Navigating the Mid-Cap Landscape: A Q3 2025 Investment Review

Well, here we are, reflecting on another quarter gone by. It feels like just yesterday we were kicking off the year, and now Q3 2025 is firmly in the rearview mirror. For those of us managing the Allspring Special Mid Cap Value Fund, this past quarter, stretching from July through September, certainly provided its own unique set of dynamics within the broader market landscape. We believe it was a period that, perhaps more than any other recently, truly underscored the enduring importance of a disciplined, value-oriented approach, especially when navigating the ever-shifting currents of the mid-cap space.

The mid-cap universe, always a fascinating arena, continued to demonstrate its distinctive characteristics during Q3. While the headlines often gravitate towards the mega-cap tech giants, or perhaps the small-cap realm, mid-caps really carve out their own path, offering a compelling blend of growth potential and established business models. We saw a continuation of themes from earlier in the year, particularly a cautious sentiment around economic growth and, frankly, a bit of a tug-of-war between lingering inflation concerns and the hopeful anticipation of potential interest rate adjustments. What’s interesting, and something we’ve consistently highlighted, is how this environment often creates fantastic opportunities for those willing to do the hard work of identifying undervalued, high-quality businesses that might just be overlooked by the broader market.

Looking specifically at our fund, the Allspring Special Mid Cap Value Fund, we're pleased to report that our steadfast commitment to fundamental research and a rigorous valuation discipline helped us navigate these choppy waters effectively. Our strategy, as you know, focuses on identifying financially sound companies that are, for one reason or another, trading below what we believe to be their intrinsic value. We're not chasing fads here; we're investing in businesses with solid balance sheets, robust free cash flow generation, and management teams we trust. During Q3, our exposure to certain industrials, for instance, proved quite beneficial, as some of these firms showed surprising resilience in their order books and improved operational efficiencies. Similarly, a few carefully selected holdings within the regional banking sector, which had faced some headwinds earlier in the year, began to show signs of stabilizing, reflecting a more rational valuation environment for these crucial institutions.

Of course, it wasn’t all smooth sailing, and no quarter ever is. There were certainly a few areas that presented challenges, perhaps a consumer discretionary name that struggled with softer demand than anticipated, or a healthcare firm facing unexpected regulatory hurdles that impacted sentiment. These are the kinds of bumps in the road one expects, and they simply reinforce our belief in thorough due diligence and broad diversification. The key, in our view, isn’t to avoid all challenges—that's impossible—but rather to understand them deeply and position the portfolio with a robust margin of safety, preparing for various market scenarios.

As we peer into the final quarter of 2025 and beyond, the economic landscape remains nuanced, to say the least. While some indicators point to a potential soft landing, we remain vigilant, keeping a close eye on consumer spending trends, corporate earnings trajectories, and global geopolitical developments. We firmly believe that the mid-cap value space continues to offer a compelling risk-reward proposition for patient investors. Many of these companies possess the agility of smaller firms combined with the proven business models and market positions of larger enterprises, yet they often trade at a discount compared to their growth-oriented peers. Our conviction in our process, our dedicated team, and the inherent quality of the companies we invest in remains as strong as ever. Thank you for entrusting us with your capital; we look forward to continuing to work diligently on your behalf.