Heartland Advisors

2Q25 Value Plus Commentary Podcast

Michael Kops: Hello, I'm Michael Kops, Vice President at Heartland Advisors. Today I'm here with Andy Fleming, Portfolio Manager for the Heartland Value Plus Strategy.

Andy, the second quarter was another challenging period for small stocks, yet you seemed genuinely optimistic. What gives you that hopefulness?

Andy Fleming: The earnings calls of the companies in our portfolio were generally positive, and our follow-up calls with management teams were positive as well, and the outlooks they provided, on the whole, were fairly upbeat.

Mike: Why the sudden upturn in earnings?

Andy: In sum, demand held in better than expected and better than feared. Across the board, demand was pretty solid.

Mike: In the second quarter, the Value Plus Strategy was up 2.04% compared with the 4.97% gain for the Russell 2000® Value Index. What do you attribute that to?

Andy: Stock selection was responsible for most of the underperformance. Stock selection was positive in just two sectors, Health Care and Financials.

Mike: Is there any part of the small cap universe that gives you pause?

Andy: Yes. During the quarter, we made a conscious decision to pivot away from cyclical volume-dependent businesses that are simply waiting for demand dynamics to improve. Instead, we are focusing on self-help strategies that could lead to margin improvements regardless of the economic backdrop. 

Mike: Are there some examples?

Andy: Yeah. Gates Industrial Corp (GTES) is a good example. Gates is undergoing an 80-20 analysis right now. So, the management team is continuing to focus on the most profitable pieces of business and de-emphasize the less profitable pieces of business.

And Gates is unique where 70% of its business is replacement or aftermarket. So that's going to be very stable demand there. And specifically, Gates focuses on belts for power transmission industries. And they've done a lot of internal investment that's allowed them to reduce the cost of their products. This is really material sciences that they've been investing in. So what they've been able to do is they're replacing legacy chains with their belts and due to their investments they're now at cost parity with the legacy product and when they become at cost parity becomes a no-brainer for customers as their belts are quieter and more energy efficient than legacy chains.

Mike: Excellent, are there some other examples.

Andy: Yeah, Silicon Motion Technology Corp. (SIMO) is another example.

So, SIMO produces controllers for memory chips. And this was a company that there was a lot of fear going into the quarter. And management helped quell those fears by calling out a trough in their core consumer market and reasons for optimism in the second half in their industrial end market. Specifically calling out NVIDIA as one of their large customers where they expect to ramp a data set or related product in the second half of the year.

Mike: What about tariff risks? Are there specific things companies are doing to mitigate those risks?

Andy: Yes, tariff risks are definitely out there, but the important thing to remember here is that the companies that we're investing in are not robots. They're going to react in a profitable and smart way to the tariffs. Example within Envista (NVST) is with their core Nobel product. So Envista manufactures dental products.

Their core product is dental implants. That's their most profitable business. And this business serves the Chinese market. And I think a lot of investors were concerned going into the quarter about this. And they helped reduce concerns in the quarter by giving a simple explanation of how they're going to handle the matter.

They have two core manufacturing sites. They have a U.S. site and a Sweden site. Historically, they've manufactured in the U.S., and then exported to China. But with tariffs, they're going to change that. They're now going to manufacture in Sweden and transfer from Sweden to China for that market. So as you can see, pretty simple solutions, but it was good to see Envista report that in the quarter.

Mike: So what's your biggest takeaway for the second quarter? 

Andy: The biggest takeaway is that demand is held in better than expected. And our companies are reacting in a smart and efficient way to the issues that are stemming from tariffs.

Mike: Excellent. Thank you for your time, Andy. 

Andy: Thanks, Mike.

Please wait while we gather your results.

Author

Heartland Advisors Value Investing Relationship Manager Michael Kops

Michael Kops

Vice President and Partner

Heartland Advisors Value Investing Portfolio Manager Andrew Fleming

Andrew J. Fleming

Director of Research, Vice President, and Portfolio Manager

 

Email Sign Up

 

©2025 Heartland Advisors | 790 N. Water Street, Suite 1200, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

Past performance does not guarantee future results.

The Small Cap Value Plus Strategy primarily invests in companies that have a market capitalization consistent with the capitalization range of the Russell 2000 Value Index, with a majority of its assets invested in companies that pay dividends. The Strategy intends to capture the long-term appreciation of small-caps, while minimizing the volatility of returns inherent in the small-cap market.

The Small Cap Value Plus Strategy invests in small companies selected on a value basis. Such securities generally are more volatile and less liquid than those of larger companies.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

Heartland Advisors, Inc. (the "Firm") claims compliance with the Global Investment Performance Standards (GIPS®). The Firm is a wholly owned subsidiary of Heartland Holdings, Inc., and is registered with the Securities and Exchange Commission. For a complete list and description of Heartland Advisors composites and/or a presentation that adheres to the GIPS® standards, contact the Institutional Sales Team at Heartland Advisors, Inc. at the address listed below.

Composite statistics and holdings are based on 6/30/2025 composite members’ account data as of 6/30/2025. Not all accounts in the strategy are included in the composite.

As of 6/30/2025, Heartland Advisors on behalf of its clients held approximately 0.31%, 0.30%, and 1.19% of the total shares outstanding of Gates Industrial Corporation plc (GTES), Envista Holdings Corp. (NVST), and Silicon Motion Technology Corp. (ADR) (SIMO), respectively. 

Performance information refers to preliminary Composite data. Final quarterly performance information can be found here: Small Cap Value Plus.

The future performance of any specific investment or strategy (including the investments discussed above) should not be assumed to be profitable or equal to past results. The performance of the holdings discussed above may have been the result of unique market circumstances that are no longer relevant. The holdings identified above do not represent all of the securities purchased, sold or recommended for the Advisor’s clients.

The statements and opinions expressed in the articles or appearances are those of the presenter. Any discussion of investments and investment strategies represents the presenters' views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true.

Economic predictions are based on estimates and are subject to change.

There is no guarantee that a particular investment strategy will be successful.

Sector and Industry classifications are sourced from GICS®.  The Global Industry Classification Standard (GICS®) is the exclusive intellectual property of MSCI Inc. (“MSCI”) and S&P Global Market Intelligence (“S&P”).  Neither MSCI, S&P, their affiliates, nor any of their third party providers (“GICS Parties”) makes any representations or warranties, express or implied, with respect to GICS or the results to be obtained by the use thereof, and expressly disclaim all warranties, including warranties of accuracy, completeness, merchantability and fitness for a particular purpose.  The GICS Parties shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of such damages.

Heartland Advisors defines market cap ranges by the following indices: micro-cap by the Russell Microcap®, small-cap by the Russell 2000®, mid-cap by the Russell Midcap®, large-cap by the Russell Top 200®.

Because of ongoing market volatility, performance may be subject to substantial short-term changes.

Dividends are not guaranteed and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time. 

In certain cases, dividends and earnings are reinvested.

There is no assurance that dividend-paying stocks will mitigate volatility. 

CFA® is a registered trademark owned by the CFA Institute.

Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indices. Russell® is a trademark of the Frank Russell Investment Group.

Statements regarding securities are not recommendations to buy or sell.

Portfolio holdings are subject to change. Current and future holdings are subject to risk.

Investing involves risk, including the potential loss of principal.

GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

Separately managed accounts and related investment advisory services are provided by Heartland Advisors, Inc., a federally registered investment advisor. ALPS Distributors, Inc., is not affiliated with Heartland Advisors, Inc.

The above individuals are registered representatives of ALPS Distributors, Inc.

Heartland’s investing glossary provides definitions for several terms used on this page.

top