Unlocking Growth: Virtus KAR Mid-Cap Fund's Q2 2025 Journey

The second quarter of 2025 proved to be a dynamic period for mid-capitalization growth equities, presenting both challenges and compelling opportunities. As the broader market grappled with evolving macroeconomic signals, including shifting interest rate expectations and persistent inflation concerns, the Virtus KAR Mid-Cap Growth Fund strategically navigated these currents to deliver insightful performance for its investors.

Amidst this intricate backdrop, the fund's investment philosophy, centered on identifying innovative companies with strong competitive advantages and sustainable growth trajectories, remained steadfast.

This quarter saw a continued emphasis on sectors poised for long-term expansion, such as advanced technology, healthcare innovation, and select consumer discretionary plays exhibiting resilient demand. Our rigorous bottom-up research process allowed us to pinpoint businesses that, despite broader market headwinds, demonstrated robust fundamentals and clear paths to future earnings growth.

Looking at performance drivers, several key holdings emerged as significant contributors during Q2.

Companies within the artificial intelligence ecosystem, particularly those enabling AI infrastructure and specialized software solutions, experienced strong appreciation as market confidence in the technology's transformative potential solidified. Additionally, select healthcare companies pioneering breakthrough therapies and diagnostics also provided a notable uplift, underscoring the enduring value of innovation in critical sectors.

Conversely, certain areas of the market, particularly those sensitive to shifts in consumer spending patterns or facing increased competitive pressures, presented some headwinds.

While these positions were carefully managed, the fund’s disciplined approach to portfolio construction, emphasizing diversification and risk management, helped mitigate their overall impact. Our team remains committed to actively monitoring these dynamics, prepared to adjust exposures as market conditions dictate, always with an eye toward preserving capital and fostering long-term appreciation.

As we move into the latter half of 2025, the investment landscape for mid-cap growth companies continues to evolve.

We anticipate ongoing volatility but also believe that periods of market uncertainty often uncover the most attractive investment opportunities for those with a discerning eye. Our conviction in our core strategy — investing in high-quality, growth-oriented businesses with strong management teams and clear competitive moats — is stronger than ever.

The fund's portfolio is carefully positioned to capitalize on emerging trends and navigate potential disruptions, aiming to deliver superior risk-adjusted returns to our shareholders in the quarters to come. We remain vigilant, adaptable, and focused on uncovering the next generation of market leaders.