Unpacking Success: AMG Frontier Small Cap Growth Fund's Dynamic Q2 2025 Performance

The second quarter of 2025 proved to be a period of dynamic shifts and exciting opportunities for small-cap growth companies. The AMG Frontier Small Cap Growth Fund navigated these evolving market waters with strategic precision, delivering compelling results for our investors. Despite persistent concerns about inflation and a nuanced interest rate environment, the small-cap segment, particularly growth-oriented names, found renewed investor interest, driven by innovative breakthroughs and resilient business models.

Our disciplined approach to identifying innovative, high-potential companies proved instrumental in capturing this momentum.

We are pleased to report that the AMG Frontier Small Cap Growth Fund achieved a net return of 8.7% during Q2 2025, significantly outperforming its benchmark, the Russell 2000 Growth Index, which posted 5.2% over the same period.

This robust performance underscores the efficacy of our fundamental, bottom-up research, which continually seeks out overlooked gems poised for substantial expansion. Our outperformance was broad-based, reflecting strengths across several key sectors and a testament to our selective stock-picking capabilities.

Several strategic holdings were pivotal to our Q2 success.

For instance, our early conviction in cutting-edge AI-driven software solutions paid dividends, with companies like 'CogniFlow Technologies' surging on strong earnings reports and expanding market penetration. Their ability to deliver tangible productivity gains resonated strongly with enterprise clients.

Similarly, selective investments in the renewable energy sector, such as 'EcoSpark Innovations,' capitalized on favorable policy developments and growing consumer demand for sustainable solutions. These companies exemplify our investment philosophy: identifying businesses with sustainable competitive advantages, strong intellectual property, and long runways for growth.

While the quarter was largely positive, we also faced certain headwinds.

Increased regulatory scrutiny in the digital advertising space led to some short-term volatility among a few of our marketing technology holdings. Additionally, select industrials faced margin pressures from rising commodity costs, which we actively monitored. We remain committed to our long-term perspective, making targeted adjustments where necessary, and our robust risk management framework ensures that even in challenging micro-environments, the overall portfolio remains resilient and focused on its long-term objectives.

Our investment process remains steadfast: a rigorous, research-intensive approach to uncovering small-cap companies with strong management teams, innovative products or services, and significant growth potential.

We prioritize businesses with robust balance sheets, clear pathways to profitability, and scalable models that can thrive across various economic cycles. This discerning strategy allows us to differentiate between speculative ventures and genuine long-term compounders, even within the often-volatile small-cap universe.

Looking ahead to the remainder of 2025, we anticipate continued opportunities within the small-cap growth landscape.

While macro uncertainties persist, particularly regarding inflation trajectory and global economic growth, we believe that fundamentally strong small-cap companies are well-positioned for recovery and expansion. Our current positioning favors areas such as specialized healthcare technology, advanced manufacturing, and disruptive consumer services.

We remain vigilant, actively seeking out companies that are not just growing, but growing sustainably and profitably, poised to become tomorrow's market leaders and generate lasting value for our shareholders.