During the third quarter of 2025, the investment landscape was notably influenced by the robust performance of technology equities, particularly those associated with artificial intelligence. However, the Virtus KAR Mid-Cap Growth Fund (Class I) experienced a challenging period, recording a return of -1.19%, which fell short of the Russell Midcap Growth Index's 2.78% gain. This performance divergence highlights the complexities of navigating dynamic market conditions despite broader sector strength.
Throughout the third quarter, technology companies, especially those deeply embedded in artificial intelligence, continued to capture significant market attention and drive overall growth in the large-cap segment. This trend was clearly reflected in the Russell 1000® Growth Index, which saw a substantial 10.51% increase. This positive momentum in larger growth stocks, however, did not uniformly translate across all market capitalization segments, as evidenced by the mid-cap fund's results.
In terms of specific holdings, Amphenol and Celsius emerged as the primary positive contributors to the fund's performance during this period. These companies likely benefited from strong operational results or favorable market sentiment that propelled their stock values upwards, providing some uplift to the fund amidst a generally challenging quarter. Their successful navigation of market dynamics underscores the importance of strategic stock selection.
Conversely, Gartner and Goosehead Insurance were identified as the most significant negative influences on the fund's performance. The underperformance of these stocks could stem from various factors, including sector-specific headwinds, company-specific challenges, or shifts in investor preference away from their business models. Such detractors highlight the inherent risks and volatility in actively managed funds, even within a growth-oriented strategy.
The third quarter of 2025 presented a mixed environment for growth funds. While the broader technology sector, particularly in large-cap and AI-related areas, showed considerable strength, the Virtus KAR Mid-Cap Growth Fund faced specific headwinds that led to its underperformance relative to its benchmark. This outcome underscores the critical role of individual stock performance within a diversified portfolio and the constant need for vigilant management in response to evolving market conditions.
