Gabelli Small Cap Growth Fund: Q3 2025 Contributors and Detractors

In the third quarter of 2025, the Gabelli Small Cap Growth Fund delivered a mixed performance driven by sector rotation and stock-level dispersion. Portfolio gains were concentrated in software and select healthcare growth names, while consumer discretionary and energy-related positions weighed on relative returns. Managers cited idiosyncratic strength among innovative small-cap technology firms and positive clinical updates in a handful of biotech holdings as primary contributors. These winners benefited from favorable earnings momentum and improving margin profiles.

On the detractor side, several consumer-facing small caps struggled as demand softened and promotional activity pressured margins. A subset of energy-related and industrial firms also lagged amid commodity-price volatility and delays in large capital projects. The team reduced exposure to names facing secular headwinds and trimmed positions where valuation and near-term catalysts no longer aligned with the fund’s growth-oriented mandate.

Portfolio positioning heading into Q4 showed modest increases in cash and a tilt toward higher-quality growth companies with sustainable revenue trajectories. Sector weights shifted slightly higher for information technology and healthcare, while consumer discretionary and energy allocations were reduced. The managers emphasized a bottom-up stock selection approach: they are prioritizing companies with durable business models, expanding addressable markets, and operational improvements that can support multiple expansion over time.

Risk management remained a focus, with the team actively trimming positions that breached internal risk thresholds and redeploying capital into ideas with clearer paths to earnings acceleration. The fund’s exposure to micro-cap names was carefully controlled to balance upside potential with liquidity considerations.

Looking ahead, Gabelli’s management flagged a cautious but constructive outlook. They expect pockets of growth to persist among innovative small caps, particularly where secular trends — such as digital transformation and specialized healthcare solutions — are accelerating adoption. However, they remain vigilant to macroeconomic and commodity pressures that could create shorter-term volatility. For investors, the quarter reinforced the importance of disciplined stock picking within the small-cap growth universe.