Gabelli Small Cap Growth Fund — Q3 2025 Commentary & Outlook

During the third quarter of 2025, the Gabelli Small Cap Growth Fund navigated a mixed market backdrop characterized by persistent macro uncertainty and uneven sector performance. Fund managers emphasized active security selection and disciplined risk management as central to performance. Small-cap growth stocks faced headwinds from higher-for-longer interest rate expectations and uneven earnings revisions, while pockets of strength emerged in select technology and industrial niches benefiting from secular trends.

Stock selection drove relative results. The managers highlighted both successful convictions and positions that underperformed due to near-term cyclical pressures. Sector allocation shifts were modest; the team favored names with durable revenue growth, improving margins and strong competitive positions, while trimming exposure to companies more sensitive to cyclical volatility. Cash levels were managed to retain flexibility as valuation dispersion widened across the small-cap growth universe.

The commentary noted that volatility created opportunities to add to high-conviction ideas at attractive entry points. The portfolio emphasized companies with recurring revenue models, scalable margins and exposure to structural growth themes such as software adoption, automation and select consumer innovation. At the same time, valuation discipline remained a priority: the managers avoided chasing momentum at elevated multiples and focused on long-term earnings potential and balance-sheet resilience.

Risk controls, including position sizing and ongoing stress-testing, were underscored as essential given the compressed liquidity profile that can affect smaller caps. The team continued to engage with management teams to assess execution and capital-allocation priorities.

Looking ahead, the fund’s outlook is cautiously constructive. While recognizing that macro risks—including interest-rate policy and global growth variability—could pressure sentiment, managers see opportunity in economically resilient franchises with visible growth trajectories. The approach remains bottom-up and research-driven, aiming to capture asymmetric risk-reward opportunities over the full market cycle. Investors should expect a selective portfolio tilted toward high-quality small-cap growth companies, balanced with prudent risk management to navigate near-term volatility.