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MD Sass, a boutique asset management firm, published its second-quarter investor update for its flagship, the "MD Sass Concentrated Value Strategy." The letter can be downloaded here. In the first half of 2026, AI infrastructure stocks led the market, with the Russell 1000 Value increasing by 16.3%, outpacing the S&P 500 (10.2%) and Russell 1000 Growth (5.3%). This growth was fueled by semiconductor, memory, and hardware companies benefiting from AI development, even though they are considered cyclical. These sectors, representing only 7.7% of the Russell 1000 Value at the start of the year, contributed nearly 70% of its returns. The portfolio gained 10.0% in the second quarter, net of fees, compared to 13.9% for the Russell 1000 Value Index. Year-to-date, the strategy returned 6.6%, net of fees, versus 16.3% for the Index. The portfolio faced challenges due to limited exposure to companies with the greatest upside from AI infrastructure investments. It also lacked exposure to the Energy sector, which returned about 20% in the first half amid geopolitical tensions with Iran that increased commodity prices, affecting performance. The firm recognizes the importance of adapting its strategies while maintaining core investment principles as it explores future opportunities in emerging technological themes. Also, check the fund's top five holdings to see its best picks in 2026.

In its second-quarter 2026 investor letter, MD Sass Concentrated Value Strategy highlighted Flowserve Corporation (NYSE:FLS). Flowserve Corporation (NYSE:FLS) is an industrial company that focuses on industrial flow management equipment. On August 28, 2026, Flowserve Corporation (NYSE:FLS) closed at $80.33 per share. The one-month return of Flowserve Corporation (NYSE:FLS) was 4.95%, and its shares gained 49.70% over the past 52 weeks. Flowserve Corporation (NYSE:FLS) has a market capitalization of $10.21 billion.

MD Sass Concentrated Value Strategy stated the following regarding Flowserve Corporation (NYSE:FLS) in its Q2 2026 investor letter:

"We initiated a position in Flowserve Corporation (NYSE:FLS), a global leader in pumps, valves, seals, and other flow control equipment used across energy, power generation, chemicals, water, and general industrial markets. The company operates through its Pumps and Flow Control divisions and benefits from a large installed base that generates recurring, high-margin aftermarket revenue. Over the past several years, management has materially improved the quality of the business through more selective bidding, portfolio rationalization, and its 80/20 operating framework. Adjusted operating margins reached 14.8% in 2025, up 300 bps from the prior year, and management is targeting approximately 20% by 2030.

While continued margin expansion and aftermarket growth support the investment case, the crux of our thesis is nuclear power. FLS is one of the leading suppliers of highly engineered pumps and valves used in nuclear reactors. These components are mission critical, must operate under extreme pressure and temperature, and are frequently specified and qualified early in the reactor design process. Once installed, switching suppliers is difficult due to regulatory requirements and the operational risk associated with changing critical equipment. This creates both attractive original equipment economics and a long stream of replacement parts and service revenue over the life of a reactor..." (Click here to read the full text)

Flowserve Corporation (NYSE:FLS) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held Flowserve Corporation (NYSE:FLS) at the end of the second quarter, which was 48 in the previous quarter. While we acknowledge the potential of Flowserve Corporation (NYSE:FLS) 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 a previous article, we discussed Flowserve Corporation (NYSE:FLS) and noted that it detracted from Voya MI Dynamic Small Cap Fund's Q2 performance due to weaker organic sales, a reduced growth outlook, and investor concerns over management execution. In addition, please check out our hedge fund investor letters Q2 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.