In the final quarter of 2025, Diamond Hill Capital's Small Cap Strategy strategically incorporated Centerspace (NYSE:CSR) into its investment holdings. This decision underscores the firm's confidence in the apartment REIT's long-term growth prospects, attributing its potential to a high-quality asset base located in uniquely positioned markets and the anticipated enhancement of operational efficiency as the company expands. Amidst a year characterized by market fluctuations and geopolitical uncertainties, the Russell 2000 Index demonstrated a notable recovery, achieving a 12.81% gain for 2025. Diamond Hill's investment approach continues to prioritize businesses that exhibit robustness and the capacity to generate stable earnings, regardless of market volatility. Centerspace, an entity focused on owning and managing apartment complexes, was acquired by the strategy, reflecting a clear belief in its value proposition. As of early February 2026, Centerspace's stock was valued at $64.18 per share, having experienced minor short-term fluctuations but showing a positive trend over the preceding year. The company maintains a market capitalization of $1.138 billion, reinforcing its significant presence in the real estate sector. This strategic addition aligns with Diamond Hill's broader investment philosophy of seeking out resilient companies poised for sustained success.
While Centerspace (NYSE:CSR) was a key addition to Diamond Hill's portfolio, the firm's Q4 2025 investor letter also shed light on the broader market landscape. The fourth quarter itself was marked by positive gains in equity markets, with the Russell 2000 Index performing closely with the Russell 1000 Index, posting returns of 2.19% and 2.41% respectively. The healthcare sector notably led the Russell 2000, soaring by 18.6%. Despite a complex environment shaped by various uncertainties throughout 2025, the small-cap index concluded the year with a strong overall performance. Looking ahead to 2026, Diamond Hill's strategy remains anchored on identifying enterprises that possess inherent resilience, ensuring their profitability can be maintained even amidst unpredictable economic conditions. The Small Cap Strategy itself outperformed its benchmark, delivering a 4.88% return after fees, compared to the Russell 2000's 2.19%. This performance highlights the efficacy of their selection process, which includes a rigorous evaluation of potential holdings. Centerspace, with its strategic focus on the Upper Midwest and Mountain West regions, is viewed as a company capable of leveraging its portfolio quality and scaling opportunities to drive future growth. However, it is important to note that Centerspace does not appear on broader lists of the most popular stocks among hedge funds, suggesting it might be considered a more niche or overlooked opportunity by some investors. Diamond Hill's conviction, however, lies in its fundamental strengths and potential for long-term appreciation.
Centerspace: A Strategic Addition to Diamond Hill's Portfolio
In the fourth quarter of 2025, Diamond Hill Capital's Small Cap Strategy made a significant move by incorporating Centerspace (NYSE:CSR) into its investment portfolio. This decision highlights the firm's strategic focus on identifying resilient businesses with strong long-term growth potential. Centerspace, an apartment REIT, is recognized for its high-quality portfolio concentrated in the Upper Midwest and Mountain West regions, offering what Diamond Hill believes are differentiated markets for investment. The firm's analysis points to the potential for operational upside as Centerspace scales its business over time, indicating a belief in the company's ability to enhance efficiency and profitability through growth. This investment reflects Diamond Hill's disciplined approach to navigating market complexities, prioritizing companies that can sustain earnings even in volatile economic landscapes. The addition of Centerspace aligns with a broader strategy of selecting robust enterprises capable of delivering consistent value.
The investment in Centerspace by Diamond Hill Capital is rooted in a detailed assessment of the REIT's fundamental strengths and future outlook. The company's focus on owning and managing apartment communities in specific geographic areas provides a stable revenue stream and opportunities for localized growth. Diamond Hill's confidence stems from Centerspace's ability to maintain a quality portfolio, which is crucial for a REIT operating in competitive real estate markets. The expected operational growth is anticipated to be a key driver of value, allowing Centerspace to capitalize on economies of scale and improve its overall financial performance. This strategic inclusion in the Small Cap Strategy's holdings underscores Diamond Hill's commitment to long-term value creation through careful selection of companies with sound business models and promising growth trajectories. By emphasizing quality and resilience, Diamond Hill aims to mitigate risks and maximize returns for its investors, positioning Centerspace as a pivotal part of this forward-looking strategy.
Market Performance and Investment Philosophy in Q4 2025
The fourth quarter of 2025 presented a dynamic market environment, characterized by favorable gains in equity markets despite underlying uncertainties. The Russell 2000 Index, a benchmark for small-cap stocks, posted a respectable 2.19% return, closely mirroring the performance of the broader Russell 1000 Index. Throughout the year, the market experienced a blend of heightened uncertainty and geopolitical risks, yet the Russell 2000 still managed to achieve a significant 12.81% gain for the entirety of 2025. This resilience in the face of headwinds shaped Diamond Hill Capital's investment philosophy, which is centered on identifying businesses capable of sustaining strong earnings. The healthcare sector emerged as a standout performer within the Russell 2000, showcasing an impressive 18.6% increase, signaling robust areas of growth in the market. Diamond Hill's Small Cap Strategy significantly outperformed its benchmark, delivering a 4.88% return net of fees, demonstrating the efficacy of its selective investment approach.
As Diamond Hill Capital looks towards 2026, its investment strategy continues to be guided by a fundamental principle: focusing on enterprises that possess inherent resilience and can consistently generate earnings amidst market volatility. The firm's outperformance in Q4 2025, with its Small Cap Strategy surpassing the Russell 2000 Index, validates its rigorous selection process. This involves a deep dive into company fundamentals, assessing their ability to navigate economic shifts and maintain profitability. The inclusion of Centerspace in the portfolio is a direct reflection of this philosophy, as the company is viewed as having the necessary attributes—a quality asset base and operational growth potential—to thrive in various market conditions. While Centerspace may not be among the most widely held stocks by other hedge funds, Diamond Hill's conviction is based on its independent analysis of the company's intrinsic value and its alignment with their long-term investment objectives. This strategic foresight allows Diamond Hill to identify and capitalize on opportunities that might be overlooked by others, ultimately aiming to deliver superior returns for its investors.