From Seekingalpha · Deep Sail Capital · · 2m
Deep Sail Capital Q3 2026 Investor Letter
Deep Sail Capital's Q3 2026 fund underperformed by 8.6% vs Russell 2000 but short portfolio drove 7.4% returns.
In brief
Deep Sail Capital's Q3 2026 fund underperformed by 8.6% vs Russell 2000 but short portfolio drove 7.4% returns. Deep Sail Capital Partners LP returned -15.8% net of fees in Q3 2026 while short portfolio contributed 7.4% to overall returns. Originally reported by Seekingalpha.
Q3 2026 Fund Performance
Deep Sail Capital Partners LP returned -15.8% net of fees while averaging 91% net long exposure, bringing year-to-date net returns to -1.6%.
Underperformance vs Benchmarks
The Fund underperformed the Russell 2000 and Russell Midcap Growth Index by 8.6% and 10.8%, respectively.
Long Portfolio Decline
All of the underperformance came from the long portfolio, where several emerging growth positions declined sharply.
Q3 Position Changes
In Q3, Deep Sail closed three positions and opened three new positions.
Market Commentary
The market shows a two-sided trend with mega-caps rising while small caps fall sharply.
S&P 500 Split
The cap-weighted S&P 500 (SPY) is up 12.7% year-to-date versus 9.9% for equal-weighted index (RSP).
McClellan Index
The McClellan Summation Index for S&P 500 members stood at -1,741 on October 12, 2.5x lower than April 2025.
Small Cap Impact
Russell 2000 fell 10% from high while Russell Microcap dropped 12% in Q3.
Long Portfolio Details
Arista Networks contributed 1.3% while Sanuwave Health declined 4.6% in Q3.
Sanuwave Health
Sanuwave Health's stock dropped due to proposed CMS reimbursement cuts for UltraMist.
Innovative Aerosystems
Innovative Aerosystems (IA) is a small-cap aerospace company with emerging growth potential.
IA's Business Model
IA designs, manufactures, and integrates avionics for commercial and military aircraft.
Aftermarket Advantage
Aircraft remain in service for 20+ years creating long-term aftermarket opportunities for IA.
Certification Moat
IA holds 171 U.S. and international patents supporting its aerospace product lines.
Aydin Acquisition
IA acquired Aydin Displays for $24.5 million adding $16 million of annual revenue.
Liberty Flight Deck
IA won first production program for Liberty Flight Deck with Japanese eVTOL developer.
Short Portfolio Performance
Short portfolio contributed 7.4% to Fund returns in Q3 2026.
Short Portfolio Holdings
Cloudflare and Arqit Quantum were top short positions in Q3 2026.
Q4 Outlook
Deep Sail expects Q4 to outperform as long positions rebound from Q3 drawdowns.
The one thing
Deep Sail Capital Partners LP returned -15.8% net of fees in Q3 2026 while short portfolio contributed 7.4% to overall returns.
