# 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.
- Title: Deep Sail Capital Q3 2026 Investor Letter · Seekingalpha
- Summary: 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%…
- Keywords: deep sail capital, q3 2026, investor letter, fund returns, russell 2000, russell midcap growth, long portfolio, short portfolio, emerging growth, innovative aerosystems, arqit quantum, Deep
- Source: Seekingalpha — https://seekingalpha.com/article/4955991-deep-sail-capital-q3-2026-investor-letter
- Author: Deep Sail Capital
- Published: 2026-10-21T16:55:00+00:00
- Read time: 2 min
- Topics: deep sail capital, q3 2026, investor letter, fund returns, russell 2000, russell midcap growth, long portfolio, short portfolio, emerging growth, ia, innovative aerosystems, arqit quantum
## 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.
## Key takeaway

Deep Sail Capital Partners LP returned -15.8% net of fees in Q3 2026 while short portfolio contributed 7.4% to overall returns.