The Nationwide Geneva Small Cap Growth Fund faced challenges in the fourth quarter of 2025, recording a negative return against a backdrop where lower-quality and smaller-cap companies unexpectedly outperformed. Despite this, the fund steadfastly adhered to its core investment philosophy, prioritizing high-quality businesses with strong financial attributes. This strategic positioning reflects a long-term outlook, banking on a market recalibration that will eventually recognize and reward fundamental strength and sustainable growth.
Looking ahead, the fund managers anticipate a market environment in 2026 where a focus on company fundamentals and quality will regain prominence. They plan to continue their disciplined approach, emphasizing companies with robust earnings growth and transparent business models. This strategy is expected to yield positive results as market dispersion increases, creating opportunities for active management to identify and capitalize on undervalued, high-quality assets.
Quarterly Performance and Market Anomalies
In the final quarter of 2025, the Nationwide Geneva Small Cap Growth Fund, specifically its IS Share Class, registered a return of -0.86%. This figure contrasts with the 1.22% gain posted by its benchmark, the Russell 2000® Growth Index, indicating an underperformance. A significant factor contributing to this disparity was an unusual market trend where investments in higher-quality companies acted as a drag on performance. In the broader U.S. equity landscape, lower-rated companies (those with a B or worse quality rating) surprisingly delivered a 4.52% return, markedly outperforming their higher-quality counterparts (rated B+ or better) which yielded only 2.11%.
The challenges observed within the broader market were mirrored within the Russell 2000 Growth Index. Non-earning companies within this index posted a substantial 7.1% return, while very small-cap companies (with market capitalizations under $250 million) saw an impressive 12.3% gain. Furthermore, stocks trading in the $5 to $10 price range achieved an 8.5% return. These trends suggest a speculative market environment where investors favored companies with less established fundamentals or smaller valuations, diverging from traditional quality-driven investment strategies. The Fund's sustained overweighting in high-quality companies, characterized by predictable recurring revenues and consistent performance, proved to be a headwind during this period, as market sentiment leaned towards more speculative ventures rather than established financial strength.
Strategic Outlook and Future Positioning
Despite the recent underperformance stemming from a market bias towards lower-quality assets, the Nationwide Geneva Small Cap Growth Fund remains committed to its investment philosophy, which centers on high-quality companies. The fund continues to strategically allocate capital towards businesses exhibiting strong recurring revenue models, clear revenue visibility, and consistent operational performance. This approach is founded on the belief that such companies offer greater long-term resilience and growth potential, even if short-term market dynamics occasionally favor more speculative investments. The fund managers are confident that focusing on these fundamental strengths will ultimately benefit investors as market conditions evolve and a preference for quality re-emerges.
Looking ahead to 2026, the Fund anticipates a shift in market sentiment where core fundamentals will once again drive investment decisions. The management team expects an environment characterized by broadening earnings growth across various sectors and increased market dispersion, which is advantageous for active managers. This projected landscape would allow the Fund to capitalize on its existing positions in high-quality companies, demonstrating the value of a disciplined, fundamental-driven strategy. The Fund's positioning is thus designed not only to navigate current market complexities but also to thrive in future conditions where operational excellence and inherent quality are duly rewarded. This forward-looking stance underpins the Fund's unwavering dedication to delivering long-term capital appreciation for its shareholders.
