During the third quarter of 2025, the Gabelli Small Cap Growth Fund experienced an underperformance relative to several key benchmarks, including the Russell 2000 Total Return Index, the S&P SmallCap 600 Total Return Index, and the Lipper Small-Cap Core Funds Average. This period, spanning from July 1st to September 30th, 2025, saw varied contributions from the fund's holdings. Notable positive impacts came from companies in the industrial and infrastructure sectors such as Mueller Industries, Gorman-Rupp Co., and GATX Corp., which constituted significant portions of the fund's net assets. Conversely, several other investments, including Ryman Hospitality Properties, Badger Meter, Inc., and Herc Holdings, Inc., acted as detractors, negatively influencing the fund's overall performance during this quarter.
The fund's investment strategy focuses on identifying small-cap growth opportunities, and its recent performance reflects the inherent volatility and specific market dynamics within this segment. While the fund aims for long-term capital appreciation by investing in companies with strong growth potential, short-term fluctuations are an expected part of the journey. The detailed analysis of the fund's quarterly performance provides an essential snapshot for investors, shedding light on the factors that shaped its trajectory against broader market trends and peer group averages.
A closer look at the key contributors reveals a strategic emphasis on sectors with robust fundamentals and growth prospects. Mueller Industries, representing 3.8% of the net assets, Gorman-Rupp Co. at 1.8%, and GATX Corp. with 2.9%, are examples of holdings that demonstrated resilience and upward momentum. These companies, primarily within industrials and infrastructure, likely benefited from specific market conditions or strong operational results that boosted their stock prices. Their positive performance helped mitigate some of the headwinds faced by other parts of the portfolio.
On the other hand, holdings like Ryman Hospitality Properties, Inc. (1.1%), Badger Meter, Inc. (1.0%), and Herc Holdings, Inc. (1.0%) faced challenges during the quarter, leading to a drag on the fund's returns. The reasons for their underperformance could vary, ranging from sector-specific pressures, company-specific operational issues, or broader economic shifts impacting their respective markets. Understanding these detractors is crucial for the fund management to reassess strategies and make informed decisions for future periods.
Despite the recent quarterly underperformance, it's important to consider the long-term track record. For instance, the Class I shares of the fund have shown competitive annualized returns over longer periods. Over a ten-year span, these shares delivered 10.58%, and an impressive 11.90% since inception, both figures surpassing the Russell 2000's performance of 9.77% and 9.42% respectively over the identical timeframes. This long-term perspective suggests that while short-term market movements can create volatility, the fund's underlying investment philosophy has historically generated favorable outcomes for its investors.
The third quarter of 2025 served as a period of mixed results for the Gabelli Small Cap Growth Fund, characterized by strong contributions from industrial and infrastructure names alongside weaker performances from other select holdings. These outcomes highlight the dynamic nature of small-cap investing and the importance of a diversified approach to navigate market complexities.
