Navigating Volatility with the AMG GW&K Small Cap Core Fund: A Research-Driven Approach to Sustainable Growth

The first quarter of 2025 brought heightened market volatility, with the Russell 2000® Index declining by 9.48% amid rising interest rates and economic uncertainty. Against this backdrop, the AMG GW&K Small Cap Core Fund (Class N) delivered a -7.27% return, outperforming its benchmark by 220 basis points. This resilience underscores the fund's strategic focus on research-driven equity selection, sustainable earnings growth, and disciplined risk management—key pillars that position it to thrive in turbulent markets.

Performance Overview: Outperforming in a Challenging Quarter

While Q1's decline was steep, the fund's 12-month track record (ending March 31, 2025) paints a stronger picture: it returned 0.30% versus the Russell 2000's -4.01%. This consistency reflects its long-term orientation, which prioritizes quality over short-term swings. A would reveal how its strategy has insulated investors from the full brunt of market selloffs.

Strategic Advantages: Research-Driven, ESG-Integrated, and Unrestricted

The fund's outperformance stems from three core strengths:

1. Sustainable Earnings Growth Focus:
   The portfolio targets well-managed companies with durable earnings models, emphasizing firms that generate cash flow resilience. This approach screens out speculative or cyclical plays, favoring businesses with competitive advantages in sectors like technology, healthcare, and industrials—areas where small/mid-caps often lead innovation.

2. Unrestricted Growth/Value Flexibility:
   Unlike rigid style-box funds, the AMG GW&K strategy allows managers to pursue quality companies regardless of growth or value labels. This flexibility is critical in today's market, where valuations are uneven. For example, a would likely show its ability to balance both styles without bias.

3. ESG Integration and Low Turnover:
   With ESG factors embedded in its research process, the fund avoids companies with governance red flags or environmental liabilities. Its annual turnover of ~15% (vs. an average of ~40% for small-cap funds) reflects a “buy-and-hold” philosophy that reduces transaction costs and minimizes portfolio churn.

Risk Management: Downside Protection Through Long-Term Holdings

The fund's focus on capital preservation during downturns is evident in its strategy of holding quality stocks for extended periods. By avoiding frequent trading, it sidesteps the emotional whipsaw of short-term noise. This patience also allows it to capture rebounds in undervalued sectors.

The would illustrate how its low turnover and quality bias dampen volatility. Meanwhile, its 80% allocation to U.S. small/mid-cap equities—a segment often overlooked by large institutional players—provides access to high-growth opportunities with less competition.

Investment Thesis: A Compelling Play for Long-Term Resilience

For investors prioritizing growth with downside protection, the AMG GW&K Small Cap Core Fund offers a compelling thesis:
- Market Volatility: Its research-driven process and quality focus shield it from speculative trends, making it a defensive small-cap option.
- Economic Uncertainty: Companies with sustainable earnings are less sensitive to macro headwinds, a critical trait in a slowing economy.
- ESG Credibility: Regulatory and consumer pressures increasingly favor firms with strong ESG profiles, a category the fund's screening process targets.

Considerations and Risks

While the fund's strategy is robust, small-cap equities inherently carry higher risk than large-cap peers. Investors should weigh the trade-off between potential growth and volatility. Additionally, the fund's concentration in U.S. equities limits diversification benefits for global investors.

Final Thoughts: A Fund for Patient, Growth-Oriented Investors

The AMG GW&K Small Cap Core Fund's Q1 performance and long-term track record demonstrate the power of quality-focused, research-intensive equity selection. For investors with a time horizon of 3–5 years, its emphasis on sustainable earnings, ESG integration, and low turnover makes it a prudent choice in a volatile market. As small-cap valuations remain depressed relative to history, now may be an opportune entry point for those seeking to capitalize on overlooked growth opportunities.

Investment Takeaway: Consider the AMG GW&K Small Cap Core Fund as a core holding for portfolios seeking resilient small-cap exposure without sacrificing growth potential. Its disciplined approach aligns with long-term value creation, even in turbulent markets.