This analysis summarizes the performance of the Virtus KAR Small-Mid Cap Core Fund (Class I) during the second quarter of 2025, evaluating key factors that influenced its returns relative to the Russell 2500\u2122 Index.
During the second quarter of 2025, the Virtus KAR Small-Mid Cap Core Fund achieved a return of 3.36% for its Class I shares, which notably lagged behind the Russell 2500\u2122 Index's impressive 8.59% return. A detailed review of the fund's holdings revealed that investment choices within the industrial and healthcare sectors were primary contributors to this underperformance. Conversely, the fund's strategic decision to underweight its exposure to the real estate and energy sectors proved beneficial, providing a positive contribution to its overall returns. Among individual holdings, Bentley Systems and Interactive Brokers Group stood out as the leading positive contributors to the fund\u2019s performance over the quarter. The broader U.S. equity markets experienced considerable fluctuation throughout the second quarter. Initially, markets saw a decline of more than 10% in early April, triggered by the U.S. \"Liberation Day\" tariff announcements. However, they subsequently rebounded strongly, reaching new highs by the end of the quarter.
Reflecting on the quarterly performance, it becomes clear that while market dynamics can introduce volatility, thoughtful strategic positioning and careful stock selection remain crucial. The fund's ability to identify both underperforming and outperforming sectors underscores the importance of a nuanced investment approach. Moving forward, continuous evaluation of sector allocation and individual company fundamentals will be key to navigating dynamic market conditions and striving for enhanced returns.