The Wasatch Ultra Growth Fund's Investor Class experienced a notable dip in performance during the initial quarter of 2026, falling behind its designated benchmark, the Russell 2000 Growth Index. Despite commendable gains from its biotechnology holdings, the overall healthcare sector proved to be the most significant drag on the fund's returns. Conversely, companies specializing in semiconductor equipment, particularly those involved in advanced packaging, metrology, and inspection, emerged as strong contributors, bolstering the fund's performance during this period.

During the first quarter of 2026, the Russell 2000 Growth Index saw a decline of -2.81%. In comparison, the Wasatch Ultra Growth Fund—Investor Class experienced a more substantial decrease, reporting a decline of -8.33%. This disparity highlights a period of underperformance for the fund relative to its benchmark. A key factor in this underperformance was the healthcare sector, where despite individual strong performers in biotechnology, overall stock selection within the sector did not meet expectations. Meanwhile, specific segments of the technology sector provided a silver lining. Semiconductor-equipment manufacturers, particularly those focusing on advanced packaging, metrology, and inspection technologies, significantly contributed to the fund's positive returns. These companies benefited from increasing demand driven by advancements in data center infrastructure and the growing complexity of chip architectures essential for artificial intelligence applications.

John Malooly, CFA, the Lead Portfolio Manager with 28 years at Wasatch and 14 years on the fund, along with Natalie Pesqué, CFA, also a Lead Portfolio Manager with 10 years at Wasatch, oversee the portfolio. Their strategy emphasizes navigating a dynamic market, evidenced by their adjustments in software positions vulnerable to AI disruption and their focus on companies with enduring competitive advantages. This approach aims to safeguard the portfolio against emerging technological shifts while capitalizing on robust growth opportunities. The fund, primarily focused on small-cap investments, consistently evaluates macroeconomic and geopolitical landscapes. For instance, while global conflicts and energy price volatility introduce uncertainty, the managers have confirmed that current holdings lack direct exposure to these specific risks, allowing for continued adherence to a long-term growth investment philosophy.

In summary, the first quarter of 2026 presented a challenging environment for the Wasatch Ultra Growth Fund, as it underperformed the Russell 2000 Growth Index. While the healthcare sector, particularly beyond biotechnology, negatively impacted results, strong performances from semiconductor-equipment stocks tied to advanced manufacturing technologies provided a crucial counterbalance. The fund’s managers continue to strategically adjust the portfolio, prioritizing companies with strong competitive moats and managing risks, while maintaining a long-term perspective on growth opportunities despite broader economic and geopolitical uncertainties.