This report provides an in-depth review of the GW&K Small Cap Core Fund's performance during the third quarter of 2025, detailing key drivers and sector-specific contributions. It highlights both successes in stock selection and areas of underperformance relative to its benchmark, offering insights into market dynamics affecting small-capitalization investments.
Navigating Volatility: A Deep Dive into Small-Cap Fund Dynamics
Market Overview: A Quarter of Contrasts
The third quarter of 2025 presented a nuanced landscape for equity markets, characterized by significant surges in specific segments. Notable gains were observed in gold mining, uranium, quantum computing, artificial intelligence (AI), and meme stocks, indicating a concentrated rally within these high-growth and speculative areas. Despite the Russell 2000\u00ae Index reaching new highs, the broader small-cap universe largely trailed its benchmark, suggesting a divergence in performance between market leaders and the wider small-cap cohort.
Fund Performance: Outperforming and Underperforming Sectors
During this period, the GW&K Small Cap Core Fund achieved positive returns, yet it ultimately did not surpass its designated benchmark. An analysis of sector-specific contributions reveals varied outcomes. The healthcare sector stood out for its robust stock selection, with Medpace emerging as a particularly strong performer, significantly contributing to the fund's positive results. Conversely, the information technology sector proved to be the weakest link, lagging behind the benchmark by a substantial margin of almost 300 basis points. This disparity underscores the challenges and opportunities inherent in sector allocation and stock picking within the small-cap domain.
