
Westinghouse Air Brake Technologies Corporation (WAB), a prominent provider of rail technology, equipment, systems, and services, was a long-standing holding in the Aristotle Small Cap Equity Fund's portfolio. The company's stock closed at $256.06 per share on February 13, 2026, marking an 11.52% one-month return and an impressive 36.06% increase over the preceding twelve months. With a market capitalization reaching approximately $43.775 billion, WAB's substantial growth propelled it beyond the small-cap threshold, prompting the fund's decision to divest.
The Fund's Strategic Rationale for Divestment
The Aristotle Small Cap Equity Fund articulated its rationale for selling WAB shares, stating that the company "successfully grew from the small-cap space to a large-cap company beyond the Fund’s intended investment universe." This strategic move aligns with the fund's mandate to invest in small-cap enterprises, ensuring that its portfolio remains consistent with its defined investment parameters. The capital realized from this sale has been reinvested into new positions, which the fund believes offer promising future upside potential within the small-cap segment.
Market Confidence and Future Outlook for WAB
Despite the fund's divestment, hedge fund interest in Westinghouse Air Brake Technologies Corporation remained significant, with 62 hedge fund portfolios holding WAB at the end of the third quarter of 2025, a slight decrease from 68 in the prior quarter. WAB reported robust sales of $2.97 billion for the fourth quarter of 2025, representing a 14.8% year-over-year increase. While the company's performance and market presence are acknowledged, some analysts suggest that certain AI stocks might offer superior upside potential with reduced downside risk, particularly for investors seeking short-term gains influenced by prevailing economic policies and trends.