Diamond Hill Small Cap Strategy Q1 2025 Commentary

2025-06-05 01:49:00 ET

Summary

• Markets were mixed in Q1 as the new presidential administration introduced a flurry of activity, creating some uncertainty about the path forward.
• Our portfolio trailed the Russell 2000 Index in Q1. Relative weakness was concentrated among our industrials and financials holdings, which fell more than benchmark peers.
• We initiated three new positions in Q1, including in Helios Technologies, Titan America and Avanos Medical.

Market Commentary

Markets were mixed in Q1 as the new presidential administration introduced a flurry of activity, creating some uncertainty about the path forward. During the quarter, the broad Russell 3000 Index declined by -4.7%, marking the first quarterly loss since Q3 2023. The small-cap Russell 2000 Index experienced a larger decline of -9.5%, reflecting the tendency of smaller companies’ shares to show more sensitivity during periods of heightened macroeconomic uncertainty. From a style perspective, value stocks performed comparatively better across the cap spectrum. For instance, the Russell 2000 Value Index declined -7.7%, while the Russell 2000 Growth Index saw a larger decline of -11.1%. This near-term shift from growth to value appeared to reflect a broader investor preference for safety amidst significant uncertainty surrounding trade and fiscal policy developments in the US....

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