3Q2025 - U.S. Micro Cap Growth Commentary
The third quarter of 2025 marked a continuation of some of the themes that drove leadership in the second quarter, and most notably around AI and the associated infrastructure build out.
- The U.S. Micro Cap Growth Composite Portfolio returned 15.8% gross and 15.7% net of fees in Q3 2025, compared to 19.9% for the Russell Microcap Growth Index.
- Micro caps outpaced large caps in Q3, with the Russell Microcap Growth Index returning +19.9% as earnings revisions broadened and markets anticipated Fed rate cuts.
- The sectors more exposed to the AI narrative tended to perform best, with Technology, Industrials, and Materials driving roughly 60% of the overall index return.
- The biggest driver of performance, however, came in the form of Health Care, with Biotech leading the way as an outsized beneficiary of lower rates and a pickup in M&A activity.
- As a measure of breadth, 60% of companies in the Russell Microcap Growth Index delivered positive performance in the quarter and all sectors were positive except for Communication Services