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Riverwater Partners, an investment management company, released its “Small Cap Strategy” Q1 2026 investor letter. A copy of the letter can be downloaded here. In Q1 2026, the Riverwater Small Cap Strategy outperformed the Russell 2000 Index. The quarter rewarded patience and discipline. The first quarter of 2026 saw a significant shift in market leadership and risk perceptions, due to geopolitical tensions in the Middle East and concerns over sustainable growth in the software and AI sectors. Additionally, private credit markets are under stress. In this environment, the firm is concentrating on identifying market dislocations caused by what it perceives as indiscriminate selling, particularly in AI-related areas. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Riverwater Partners Small Cap Strategy highlighted stocks such as Coastal Financial Corporation (NASDAQ:CCB). Coastal Financial Corporation (NASDAQ:CCB) is a bank holding company for Coastal Community Bank. One-month return of Coastal Financial Corporation (NASDAQ:CCB) was -6.28%, and its shares lost 6.37% of their value over the last 52 weeks. On May 4, 2026, Coastal Financial Corporation (NASDAQ:CCB) stock closed at $73.64 per share, with a market capitalization of $1.13 billion.
Riverwater Partners Small Cap Strategy stated the following regarding Coastal Financial Corporation (NASDAQ:CCB) in its Q1 2026 investor letter:
"Coastal Financial Corporation (NASDAQ:CCB) was our largest detractor. CCB experienced a more volatile first quarter, with stock performance shaped by evolving investor perceptions around risks tied to its fintech partner ecosystem and broader private credit dynamics. While underlying fundamentals remained relatively stable—supported by its Banking-as-a-Service model and continued growth in partner-driven deposits and fee income—investors grew more focused on the durability of its fintech relationships amid increasing AI-driven disruption and tightened credit conditions. We reduced our position during the quarter but continue to hold CCB at a lower weighting, as we believe the core business model remains intact."
Coastal Financial Corporation (NASDAQ:CCB) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 21 hedge fund portfolios held Coastal Financial Corporation (NASDAQ:CCB) at the end of the fourth quarter, up from 15 in the previous quarter. While we acknowledge the potential of Coastal Financial Corporation (NASDAQ:CCB) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.