The MSCI All Country World Ex USA Small Mid Cap Index demonstrated a significant advance of 6.22% during the third quarter, culminating in a robust year-to-date return of 26.78%. This period was characterized by considerable market attention drawn to the burgeoning field of artificial intelligence (AI). In contrast, the Virtus KAR International Small-Mid Cap Fund (Class I) recorded a negative return of -4.98% for the quarter, indicating a notable underperformance against its benchmark index. Despite this, specific holdings such as Haw Par and Caixa Seguridade Participacoes provided positive contributions to the fund's overall results during these three months.
The global investment landscape for small and mid-cap companies outside the United States revealed a dynamic performance, with the relevant MSCI index achieving a solid gain. This upward trend was significantly influenced by broad market speculation surrounding artificial intelligence, which captured investor interest and drove activity across various sectors. Meanwhile, the Virtus KAR International Small-Mid Cap Fund faced headwinds, resulting in a negative return that lagged behind the index's positive momentum. The fund's performance, while generally challenging, was buoyed by key holdings like Haw Par and Caixa Seguridade Participacoes, which managed to deliver favorable outcomes in an otherwise difficult quarter for the fund.
Global Small-Mid Cap Index Performance
During the third quarter, the MSCI All Country World Ex USA Small Mid Cap Index registered a notable increase of 6.22%, propelling its year-to-date performance to an impressive 26.78%. This robust growth across international small and mid-sized companies was largely fueled by pervasive market interest in artificial intelligence. The speculative fervor around AI technology acted as a significant catalyst, shaping investment trends and driving positive momentum throughout various economic sectors globally.
The MSCI All Country World Ex USA Small Mid Cap Index's strong showing in the third quarter highlights a buoyant period for international smaller and mid-sized enterprises. This index, a critical benchmark for these market segments, saw its value rise by over six percent, extending its annual gains to nearly twenty-seven percent. A primary factor underpinning this remarkable performance was the widespread market enthusiasm surrounding artificial intelligence, which has become a dominant theme in investment circles. This intense focus on AI not only stimulated growth in directly related companies but also created a ripple effect, positively influencing broader market dynamics and investor sentiment across numerous industries.
Virtus KAR Fund Underperformance and Key Contributors
In stark contrast to the benchmark, the Virtus KAR International Small-Mid Cap Fund (Class I) experienced a challenging quarter, reporting a return of -4.98%. This result signifies a significant underperformance compared to the MSCI All Country World Ex USA Small Mid Cap Index. Despite the overall downturn, the fund's portfolio saw positive contributions from specific holdings, with Haw Par and Caixa Seguridade Participacoes emerging as the largest positive drivers of performance during this period.
The third quarter proved to be difficult for the Virtus KAR International Small-Mid Cap Fund, which posted a negative return of nearly five percent, falling short of the market's broader positive trends. This underperformance suggests that the fund's strategy or asset allocation did not fully capitalize on the general market uplift, particularly in sectors boosted by AI speculation. Nevertheless, not all holdings within the fund performed poorly. Notably, investments in Haw Par and Caixa Seguridade Participacoes provided crucial support, acting as the strongest positive influences on the fund's returns and somewhat mitigating the overall negative impact experienced by the portfolio.
