Conestoga Capital Advisors, an ****** et management company, released its second-quarter 2026 investor letter. A copy of the letter can be downloaded here. The letter reports a positive market shift towards Small Caps, with the Russell 2000 Index achieving its best first half since 1991 and the Russell 2000 Growth Index up 25.7% in Q2, fueled by AI enthusiasm and semiconductor stocks. However, market leadership was uneven, mirroring the Tech Bubble, as high-beta stocks outperformed while high-quality companies lagged, impacting Conestoga's quality-focused strategies. Management expressed confidence in long-term outcomes, noting that speculative leadership won't last as monetary policy tightens and market breadth improves. The firm remains committed to high-quality growth businesses, expecting these to regain favor as leadership broadens. The Conestoga Small Cap Composite returned 14.32% net-of-fees in the second quarter, with 25.71% for the Russell 2000 Growth Index. Narrow Index leadership hurt the relative results, but it also hid Composite improvements. In addition, please check the Strategy's top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, Conestoga Capital Advisors highlighted Knowles Corporation (NYSE:KN) as a newly added position in the Small Cap Composite. Knowles Corporation (NYSE:KN) is a specialty electronic components manufacturer that offers capacitors, radio frequency (RF) and microwave filters, balanced armature speakers, and medtech microphones. On August 4, 2026, Knowles Corporation (NYSE:KN) closed at $40.40 per share, reflecting a market capitalization of $3.45 billion. Knowles Corporation (NYSE:KN) posted a one-month return of 14.25%, while its shares gained 105.03% over the past 52 weeks.
Conestoga Capital Advisors stated the following regarding Knowles Corporation (NYSE:KN) in its Q2 2026 investor letter:
"Knowles Corporation (NYSE:KN) designs highly engineered components used in medical, defense, industrial, and electrification applications. We were attracted to the company's accelerating organic growth, expanding margins, and exposure to several attractive long-term secular trends. Management highlighted strong order activity across its Precision Devices business, with a sixth consecutive quarter of book-to-bill above 1.0x supporting confidence in continued growth."
Knowles Corporation (NYSE:KN) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. As per our database, 26 hedge fund portfolios held Knowles Corporation (NYSE:KN) at the end of the first quarter, which was 30 in the previous quarter. While we acknowledge the risk and potential of Knowles Corporation (NYSE:KN) 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 Knowles Corporation (NYSE:KN) and that has 10,000% upside pote