Gabelli Small Cap Growth Fund Returned 14.44% in Q2 but Lagged Small-Cap Rally

The Gabelli Small Cap Growth Fund returned 14.44% in the second quarter of 2026 — and still badly trailed the Russell 2000 Index, which gained 21.49% over the same period.

The firm disclosed the figure in its Small Cap Growth Fund second-quarter 2026 investor letter. The fund also lagged the S&P SmallCap 600 and the Lipper Small-Cap Core Funds Average, according to the letter. The broader small-cap market delivered a particularly strong quarter, and the fund's relative results suffered despite gains across several of its holdings.

The fund is not small. It held $1.9 billion in net assets at quarter-end and has generated a 12.18% annualized return since inception. Gabelli attributes that long-run record to an investment approach built on fundamental research and on finding companies where the market price does not fully reflect the underlying value of the business.

Gorman-Rupp in Focus

Among the stocks the letter highlighted was Gorman-Rupp Co. (NYSE:GRC), one of the fund's holdings and a standout name in the portfolio discussion. Gorman-Rupp designs, manufactures, and sells pumps and pump systems in the United States and internationally. Its product range includes self-priming, standard, and magnetic drive centrifugal systems, along with boosters, diaphragms, bellows, and pumps.

The company serves a broad set of end markets. In its Q2 2026 letter, the Gabelli Small Cap Growth Fund described the business as follows:

"Gorman-Rupp Co. (NYSE:GRC) designs, manufactures, and sells pumps and pump systems in the United States and internationally. The company offers self-priming, standard, and magnetic drive centrifugal systems, as well as several types of boosters, diaphragms, bellows, and pumps. Its products are used in water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire suppression, heating, ventilating, and air conditioning, military, and other liquid-handling applications."

The Numbers Behind the Stock

The stock has been volatile. Gorman-Rupp shares traded between $42.31 and $92.78 over the last 52 weeks, and the one-month return stood at -3.31%. On September 21, 2026, the stock closed at approximately $73.75 per share, giving it a market capitalization of about $1.96 billion.

Institutional interest is building, though from a low base. According to the database tracking hedge fund positions, 17 hedge fund portfolios held Gorman-Rupp at the end of the first quarter, up from 15 in the previous quarter. Even so, the company did not make the list of the 40 most popular hedge fund stocks heading into 2026.

What It Means for Investors

The quarter's gap between the fund's 14.44% return and the Russell 2000's 21.49% gain illustrates the cost of a valuation-driven approach when small caps rally broadly. Gabelli's since-inception annualized return of 12.18% is the counterweight the firm points to — evidence, in its view, that patience in underpriced businesses pays off over full market cycles rather than single quarters.

Gorman-Rupp fits that thesis on paper: a $1.96 billion industrial with deep exposure to water, wastewater and municipal infrastructure demand, trading well below its 52-week high of $92.78. Whether the growing hedge fund interest — 17 holders versus 15 a quarter earlier — turns into sustained re-rating will depend on the market coming around to the value the fund says it sees.