This Small-Cap Fund Just Bet $7 Million on Root’s Comeback

California-based Palisades Investment Partners disclosed a new position in Root (NASDAQ:ROOT) valued at $7.3 million as of September 30, according to an SEC filing released Thursday.

What Happened

On Thursday, Palisades Investment Partners reported a new stake in Root, acquiring 81,716 shares in the third quarter. The position, valued at $7.3 million as of September 30, was disclosed in a Form 13F filed with the U.S. Securities and Exchange Commission. The addition brings the fund’s total reportable U.S. equity holdings to 49 positions.

What Else to Know

This move marks a new position for the fund, with Root representing 2.9% of reportable assets under management as of September 30.

Top five holdings after the filing:

• NASDAQ:STRL: $32.5 million (12.8% of AUM)
• NYSE:SPXC: $21 million (8.2% of AUM)
• NASDAQ:MMYT: $11 million (4.3% of AUM)
• NYSEMKT:IWM: $9.8 million (3.8% of AUM)
• NASDAQ:ITRI: $9.2 million (3.6% of AUM)

As of Friday's market close, Root shares were priced at $80.52, up nearly 18% over the past year—just behind the S&P 500's 19% gain in the same period.

Company Overview

Company Snapshot

• Root provides automobile, homeowners, and renters insurance products.
• The company operates a direct-to-consumer model leveraging mobile applications, website, digital media, and distribution partners to acquire and serve customers efficiently.
• It targets individuals and households in the United States seeking property and casualty insurance solutions.

Root is a technology-driven insurance provider specializing in property and casualty products, with a focus on personal auto, homeowners, and renters insurance. The company differentiates itself through a direct distribution model and digital-first approach, aiming to streamline the insurance experience for customers.

Foolish Take

Palisades Investment Partners’ new position in Root, Inc. seems like a classic small-cap momentum bet for the Santa Monica-based firm, which favors companies showing improving earnings dynamics and balance-sheet strength. The timing is also notable: In the same quarter, Palisades fully exited ADMA Biologics, suggesting a pivot from steady but mature healthcare exposure to a tech-driven growth story.

Root shares remain down 81% from five years ago, reflecting skepticism around the company and potentially insurers more generally, but the firm's second quarter offered early signs of a turnaround. The insurer posted $22 million in net income, swinging from a loss a year earlier, and achieved a gross combined ratio of 94%, a measure of underwriting profitability. Policies in force climbed 12% year over year, with partnership channel writings nearly tripling, thanks to deeper integrations with agents and partners like Carvana.

For long-term investors, Palisades’ entry underscores its contrarian small-cap approach—buying early into recovering balance sheets before consensus turns. But Root still faces execution risks in scaling profitably amid fierce competition and economic sensitivity.

Glossary

13F: A quarterly SEC filing by institutional investment managers disclosing their equity holdings.
Assets Under Management (AUM): The total market value of investments managed by a fund or firm on behalf of clients.
Form 13F: A regulatory filing required by the SEC for institutional investment managers with over $100 million in qualifying assets.
Trailing Twelve Months (TTM): The 12-month period ending with the most recent quarterly report.
Enterprise Value to EBITDA: A valuation ratio comparing a company's total value to its earnings before interest, taxes, depreciation, and amortization.
Forward Price-to-Earnings Ratio: A valuation metric dividing a company's current share price by its projected future earnings per share.
Direct-to-Consumer Model: A business approach where products are sold directly to customers, bypassing traditional intermediaries.
Reportable Assets: Investments that must be disclosed in regulatory filings, such as those required by the SEC.
Outperforming: Achieving a higher return than a benchmark or comparable investment over a specific period.
Stake: The ownership interest or shareholding an investor or fund holds in a company.
Position: The amount of a particular security or asset held by an investor or fund.
Property and Casualty Insurance: Insurance covering property loss or damage and liability for accidents or injuries to others.

Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MakeMyTrip and Sterling Infrastructure. The Motley Fool has a disclosure policy.