AMG TimesSquare Mid Cap Growth Fund: Betting on Tech, Healthcare, and Cybersecurity in a Shifting Economy

The AMG TimesSquare Mid Cap Growth Fund (TMDIX) has positioned itself as a key player in capitalizing on sector rotation trends amid 2025's evolving macroeconomic landscape. With the Federal Reserve's tightening cycle intensifying and post-pandemic recovery dynamics reshaping industries, the fund's Q1 2025 allocations to tech-enabled industrials, healthcare innovation, and cybersecurity reflect a deliberate strategy to profit from secular growth drivers while navigating risks. Here's why investors should pay attention.

The Macro Backdrop: Sector Rotation in a High-Rate Environment

In 2025, the U.S. economy faces a confluence of rising interest rates, lingering supply chain disruptions, and secular shifts toward digitization. Mid-cap growth funds like TMDIX, which focus on companies with above-average earnings momentum, are uniquely positioned to navigate this environment. The fund's Q1 sector allocations appear to be a bet on industries that can thrive in both growth and transition phases: industrials leveraging AI/automation, healthcare innovators capitalizing on AI-driven solutions, and cybersecurity firms addressing escalating ransomware threats.

Tech-Enabled Industrials: The New Manufacturing Play

The Q1 ransomware threat landscape, as detailed in Dragos' analysis, underscores a critical opportunity for tech-enabled industrials. Industrial sectors like manufacturing, transportation, and energy accounted for 68% of global ransomware incidents in Q1, with attackers exploiting vulnerabilities in supply chains and IT-OT systems. This creates a clear demand for companies that can automate, secure, and digitize industrial processes.

While the fund's exact holdings remain undisclosed, its strategic focus likely includes firms like Rockwell Automation (ROK) or Cognex Corp (CGNX), which provide automation and AI-driven quality-control solutions. These companies are not only mitigating cyber risks but also boosting productivity in sectors where labor shortages persist.

Healthcare Innovation: Beyond Pandemic Winners

Healthcare is no longer just about vaccine makers. Waystar Holding Corp's (WAY) Q1 results—14% revenue growth, AI-driven workflow tools like Waystar AltitudeAI, and a 114% net revenue retention rate—highlight the shift toward AI-powered payment and operational solutions in healthcare. This aligns with TMDIX's focus on innovation, as healthcare providers prioritize cost efficiency and data security.

Waystar itself could be an underappreciated holding. Its AI platform improves authorization rates by 85% and reduces administrative time by 70%, directly addressing inefficiencies that have plagued the sector for years. With over $1.8 trillion in annual claims processed, Waystar's scale and innovation make it a compelling leveraged play on healthcare's digital transformation.

Cybersecurity: A Defensive Growth Play

The Dragos report also reveals a 18% global rise in ransomware attacks in Q1, with groups like Cl0p and FunkSec targeting industrial systems. This has created urgency for cybersecurity firms offering AI-driven threat detection, encryption-resistant solutions, and supply chain hardening.

Firms like Palo Alto Networks (PANW) or CrowdStrike (CRWD)—which specialize in endpoint security and AI threat analysis—are prime candidates for TMDIX's portfolio. Their services are critical for industries like manufacturing, where 70% of ransomware incidents occurred in Q1, per Dragos.

Underappreciated Holdings: Look for “Quiet” Winners

While Waystar's Q1 results are strong, its stock price has yet to fully reflect its AI-driven growth. Similarly, small-cap cybersecurity firms like Zscaler (ZS) or Okta (OKTA)—which focus on cloud security—are often overlooked in broader indices but could power TMDIX's outperformance. These companies are addressing niche but critical pain points, such as zero-day exploit mitigation and hybrid work security.

The Risks: Rising Rates and Overvaluation

No strategy is without risks. Mid-cap growth stocks are particularly sensitive to rising interest rates, which compress future earnings' present value. The Fed's 2025 rate hikes—now expected to peak at 5.5%—could pressure valuations. Additionally, TMDIX's focus on “tech-heavy” sectors may lead to volatility if macroeconomic growth slows further.

Investment Thesis: A Leveraged Bet on Transition

The AMG TimesSquare Mid Cap Growth Fund is a compelling vehicle for investors willing to bet on sector transitions in 2025. Its focus on industrial digitization, healthcare AI, and cybersecurity aligns with secular trends that will outlast macroeconomic headwinds. While rising rates pose a near-term risk, the fund's emphasis on companies with operational leverage and recurring revenue models (like Waystar's subscription-driven software) provides a buffer.

Investment Advice:
- Buy: For investors with a 2–3 year horizon who believe in the tech-enabled industrial recovery and healthcare's digital evolution.
- Hold: For those cautious on rate sensitivity—monitor the fund's quarterly rebalancing for shifts to more defensive cybersecurity names.
- Avoid: If you're purely macro-focused and anticipate a sharp economic slowdown.

In a world where “growth” is increasingly defined by resilience and adaptation, TMDIX's Q1 allocations position it as a leader in capturing the next wave of sector rotation.

*Data queries marked with