Navigating the Shifting Sands: AMG GW&K Small Cap Core Fund's Q2 2025 Commentary

The second quarter of 2025 presented a complex tapestry of economic signals, demanding a nuanced approach from investors. While inflation showed persistent signs of moderation, global economic growth demonstrated resilience in some pockets, juxtaposed with continued uncertainty in others. For the small-cap universe, these crosscurrents translated into a dynamic period, where fundamental strength and strategic positioning proved paramount.

Amidst this backdrop, the AMG GW&K Small Cap Core Fund remained committed to its disciplined investment philosophy, focusing on high-quality companies with strong balance sheets, sustainable competitive advantages, and robust management teams.

Our strategy continues to emphasize identifying businesses capable of navigating economic fluctuations and generating long-term shareholder value, irrespective of short-term market noise.

During Q2, small-cap equities, as measured by benchmarks like the Russell 2000, experienced periods of volatility.

Initial optimism surrounding potential interest rate cuts faced recalibration as central banks adopted a more measured tone, responding to sticky inflation data and robust labor markets. This environment, while challenging for some, created opportune entry points for fundamentally sound businesses whose valuations had been unduly pressured.

The Fund's performance during this quarter reflected the strength of our selective approach.

While we acknowledge the broader market swings, our portfolio’s resilience stemmed from its allocation to companies exhibiting consistent profitability, manageable debt levels, and clear pathways to future growth. We saw particular strength in specific industrial and technology sub-sectors where innovative solutions and strong demand profiles continued to drive earnings.

Conversely, sectors heavily reliant on discretionary consumer spending or those with high capital intensity and significant debt burdens faced headwinds.

Our underweighting in these areas, based on our rigorous due diligence, helped mitigate some of the broader market downturns.

Looking ahead, we maintain a cautiously optimistic outlook for small-cap equities for the remainder of 2025. While macroeconomic uncertainties, including geopolitical tensions and the trajectory of global monetary policy, persist, we believe the current environment continues to favor active management and a focus on intrinsic value.

Small-cap companies, often less followed and more susceptible to mispricing, present fertile ground for patient, research-intensive investors.

Our team remains vigilant, actively monitoring market developments and engaging deeply with our portfolio companies. We believe that by adhering to our core principles – a focus on quality, financial strength, and sustainable growth – the AMG GW&K Small Cap Core Fund is well-positioned to capitalize on emerging opportunities and deliver long-term value for our shareholders as the market evolves.