Virtus KAR Small-Mid Cap Growth Fund: Unpacking Q4 2025 Performance and Our Vision Ahead

As the curtain closed on 2025, we found ourselves reflecting on a rather eventful fourth quarter – a period that, for many, perhaps felt like a microcosm of the year itself, full of intriguing twists and turns. Here at Virtus KAR, within our Small-Mid Cap Growth Fund, we've been keenly observing the shifts, sifting through the noise, and, of course, diligently managing your investments. This latest commentary is our opportunity to share our thoughts on Q4's performance, what drove the market, and importantly, where our focus lies as we step into the new year.

You know, the small and mid-cap growth universe often dances to its own rhythm, and Q4 2025 was certainly no exception. While the broader market might have enjoyed some tailwinds, our specific corner of the investment world presented a more nuanced picture. We saw moments of robust enthusiasm, particularly for companies demonstrating clear pathways to profitability and sustainable competitive advantages. Yet, there were also periods where investor sentiment wavered, perhaps driven by lingering macroeconomic uncertainties or simply a natural pause after earlier gains. For us, navigating this dynamic environment really underscored the importance of diligent, fundamental stock selection.

Looking back, a significant portion of our fund's performance this past quarter really stemmed from our disciplined approach to identifying what we believe are truly innovative and well-managed businesses. We continued to favor companies with strong balance sheets, leadership positions in niche markets, and products or services that genuinely solve problems. For instance, our conviction in specific software providers and certain specialized healthcare innovators truly paid dividends, showcasing the power of growth at a reasonable price, even in a more selective market. It's a testament, we think, to the quality-growth philosophy we champion.

Of course, it wasn't all smooth sailing – no quarter ever truly is, especially in the small-mid cap space. We did encounter some headwinds with a few positions, largely due to unexpected industry-specific shifts or, occasionally, broader market reactions that temporarily overshadowed strong fundamentals. These moments, while challenging, are invaluable. They push us to continually refine our thesis, re-evaluate assumptions, and ensure our portfolio remains resilient. We learn, we adapt, and we emerge stronger, always with an eye on the long-term horizon.

As we gaze into 2026, we remain cautiously optimistic about the prospects for small and mid-cap growth companies. There's a palpable sense that the market is beginning to appreciate the innovation and potential residing within this segment, perhaps more so than in previous periods. We anticipate a continued focus on companies that can deliver genuine earnings growth, regardless of the broader economic backdrop. Our strategy, therefore, remains consistent: to seek out those hidden gems, those future leaders with compelling business models and robust growth trajectories. We believe patient, disciplined investing in this space is poised to reward those who look beyond the immediate headlines.

Thank you for entrusting us with your capital. The team at Virtus KAR is deeply committed to our investment process and to navigating these ever-evolving markets on your behalf. We're excited about the opportunities that lie ahead and look forward to sharing further insights with you as the new year unfolds. Here's to a prosperous 2026!