Vulcan Value Partners' quarterly report for Q2 2025 illuminates their strategic approach to investment in a period marked by increased market instability. The firm's methodology centers on identifying companies with inherent stability and acquiring them when their market valuations present a sufficient safety margin. This allows for proactive adjustments to portfolios, leveraging market fluctuations to optimize long-term gains and mitigate risks.
The second quarter of 2025 witnessed a notable uptick in market uncertainty, largely driven by tariff-related concerns. This environment provided a fertile ground for Vulcan Value Partners to apply its dual discipline investment philosophy. Early in the quarter, the firm strategically divested from companies with higher price-to-value ratios, including those with minimal tariff exposure, to redirect capital towards more attractively priced opportunities. This dynamic reallocation was key to improving the overall risk-return profile of their portfolios.
A prime example of this adaptive strategy was the firm's engagement with UnitedHealth Group. Initially sold as its stock price approached fair value, the company's subsequent decline due to revised earnings guidance and leadership changes presented a renewed investment opportunity. Vulcan Value Partners reacquired UnitedHealth Group shares at a significantly lower valuation, funding this purchase by selling off positions in companies that had appreciated following a moderation in tariff policies. This move underscored the firm's commitment to capitalizing on volatility by maintaining a list of robust companies and acting decisively when market conditions align with their valuation models.
Within the Large Cap portfolio, new additions included UnitedHealth Group and IQVIA Holdings. IQVIA, a global leader in healthcare data and contract research, was acquired despite short-term industry challenges like persistent inflation and funding difficulties for biotech clients. The company's substantial backlog, expanding client base, and robust free cash flow generation made it an appealing long-term investment. Meanwhile, existing holdings like Microsoft and Ares Management notably contributed to performance, driven by growth in cloud computing, AI, and strategic acquisitions.
The Small Cap portfolio saw the divestment of Dun & Bradstreet Holdings, with strong contributions from ISS A/S and Littelfuse Inc. ISS, a Danish facilities management firm, benefited from operational efficiency and favorable exchange rates, while Littelfuse, an industrial manufacturing company, demonstrated resilience and strong operating results despite cyclical market conditions. The Focus and Focus Plus portfolios also saw active management, with additions such as Ares Management and UnitedHealth Group, and profitable divestments from companies like Carlyle Group and LVMH.
The firm's All Cap portfolio mirrored these trends, adding Ares Management, Forterra plc, UnitedHealth Group, and IQVIA Holdings. Forterra, a UK-based brick and block manufacturer, was noted for its long-term potential due to a structural supply-demand imbalance in the UK housing market. This consistent, disciplined approach across all strategies emphasizes the firm's core belief in leveraging market volatility to acquire high-quality businesses at discounted prices, ensuring a robust and resilient investment posture.