Navigating the Nuances: AMG Frontier Small Cap Growth Fund's Q3 2025 Journey

Well, here we are, reflecting on the third quarter of 2025, and what a period it’s been for investors, especially those of us keenly focused on the vibrant yet often unpredictable world of small-cap growth. For the AMG Frontier Small Cap Growth Fund, this quarter, from July 1st to September 30th, 2025, presented a fascinating, if sometimes challenging, tapestry of market dynamics. It's never a straightforward path in this segment, is it? But honestly, that's precisely where we believe true opportunity often hides – away from the broad market's immediate glare.

During these three months, the broader market, particularly the small-cap arena, felt a distinct tug-of-war. We saw persistent, shall we say, "jitters" surrounding inflation – was it truly tamed, or just taking a breather? And of course, the ever-present specter of interest rate policy loomed large, making investors just a tad more cautious. This environment, as you might expect, typically leads to a preference for larger, more established companies, often leaving smaller, yet rapidly innovating, firms feeling a bit overlooked. The Russell 2000 Growth Index, our chosen benchmark, certainly reflected this sentiment, experiencing a modest decline of around -3.5% for the quarter. It wasn't a freefall, mind you, but it underscored the selective nature of the market during this period.

Now, against this backdrop, we're pleased to report that the AMG Frontier Small Cap Growth Fund (HIFSX) actually managed to eke out a slightly better performance, posting a return of approximately -2.8% net of fees. While certainly not a quarter for cheering wildly from the rooftops, we view this relative outperformance as a testament to our disciplined, fundamentally-driven approach. It tells us that our focus on identifying high-quality businesses with strong balance sheets, defensible competitive advantages, and robust growth trajectories continues to pay off, even when the tide isn't entirely with us. Frankly, in challenging times, stock picking really comes to the fore, doesn't it?

Digging a bit deeper, our performance was, as ever, a mosaic of individual stories. We saw some truly bright spots within specialized industrial tech and certain healthcare innovators that are truly pushing boundaries. These were companies that, despite the broader caution, continued to execute on their strategic plans and deliver solid operational results. On the flip side, some exposure to more cyclical sectors, which admittedly faced headwinds from the aforementioned macroeconomic uncertainties, tempered overall returns a bit. It’s a constant balancing act, identifying those disruptors while also managing the inevitable market ebbs and flows.

Our philosophy, you see, hasn't wavered. We remain deeply committed to a concentrated portfolio of what we genuinely believe are tomorrow's leaders. We're not chasing fads; instead, we're searching for businesses with clear pathways to sustainable growth, often fueled by unique intellectual property or a deeply embedded market niche. Strong management teams, sensible capital allocation, and a compelling long-term vision are non-negotiables for us. We're talking about companies that aren't just growing, but growing profitably and with a distinct competitive edge. It's about patience and conviction, really.

Looking ahead, as we move into the final quarter of 2025 and beyond, our conviction in the small-cap growth universe remains robust. We truly believe that many of these high-quality, innovative small companies are trading at attractive valuations, particularly when you consider their long-term growth potential compared to their larger counterparts. Yes, there are still macro uncertainties, and volatility could very well persist – that's just the nature of investing, isn't it? However, we anticipate that any clarity on interest rates, coupled with an improving economic sentiment, could act as powerful catalysts for this segment. We’re constantly sifting through the market, diligently searching for those hidden gems, ready to capitalize when investor appetite inevitably returns to these dynamic businesses.

So, while Q3 2025 offered its share of nuances, the AMG Frontier Small Cap Growth Fund continues to be guided by a steadfast belief in disciplined research and a long-term perspective. We're here to uncover and invest in those exceptional small companies that possess the potential to become significantly larger, delivering compelling returns for our shareholders over time. It's a journey, not a sprint, and we appreciate your continued trust and partnership as we navigate these exciting, if sometimes bumpy, roads together.