Conestoga Capital Advisors has published its investor letter for the third quarter of 2025, revealing a decline in performance for its SMid Cap Strategy. The equity markets, which began to gain momentum in early April, reached new all-time highs during this period. However, the Conestoga Smid Cap Composite reported a return of -1.1% net-of-fees, significantly lagging behind the Russell 2500 Growth Index, which posted a return of +10.7%.
The disparity in performance highlights the increasingly narrow leadership within the stock market rally that has been observed since April. Market analysts have characterized this leadership as “low quality,” suggesting that only a limited number of stocks are driving the overall market gains. Investors are encouraged to review the top five holdings of the fund, which provide insight into Conestoga’s strategic choices for 2025.
Performance Analysis and Market Context
The third quarter of 2025 has been marked by a notable increase in equity market valuations, yet the Conestoga Smid Cap Composite has not been able to capitalize on this trend. The company’s letter indicates that while the broader market is flourishing, the specific segment targeted by their strategy has faced challenges. This underperformance raises questions about the investment approach and the selection of securities within the portfolio.
As markets reached new heights, the lack of broad-based participation has raised concerns among investors. The dominance of a select group of stocks has often been a signal of potential volatility. In this context, Conestoga’s performance relative to the Russell 2500 Growth Index serves as a reminder of the risks associated with concentrated market leadership.
Investors looking for clarity can access the full investor letter from Conestoga Capital Advisors, which provides detailed insights into the fund’s performance and strategic outlook. The letter can be downloaded directly from their website.
In summary, while the overarching equity market has experienced significant growth, the performance of the Conestoga Smid Cap Strategy in Q3 2025 reflects a challenging environment. The company’s ongoing evaluation of its holdings and strategies will be crucial as it navigates the complexities of the current market landscape.
