Wasatch Long/Short Alpha Fund Outperforms Russell 2500 Amid Lumentum Short Position
Wasatch Global Advisors highlights Lumentum Holdings as a key detractor, citing fundamental concerns over the optical device maker’s profitability relative to AI infrastructure buildout risks.
Wasatch Global Advisors has released its first-quarter 2026 investor letter for the Wasatch Long/Short Alpha Fund, reporting a return of 4.16 per cent. This performance significantly outpaced the Russell 2500 Index, which returned 2.04 per cent during the same period. The fund’s success was largely attributable to the strong performance of its short positions, which provided a buffer against the increased volatility observed in U.S. small- and mid-cap stocks.
The quarter was characterised by a shift in investor sentiment that triggered a market correction, compounded by geopolitical tensions stemming from the conflict in Iran. These factors led investors to weigh the potential implications of rising oil prices on the global economy. Despite this backdrop, enthusiasm for artificial intelligence continued to support companies involved in infrastructure development, creating a divergent environment for different market segments.
Lumentum Holdings Inc. (LITE) was identified as a significant detractor from the fund’s performance due to a rise in its share price. As of June 2, 2026, Lumentum closed at $1,029.15 per share, with a market capitalisation of $76.15 billion. The stock has seen substantial gains, rising 1,119.72 per cent over the past 52 weeks and posting a one-month return of 3.70 per cent.
Wasatch maintains a short position in Lumentum to hedge against the risk of a broad sell-off in AI infrastructure stocks. In its letter, the fund stated that while the short position helps mitigate downside risk, it does not believe Lumentum possesses the same powerful economic engine or profitability as its long holdings tied to the AI buildout. The fund argues that Lumentum lacks the fundamental strength to justify its current valuation relative to other AI-related equities.
Market interest in Lumentum has increased, with 123 hedge fund portfolios holding the stock at the end of the first quarter, up from 97 in the previous quarter. Despite this rise in institutional ownership, Lumentum is not included in the list of the 40 most popular stocks among hedge funds heading into 2026. Wasatch maintains that other AI stocks offer greater upside potential with less downside risk, reinforcing its decision to hold the short position.
