The Heartland Mid Cap Value portfolio recorded a modest 1.70% increase during the third quarter of 2025, falling short of the Russell Midcap\u00ae Value Index's more substantial 6.18% gain. This investment approach centers on identifying mid-sized companies of superior quality that are trading at appealing prices, alongside enterprises facing deep discounts but possessing clear catalysts for internal improvement. The recent performance highlights the impact of strategic decisions, such as D.R. Horton's successful efforts to reduce capital commitment and enhance returns, and Lam Research's significant market share expansion driven by an industry upcycle. Additionally, Centene's shares appear undervalued, trading at approximately 11 times its 2026 earnings estimates, which are increasingly seen as conservative given recent positive updates, suggesting potential for future outperformance.
In the third quarter of 2025, the Heartland Mid Cap Value portfolio, managed by Heartland Advisors, saw a gain of 1.70%. This performance lagged behind its benchmark, the Russell Midcap\u00ae Value Index, which achieved a 6.18% return over the same period. The investment philosophy behind this portfolio is to strategically acquire shares of high-quality mid-capitalization companies when they are perceived to be trading below their intrinsic value. Furthermore, the strategy targets businesses that are significantly undervalued but have identifiable internal mechanisms or strategic initiatives that can drive future growth and improved financial health.
A notable example of a company demonstrating a successful self-help strategy is D.R. Horton. This homebuilder actively pursued a strategy to decrease its overall capital allocated to the business. By doing so, D.R. Horton was able to significantly boost its returns on invested capital, leading to a more efficient and profitable operation. This operational refinement contributed positively to its stock performance and affirmed the investment thesis for holding shares in companies capable of such internal transformations.
Another key performer in the portfolio was Lam Research. The company benefited from a favorable upcycle in its industry, which, combined with robust gains in market share, propelled its stock price higher. The strong recent performance of Lam Research's shares underscores the portfolio's objective of investing in businesses that are not only undervalued but also possess strong competitive advantages and are operating within supportive market environments.
Looking ahead, Centene represents another strategic holding with significant potential. The company's shares are currently trading at an attractive valuation of approximately 11 times its estimated earnings for 2026. Recent updates and financial disclosures suggest that these earnings estimates may prove to be conservative, implying a strong likelihood that Centene could exceed expectations. This scenario positions Centene as a compelling investment within the portfolio, aligning with the strategy of seeking out companies with underestimated future growth and profitability.
The Mid Cap Value portfolio delivered a 1.70% return in Q3 2025, though it was outpaced by the Russell Midcap\u00ae Value Index's 6.18%. This difference in performance highlights the importance of stock selection within the value-oriented framework. The strategy emphasizes identifying fundamentally sound mid-cap companies and those with clear self-improvement initiatives. Companies like D.R. Horton, through capital efficiency, and Lam Research, through market share gains in a strong sector, exemplified this approach. Centene, with its conservative earnings outlook, also illustrates the portfolio's focus on undervalued assets with potential for significant future appreciation.