From Seekingalpha · Palm Valley Capital Management · · 3m
Palm Valley Capital Fund Q3 2026 Performance
Palm Valley Capital Fund outperformed small caps in Q3 2026 despite record wealth inequality.
In brief
Palm Valley Capital Fund outperformed small caps in Q3 2026 despite record wealth inequality. Palm Valley Capital Fund increased 1.61% in Q3 2026 while small caps fell 7.93% as AI-driven wealth gaps widened. Originally reported by Seekingalpha.
Q3 2026 Performance
Palm Valley Capital Fund increased 1.61% compared to a 7.93% decrease for the S&P SmallCap 600 Index and a 5.60% fall in the Morningstar Small Cap Total Return Index.
AI Wealth Gap
Labor's share of GDP has fallen to a record low while superstar firms with fat margins and declining tax rates have thrived.
Tech Sector Performance
72 out of 74 S&P tech firms had positive operating profit over the trailing year while only 120 out of 219 Russell tech constituents did.
AI Market Impact
The market cap of the GICS tech sector plus Alphabet, Amazon, and Meta Platforms equals total U.S. household owners' equity in real estate.
Wealth Inequality
The richest 1% owns 13.4% of property and 51% of equities while the poorest half owns 0.6% of stocks.
AI Investment Boom
The median IT operating margin in the S&P 500 is nearly 24% compared to a 7% median margin for the Russell 2000's Info Tech sector.
AI Market Valuations
The median Enterprise Value to EBIT multiple for profitable nonfinancial firms in the Russell 3000 is 20x, near record highs.
Key Holdings
Rayonier, Kelly Services, LKQ Corp, Amdocs, ManpowerGroup, Farmland Partners, Domino's Pizza Group, Flowers Foods, Reynolds Consumer Products, and Carters are top holdings.
Gentex Corp
Gentex is the leading global automotive supplier of automatic-dimming rearview mirrors with advanced features including Full Display Mirrors.
Clorox Performance
Clorox shares fell after reporting results with comparison challenges due to customers accelerating purchases ahead of an ERP implementation.
Smithfield Foods
Smithfield Foods is the leading U.S. pork producer with 87% ownership by WH Group, facing weaker demand amid higher feed costs.
Avista Corporation
Avista serves 429,000 electric and 386,000 natural gas customers across Washington, Idaho, and Oregon with a 13.5x estimated earnings valuation.
Q3 Performance Drivers
Kelly Services, ManpowerGroup, and Amdocs contributed most positively to Q3 returns with improved staffing sector volumes and AI-driven business transformations.
Q3 Underperformers
Rayonier, Flowers Foods, and Reynolds Consumer Products contributed most negatively to Q3 performance with weakening lumber prices and rising costs.
AI Investment Risks
The AI ecosystem faces regulatory challenges as frontier labs seek a regulatory moat amid concerns about capital consolidation.
The Future
Richer today can mean poorer tomorrow as economic progress redistributes wealth through asset price changes and interest rate shifts.
The short version
Palm Valley Capital Fund increased 1.61% in Q3 2026 while small caps fell 7.93% as AI-driven wealth gaps widened.
