The first quarter of 2026 brought a complex macroeconomic backdrop for equity markets, characterized by geopolitical tensions in the Middle East, surging oil prices, and shifting expectations regarding the Federal Reserve’s monetary policy. In this volatile environment, the Meridian Hedged Equity Fund, managed by ArrowMark Partners, delivered a resilient performance. The Fund posted a net return of 0.08% for the quarter, significantly outperforming the S&P 500 Index, which tumbled 4.33%, and the CBOE S&P 500 BuyWrite Index, which fell 0.92%.
Understanding the Hedged Equity Strategy in Volatile Markets
Hedged equity funds utilize derivative instruments, primarily writing covered call options, to mitigate downside risk while maintaining exposure to high-quality growth companies. During the late-February escalation in geopolitical risks, crude oil prices spike, causing a broad market rotation. Investors pulled capital from large-cap technology stocks, shifting toward defensive value assets and smaller-cap equities. Meridian’s strategy of keeping 43% of its portfolio unhedged while protecting the remainder through call options allowed it to cushion the blow of the market downturn.
ACV Auctions (NYSE:ACVA): Structural Strength vs. Macro Headwinds
Among the key holdings discussed in Meridian’s Q1 2026 investor letter was ACV Auctions Inc. (NYSE:ACVA). As a leading digital marketplace for wholesale automotive transactions, ACVA connects dealers nationwide to facilitate transparent online vehicle auctions. Despite its strong business model, the stock experienced significant downward pressure, closing at $6.93 per share on June 26, 2026, representing a market capitalization of $1.21 billion. The stock registered a 5.96% gain over a one-month period but remained down 57.27% over the trailing 52 weeks.
The primary catalyst for the stock’s sharp decline was a soft guidance outlook issued by management for the first quarter of 2026. The company pointed to several industry-wide challenges, including:
- Rapidly depreciating wholesale vehicle values, which compressed dealer margins.
- Lower transaction conversion rates on the platform as buyers exercised caution.
- Elevated arbitration costs associated with vehicle condition disputes.
Why Institutional Investors and Hedge Funds Remain Bullish
Despite short-term headwind factors, ArrowMark Partners maintained its position in ACVA. The investment thesis remains anchored on the company’s long-term competitive advantages, notably its highly integrated digital ecosystem and superior customer retention rates. Digitization within the wholesale automotive sector is an secular trend, and ACVA is well-positioned as a primary beneficiary.
This confidence is mirrored by the broader institutional community. According to recent database tracking, the number of hedge funds holding ACV Auctions rose to 47 at the end of the first quarter, up from 44 in the prior quarter. Furthermore, ACVA proved its operational resilience by generating $204 million in Q1 2026 revenue, marking a 12% year-over-year growth rate. This achievement is particularly notable given that severe winter weather caused a mid-single-digit contraction in overall dealer wholesale volumes during the same period.