Dear Friends,
As we enter 2026, I find it helpful to pause and reflect on the year behind us. 2025 marked the beginning of the next chapter for Smith Capital Investors—a year that revealed the strength of our culture, reconfirmed our values and principles, and demanded uncompromising discipline and patience under conditions few market cycles impose.
The market environment presented a level of uncertainty rarely compressed into a single twelve-month period. Liberation Day reshaped political expectations almost overnight. The longest government shutdown in U.S. history forced markets to operate without reliable economic data, challenging even the most seasoned investors. At the same time, the acceleration of AI adoption increased corporate financing needs and introduced new dynamics across credit markets. Collectively, these forces tested markets and resurrected the familiar—but dangerous—refrain that “this time is different.”
That phrase has ended more than one portfolio manager’s career. While we navigated a period not experienced by many investors—and one we hope not to encounter again soon—it served as a reminder of recent history. The COVID crisis injected extraordinary fear into markets and triggered one of the most expansive fiscal and monetary responses on record. Markets and the economy continue to heal and normalize from that experience, but meaningful aftereffects remain. It will take time before conditions resemble anything approaching historical normalcy.
Our approach in 2025 was grounded in the same core principles that have guided us since inception: generating consistent, risk-adjusted returns while prioritizing the preservation of capital.
In a world defined by uncertainty and heightened volatility risk, we remained guided by the math behind the market. Across strategies, we embraced a “participate and protect” framework, with greater emphasis on liquidity. We maintained a defensive posture while holding a more neutral stance on duration, reflecting our view that the economy was in the later stages of the cycle and that U.S. Treasury duration could serve as protection against volatility and uncertainty. This positioning was informed by multi-decade tights in credit spreads across both investment-grade and high-yield markets, as well as historically tight option-adjusted spreads in agency MBS.
Our defensiveness resulted in lower carry, and in 2025, carry ultimately proved to be the winning strategy. High-yield markets generated returns north of 8%, with lower-quality investment-grade credit and MBS following suit, despite only modest spread tightening across these segments. It was a year that tested patience and did not reward discipline and capital protection to the degree we would have preferred.
Across our strategies, performance reflected this discipline. We actively managed duration—at times leaning shorter to navigate uncertainty, and at other times extending duration to capture the insurance-like characteristics of the U.S. Treasury market. We made deliberate sector allocation decisions and saw credit dispersion re-emerge meaningfully toward year-end. We believe this trend will accelerate in 2026 and should reward investors focused on security selection and risk avoidance. Fundamentals and risk management will matter even more in the year ahead.
Where spreads tightened, we assessed whether that tightening was supported by fundamentals rather than momentum or consensus positioning. Defense and Financials were core areas of focus. We avoided segments where compensation for risk was unclear and leaned into opportunities where valuation, structure, and fundamentals were aligned. Our mandate remained unchanged: protect capital and position portfolios to participate when the math behind the market makes sense.
In a tightly clustered performance environment, our results were competitive but fell short of our high expectations. Our ambition, however, remains unchanged. Our goal is—and will always be—to be the best boutique fixed-income investment management firm. We hold ourselves to a higher standard than the market, and maintaining that standard will be a primary focus in 2026.
Beyond portfolio management, 2025 was also a year of meaningful partnership expansion. Assets under management grew to nearly $13 billion, supported by client trust, steady inflows, and the successful transition of two ETFs through our newly formed partnership with First Trust. We are incredibly excited about this relationship. Our organizations share a commitment to strong values, disciplined investment principles, and an unwavering focus on serving clients well.
We also continued our long-standing partnership with ALPS, an important part of our identity and future. AUM growth across our ALPS strategies accelerated, reaching new highs as our initial ETF continued to gain traction. These aligned relationships were among the most meaningful developments of the year and continue to reinforce the foundation on which we are building.
Behind the scenes, we made deliberate investments in the infrastructure that supports our long-term mission. We continued building smithX, our proprietary research and analytics platform, strengthening integration across research, trading, and portfolio management. Disciplined, thoughtful use of technology remains a top priority and a critical enabler of better investment decisions and better client outcomes.
We also added depth across compliance, trading, technology, operations, and research to meet the growing complexity of markets and the needs of an expanding client base. From day one, we committed to growing responsibly—and we remain disciplined in that approach. Expanding headcount solely in response to AUM growth would be misaligned with the culture we are building. We continue to believe that a high-performance culture rooted in three pillars—Investment Excellence, People & Relationships, and Intentional Culture—is critical to our future. We will not be everything to everyone, but we will be significant to a few, remains an internal mantra. I am deeply proud of the people we added and the impact they have already had on the firm.
Organizationally, 2025 was a year of continued maturation. Eleven new team members joined the firm, and our three interns accepted full-time roles beginning in July 2026. Investing in people is a responsibility we take seriously, and we will continue to add talent in 2026 that strengthens the team and raises our collective capability—always with the same discipline that has guided us for decades.
As part of this continued evolution, I am pleased to announce that I have promoted Eric Bernum to Deputy Chief Investment Officer. Eric and I have worked together for many years, beginning with our time at Janus. He has been a trusted partner, a strong leader, and a consistent steward of client capital. Please join me in congratulating Eric on his expanded role and his ongoing commitment to the firm’s success.
Service is one of our core values, and our commitment extends beyond our walls. We believe deeply in our responsibility to live our values in ways that positively impact our community. We are fortunate to work in one of the greatest businesses in the world, and we take seriously our responsibility to give back and ensure others benefit from the opportunities we have been given.
We also transitioned into a new office space at year-end, just a block and a half from where we began. As the firm has grown, our space needed to grow with us—not simply to accommodate headcount, but to better support collaboration, execution, and client service. The move was both practical and symbolic: remaining rooted in our origins while building intentionally for the future. If you find yourself in Denver, please come visit.
On a personal note, I spent considerable time this year reflecting on the last eight years—why we launched the firm, what has worked, what has not, and the mistakes I am committed to not repeating. I revisited our vision, mission, pillars, and core values, and reflected on those who took a chance on us and entrusted their capital to us. This firm exists because of that trust, and for that I am profoundly grateful. It is that trust that fuels my ambition to do better work and to lead more effectively.
As we look ahead, our philosophy remains unchanged: generate the best possible risk-adjusted returns while prioritizing capital preservation. I expect 2026 to be an even more challenging year than 2025—but also one rich with opportunity for fixed-income investors. We look forward to sharing our outlooks, and we always welcome a conversation. “Let’s Talk” has been a core principle since our founding.
Markets will shift. Narratives will evolve. Consensus will be challenged. But the principles that define Smith Capital Investors will remain constant: fundamentals matter, risk discipline is non-negotiable, and protecting capital while generating consistent returns is our North Star. Everything we do is rooted in being a great partner and serving with discipline, character, and integrity.
Thank you for your trust, partnership, and belief. Let’s make 2026 our best year yet.
With gratitude and excitement for what’s ahead,
Gibson
Let’s Talk.
The opinions and views expressed are as of the date published and are subject to change without notice. Information presented herein is for discussion and illustrative purposes only and should not be used or construed as financial, legal, or tax advice, and is not a recommendation or an offer or solicitation to buy, sell, or hold any security, investment strategy, or market sector. No forecasts can be guaranteed. Any investment or management recommendation in this document is not meant to be impartial investment advice or advice in a fiduciary capacity and is not tailored to the investment needs of any specific individual or category of individuals. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in the market or economic conditions. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties concerning the results obtained from its use. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio.
The information included in this letter and provided link may contain statements related to future events or developments that may constitute forward-looking statements. These statements may be in the form of financial projections or may be identified by words such as “expectation,” “anticipate,” “intend,” “believe,” “could,” “estimate,” “will,” “should” or words of similar meaning. Such statements are based on the current expectations and certain assumptions of the author and are, therefore, subject to certain risks and uncertainties. A variety of factors may affect the operations, performance, business strategy and results of the issuer, and could cause the actual results, performance or achievements of the issuer to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of historical trends.
Past performance is no guarantee of future results. Investing in a bond market is subject to risks, including market, interest rate, issuer, credit, inflation, default, and liquidity risk. The bond market is volatile. The value of most bonds and bond strategies are impacted by changes in interest rates. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens. High yield or “junk” bonds involve a greater risk of default and price volatility and can experience sudden and sharp price swings.
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