Conestoga's Q3 2025 Commentary: Navigating the SMID Cap Horizon with Strategic Precision

As we conclude the third quarter of 2025, Conestoga Capital Advisors is pleased to present its comprehensive commentary on the SMID Cap Composite's performance. Q3 proved to be a dynamic period, characterized by evolving macroeconomic landscapes and shifting investor sentiment, yet our disciplined approach continued to yield compelling results within the small and mid-cap equity space.

Throughout Q3 2025, the Conestoga SMID Cap Composite demonstrated its resilience and strategic foresight, navigating a market that presented both opportunities and challenges.

While broader indices experienced mixed signals, our meticulously curated portfolio, focused on high-quality growth businesses, maintained a robust trajectory. We observed continued strength in several key sectors, particularly in areas benefiting from innovation and essential services, which significantly contributed to the composite's outperformance against its benchmarks.

The macroeconomic environment in Q3 2025 was marked by ongoing discussions around inflation moderation, interest rate policy, and resilient consumer spending.

These factors created a nuanced backdrop for equity markets. Small and mid-cap companies, often more sensitive to domestic economic shifts, required astute selection. Our investment philosophy, centered on identifying companies with strong balance sheets, sustainable competitive advantages, and proven management teams, proved instrumental in identifying the leaders amidst the noise.

We believe this focus on fundamental strength is paramount, especially when market volatility picks up.

Key performance drivers for the quarter included select holdings within the technology and healthcare sectors, where companies continued to deliver strong earnings growth and demonstrate pricing power.

Furthermore, several industrial companies, benefiting from renewed infrastructure spending and operational efficiencies, also made significant positive contributions. Conversely, we selectively trimmed positions in areas where valuations appeared stretched or where fundamental outlooks began to show signs of deterioration, reflecting our active management style and commitment to risk mitigation.

Looking ahead to Q4 2025 and beyond, Conestoga remains cautiously optimistic about the prospects for the SMID Cap segment.

While potential headwinds such as geopolitical uncertainties and evolving monetary policies warrant careful monitoring, we believe that the market's long-term growth drivers remain intact. Our research indicates that numerous small and mid-cap companies possess untapped growth potential, offering compelling opportunities for investors willing to undertake thorough due diligence.

We will continue to adhere to our rigorous investment process, focusing on bottom-up stock selection and maintaining a high conviction portfolio.

Our team remains dedicated to uncovering the next generation of market leaders, ensuring that the Conestoga SMID Cap Composite is well-positioned to deliver sustained long-term value for our investors. We appreciate your continued trust and confidence.