The Wasatch Micro Cap Fund demonstrated resilience by achieving a 4.83% positive return in 2025, despite facing a challenging market where lower-quality micro-cap growth companies significantly outperformed. This dynamic led to the fund trailing its benchmark, which surged by 21.84%. Throughout a period of considerable market fluctuations, the Russell Microcap® Growth Index managed a 2.14% gain in the last quarter. Notably, the healthcare sector, particularly biotechnology and pharmaceutical companies, played a crucial role in driving these benchmark returns. The year 2025 marked one of the most intense rallies for lower-quality market segments in Wasatch's five-decade history, underscoring the unique market conditions.
Amidst this backdrop, the fund's strategic sector allocations played a vital role in its performance. While a deliberate avoidance of unprofitable biotech and pharma companies negatively impacted relative returns, strong stock selection within the industrial, consumer staples, and consumer discretionary sectors helped to counteract these effects. For instance, top holdings like Axogen are poised for growth due to expanded FDA approvals and market exclusivity. Similarly, Mama’s Creations is leveraging acquisitions and enhanced management to boost profit margins and expand its distribution network. These examples highlight the fund's focus on businesses with solid fundamentals and clear growth pathways.
Looking ahead, the Wasatch Micro Cap Fund is strategically positioned to capitalize on an anticipated market shift towards greater emphasis on profitability. By concentrating on high-quality, cash-generating companies, the fund is expected to thrive as investor preferences evolve away from less profitable entities and increasingly reward businesses with sustainable earnings. This forward-thinking approach aims to ensure long-term value creation for investors, aligning with an investment philosophy that prioritizes robust financial health and proven growth potential.
In a rapidly evolving economic landscape, prioritizing investments in companies with strong financial health and ethical governance is not merely a strategy for success but a testament to responsible investing. Such an approach fosters not only individual prosperity but also contributes to a stable and equitable financial ecosystem, promoting transparency and long-term societal benefit.