Market Overview
2025
Q2
U.S. Market: Weather Tariff Turbulence to Finish Strong
The second quarter delivered strong returns for U.S. stocks, with small caps nearly erasing prior-quarter losses. The Russell 2500 rose 8.6%, narrowly beating the Russell 2000. The S&P 500 posted an 11% return, again led by a narrow group of tech names. Within the Russell 2500, IT, Industrials and Consumer Discretionary generated double-digit gains.
Despite this strong showing, Q2 began with extreme volatility. The Trump administration’s “Liberation Day” announcement of sweeping reciprocal tariffs triggered panic. These levies threatened to disrupt global trade, fuel inflation and suppress economic activity. Market sentiment turned sharply risk-off. Under pressure from business leaders and investors, the administration later delayed the tariffs and opened talks with some countries, earning Trump the nickname “TACO” (Trump Always Chickens Out). Markets recovered as geopolitical tensions eased, the earnings season proved strong and macro conditions stabilized.
Still, softness was visible. Consumer and CEO confidence remained weak, capex plans were postponed, M&A activity slowed and signs of labour market fragility emerged. Construction sectors were sluggish under high rates and macro concerns. Yet the U.S. Federal reserve held rates steady, refusing to cave to political pressure, citing data dependency and the inflationary potential of the tariffs. The Fed, however, left open the possibility of rate cuts later in the year if labour market cracks widen.
Cross-Border Trends: Rebound Fueled by Familiar Chaos
Both Canadian and U.S. markets endured a chaotic April, marked by the shock of the Liberation Day tariffs. Investors globally were rattled. But as the threat receded, capital flowed back into risk assets. The Trump administration’s erratic negotiation style, while unsettling, became more familiar to markets. Earnings strength, reduced geopolitical tensions and postponed tariff timelines helped drive a broad rebound.
Despite persistent concerns about inflation, soft demand and geopolitical instability—capped by a late-quarter war between Israel and Iran that involved the U.S.—both economies remained resilient. Small-cap stocks in both countries rallied and now trade at very attractive relative valuations. They offer stronger expected earnings growth for the second half of 2025 and typically outperform when rates decline and inflation subsides.
Canadian Small Caps Lead the Charge
Canada mirrored the U.S. market trajectory, with volatility giving way to recovery. Canadian small caps outperformed large caps, with the TSX Small Cap Index up 11.8% in Q2 versus 8.5% for the TSX Composite. Year to date, small caps were up 12.9%, beating the TSX Composite’s 10.2%.
Like their U.S. counterparts, Canadian small caps benefited from macro stabilization, strong earnings and investor recognition of their compelling valuations. The case for small caps in Canada remains strong, especially if inflation slows and rate cuts materialize later in 2025.
Asia Follows the Global Rebound Return
Asian equities mirrored global trends. They suffered double-digit losses in early April but rebounded strongly as risk appetite returned later in the quarter. Overall, Q2 closed on a positive note across many Asian markets.
European Markets Stabilize After Rough Start
European equity markets followed a similar path, experiencing sharp early losses followed by a broad-based rally. Gains varied by country, but European stocks generally recovered well in Q2 as geopolitical and macro fears moderated.
Index Scorecard: From Panic to Performance
The S&P 500 dropped 11% in early April but surged 24% from its trough to end Q2 up 10%. The NASDAQ rose over 17%, led by mega-cap tech stocks. The Russell 2500 climbed 8.6%. International benchmarks MSCI ACWI and World Index were both up over 10%. Canada’s TSX Small Cap Index rose 11.8%, beating the TSX Composite’s 8.5%.
Gold extended its rally, though at a slower pace. Oil was highly volatile—dropping around Liberation Day, spiking during the Israel-Iran conflict, then falling again. It ended Q2 down high single digits. Natural gas also declined sharply. The U.S. dollar fell 7%, extending its YTD drop to over 10%, its worst first half since 1973. Treasury yields fluctuated throughout the quarter but ended near April levels.
Canadian Small Caps Lead the Charge
Canada mirrored the U.S. market trajectory, with volatility giving way to recovery. Canadian small caps outperformed large caps, with the TSX Small Cap Index up 11.8% in Q2 versus 8.5% for the TSX Composite. Year to date, small caps were up 12.9%, beating the TSX Composite’s 10.2%.
Like their U.S. counterparts, Canadian small caps benefited from macro stabilization, strong earnings and investor recognition of their compelling valuations. The case for small caps in Canada remains strong, especially if inflation slows and rate cuts materialize later in 2025.
Asia Follows the Global Rebound Return
Asian equities mirrored global trends. They suffered double-digit losses in early April but rebounded strongly as risk appetite returned later in the quarter. Overall, Q2 closed on a positive note across many Asian markets.
European Markets Stabilize After Rough Start
European equity markets followed a similar path, experiencing sharp early losses followed by a broad-based rally. Gains varied by country, but European stocks generally recovered well in Q2 as geopolitical and macro fears moderated.
Index Scorecard: From Panic to Performance
The S&P 500 dropped 11% in early April but surged 24% from its trough to end Q2 up 10%. The NASDAQ rose over 17%, led by mega-cap tech stocks. The Russell 2500 climbed 8.6%. International benchmarks MSCI ACWI and World Index were both up over 10%. Canada’s TSX Small Cap Index rose 11.8%, beating the TSX Composite’s 8.5%.
Gold extended its rally, though at a slower pace. Oil was highly volatile—dropping around Liberation Day, spiking during the Israel-Iran conflict, then falling again. It ended Q2 down high single digits. Natural gas also declined sharply. The U.S. dollar fell 7%, extending its YTD drop to over 10%, its worst first half since 1973. Treasury yields fluctuated throughout the quarter but ended near April levels.
Quarterly results by strategy
Canadian Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Canadian Small Cap Composite, compared to the S&P/TSX Canadian Small Cap Index and the S&P/TSX Composite Index (as at June 30, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
*Note: Results are the BMO Small Cap Blended Weighted Index from June 30, 1992 to December 31, 1999 and thereafter the S&P/TSX Canadian Small Cap Index.
** Note : June 30, 1992
Portfolio Positioning
The Van Berkom Canadian Small Cap Equity Strategy delivered a standout performance in Q2 2025, outperforming the TSX Small Cap Index. This outperformance was driven by disciplined positioning in high-quality small-cap companies—firms with robust balance sheets, durable business models and a long history of weathering volatile market conditions.
Early in the quarter, extreme volatility tested market confidence, but our strategy thrived. Investors sought refuge in best-in-class small caps, validating our long-standing investment philosophy. With markets reacting sharply to geopolitical uncertainty and economic headwinds, our core holdings—chosen for their strong fundamentals—held up significantly better than the benchmark, generating solid alpha during the most turbulent phase of Q2.
As earnings season unfolded, our conviction in portfolio quality was further rewarded. Most of our holdings outperformed not just internal expectations but also those of the broader market and analysts. This earnings strength translated directly into stock price gains and another wave of alpha generation. Investors responded positively to the reliability of our companies in an uncertain macro environment, driving portfolio momentum into May and June.
From an attribution standpoint, 2.8% of our relative outperformance came from asset allocation, with another 1.4% from stock selection. Our overweight in Industrials—Q2’s top-performing TSX Small Cap sector at +22.6%—contributed 2.1%, while Consumer Discretionary added 0.5% as it rebounded 17.5%. However, our limited exposure to Materials, particularly gold and silver stocks, detracted 0.8% as those commodities hit record highs. Stock selection gains were broad-based, with strong contributions from Consumer Discretionary, Energy and Materials. Weakness in Information Technology and Industrials, where we avoided speculative low-quality rallies, slightly offset this alpha.
Since taking over the strategy in January 2021, our team has generated 26.7% in stock selection value-add. Each new investment is underwritten with a 15% annual CAGR target over a 3–5 year horizon. While short-term volatility like Q1 can temporarily impact results, Q2 reinforced why staying true to our investment discipline leads to long-term outperformance. We remain focused on quality—not on chasing trends.
Our significant Q2 contributors to performance:
- Groupe Dynamite (+91.5%), due to strong same-store sales, agile supply chain shifts and raised guidance.
- 5N Plus (+68.4%), on solid Q1 results, and strong demand in the renewables and space divisions.
- Aritzia (+39.5%), from robust sales, margin resilience and increased investor confidence, following tariff concerns.
- Dye & Durham (-11.2%) due to weak Canadian real estate activity.
- D2L (-13.4%) on cautious guidance tied to concerns around U.S. education funding.
- Computer Modelling Group (-10.6%) on slowing energy transition demand and oil price softness.
Portfolio Changes
In Q2, we actively managed the portfolio to enhance long-term quality and positioning, responding to significant price movements in the small-cap market.
Our focus remained on high-conviction, well-researched companies where we see compelling long-term alpha potential. Key portfolio changes included:
- further increasing our position in some of our high-conviction holdings where the current valuations no longer fairly reflected the long-term organic and acquisition growth potential for these companies. This included additions to MATTR, Tecsys and
- trimming our position in some of our long-term winners such as 5N Plus, Groupe Dynamite and MDA Space due to valuation and weight management considerations.
We made no new portfolio entries in Q2, focusing instead on optimizing existing positions for long-term value creation.
Outlook
While markets ended Q2 on a strong note, shifting from early-quarter volatility to a risk-on rally, we believe it is too early to declare a clear path forward. The second half of 2025 presents a range of uncertainties that could weigh on sentiment and performance. These include policy unpredictability from the Trump administration, the risk of new or reimposed tariffs, potential escalation of geopolitical conflicts and ongoing inflationary pressures stemming from existing tariffs.
Monetary policy also remains in flux. The U.S. Federal Reserve continues to face a difficult task managing inflation expectations amid soft consumer data and a still uncertain macro backdrop. At the same time, earnings growth remains under pressure in several sectors, M&A activity is subdued and valuation levels—while not excessive—are less compelling after the recent rally.
Despite these challenges, we remain confident in our strategy. Our Canadian small-cap portfolio continues to be anchored by companies with strong balance sheets, high return on equity, sustainable competitive advantages and solid earnings visibility.
These fundamentals have historically proven to be the best defence in uncertain environments and should remain key drivers of long-term performance.
Following several proactive adjustments over recent months, our portfolio is now positioned with an unusually high level of quality at attractive valuations. We estimate the portfolio trades at a 19.3x P/E and a 10.1% discount to intrinsic value based on our conservative DCF models. Our holdings also reflect robust financial metrics, including an average return on equity of 12.2%, debt/EBITDA of just 1.0x and over 25% of companies in a net cash position. Earnings per share growth is projected at 25.9% annually over the next five years.
We believe long-term returns will be driven primarily by earnings growth, and we continue to invest in companies we expect will outperform all major Canadian benchmarks on this measure. Our small-cap strategy has consistently outpaced both large- and small-cap indices over the long term due to our emphasis on quality growth at reasonable valuations.
Looking ahead, we remain confident in the strength of our holdings and their ability to deliver superior risk-adjusted returns. While short-term volatility may persist, our portfolio is well positioned to navigate the current environment and generate alpha over full market cycles.
Our focus remained on high-conviction, well-researched companies where we see compelling long-term alpha potential. Key portfolio changes included:
- further increasing our position in some of our high-conviction holdings where the current valuations no longer fairly reflected the long-term organic and acquisition growth potential for these companies. This included additions to MATTR, Tecsys and
- trimming our position in some of our long-term winners such as 5N Plus, Groupe Dynamite and MDA Space due to valuation and weight management considerations.
We made no new portfolio entries in Q2, focusing instead on optimizing existing positions for long-term value creation.
Outlook
While markets ended Q2 on a strong note, shifting from early-quarter volatility to a risk-on rally, we believe it is too early to declare a clear path forward. The second half of 2025 presents a range of uncertainties that could weigh on sentiment and performance. These include policy unpredictability from the Trump administration, the risk of new or reimposed tariffs, potential escalation of geopolitical conflicts and ongoing inflationary pressures stemming from existing tariffs.
Monetary policy also remains in flux. The U.S. Federal Reserve continues to face a difficult task managing inflation expectations amid soft consumer data and a still uncertain macro backdrop. At the same time, earnings growth remains under pressure in several sectors, M&A activity is subdued and valuation levels—while not excessive—are less compelling after the recent rally.
Despite these challenges, we remain confident in our strategy. Our Canadian small-cap portfolio continues to be anchored by companies with strong balance sheets, high return on equity, sustainable competitive advantages and solid earnings visibility.
These fundamentals have historically proven to be the best defence in uncertain environments and should remain key drivers of long-term performance.
Following several proactive adjustments over recent months, our portfolio is now positioned with an unusually high level of quality at attractive valuations. We estimate the portfolio trades at a 19.3x P/E and a 10.1% discount to intrinsic value based on our conservative DCF models. Our holdings also reflect robust financial metrics, including an average return on equity of 12.2%, debt/EBITDA of just 1.0x and over 25% of companies in a net cash position. Earnings per share growth is projected at 25.9% annually over the next five years.
We believe long-term returns will be driven primarily by earnings growth, and we continue to invest in companies we expect will outperform all major Canadian benchmarks on this measure. Our small-cap strategy has consistently outpaced both large- and small-cap indices over the long term due to our emphasis on quality growth at reasonable valuations.
Looking ahead, we remain confident in the strength of our holdings and their ability to deliver superior risk-adjusted returns. While short-term volatility may persist, our portfolio is well positioned to navigate the current environment and generate alpha over full market cycles.
U.S. Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small Cap Composite (in U.S. dollars), compared to the Russell 2000 Small Cap Index and the S&P 500 Index (as at June 30, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : June 30, 2000
Portfolio Positioning
Our U.S. small-cap strategy delivered a mixed performance in Q2, shaped by starkly different market dynamics between April-May and June. In the early part of the quarter, heightened volatility led investors to favour high-quality, fundamentally sound small-cap companies. Our portfolio—anchored in businesses with strong balance sheets and consistent earnings—performed exceptionally well during this period, delivering solid alpha and outpacing the benchmark. This momentum continued into early May, supported by a strong earnings season. Nearly 90% of our holdings surpassed both internal forecasts and market expectations by an average margin of 15% on earnings per share.
However, in June, market leadership shifted sharply. Retail investor flows surged into speculative, unprofitable, and low-quality stocks, triggering a short-lived but aggressive rally in areas where we have little or no exposure. This shift temporarily erased our earlier gains, ending our 10-month streak of benchmark outperformance. Nevertheless, we were still pleased with the overall results in Q2. Our relative returns were supported by favourable sector allocation. We benefited from no exposure to underperforming Real Estate and Energy, and overweight positions in outperforming sectors like Industrials (+15.6%) and Consumer Discretionary (+9.6%). However, this was partially offset by our underweights in Information Technology (+21.3%) and Materials (+13%).
Security selection was mixed. Outperformance in Consumer Discretionary and Utilities was offset by underperformance in Information Technology, where our high-quality holdings lagged the sector’s speculative rally. This divergence was driven by hype rather than company performance. Overall, our portfolio remains firmly positioned in quality businesses. While speculative rallies may generate short-term noise, we believe true value creation comes from companies with durable fundamentals and consistent earnings power—characteristics that remain central to our holdings.
Significant contributors to performance in Q2 were:
- Shake Shack (+60.0%), on improved guidance and margin outlook.
- Federal Signal (+46.8%), from strong orders and a resilient customer base.
- Primoris Services (+37.3%) SPX Technologies (+31.0%) API Group (+45.2%) and Ormat Technologies (+18.4%), due to robust end-market trends, strong order activity and investor sentiment.
- StoneX Group (+22.5%) and Ensign Group (+19%), driven by consistent execution and strong fundamentals.
Stocks that detracted from performance in Q2 were:
- Chemed Corporation (-21.4%), after disclosing profit pressures and weaker results.
- Globus Medical (-19.4%), following a revenue miss tied to manufacturing delays and slower sales.
Portfolio Changes
In Q2, we actively capitalized on market dislocations, adding high-quality names at attractive valuations, trimming or exiting select holdings based on fundamental concerns or valuation discipline. Key portfolio changes were as follows:
- API Group: We initiated a position here following a 20% pullback. The company offers regulated life safety and specialty services, with strong recurring revenue, scale-driven advantages and a proven track record of organic and acquisition-led growth.
- Floor & Decor: We added to our position during market weakness. As a cost-advantaged leader in hard-surface flooring, FND’s direct-sourcing model and expanding store base support long-term growth, despite near-term housing market softness.
- Tetra Tech, ESAB, Privia Health, SPX Technologies, Willscot, CCC Intelligent Solutions and Chart Industries: We increased our positions on compelling valuations and strong long-term fundamentals.
- Five9, FTI Consulting, Globus Medical, Hamilton Lane and RLI: We added to these core holdings during temporary price weakness driven by broader market or earnings volatility.
- Brunswick Corp.: We exited this position due to elevated earnings volatility, macro and tariff risks, and deteriorating financial flexibility within a highly cyclical marine industry.
- Gentherm: We sold this holding after years of underperformance and strategic concerns tied to industry headwinds, leadership turnover and geopolitical risks.
- Federal Signal, StoneX, HealthEquity, Shake Shack, Ormat, Grand Canyon Education, Grocery Outlet, Silicon Labs and Armstrong World: We trimmed these positions after strong Q2 performance to rebalance at higher valuation levels.
Outlook
Despite a strong finish to the June quarter, with markets shifting from early volatility to a late-quarter rally, we remain cautious about the outlook for the second half of 2025. A number of risks persist that could affect investor sentiment and financial market performance. These include ongoing policy unpredictability from the Trump administration, geopolitical tensions, the potential reintroduction of tariffs and lingering inflationary pressures tied to existing trade restrictions.
The U.S. Federal Reserve continues to navigate a highly uncertain environment, with benchmark interest rates and the yield curve still in flux. Meanwhile, soft data indicators are not fully aligned with stronger hard data, adding to uncertainty about the economic trajectory. Corporate profit forecasts face headwinds from muted demand in certain end markets, residual inflation and a subdued M&A landscape. Valuation levels, while not extreme, have become more demanding following the recent rally.
In June, investor appetite shifted toward low-quality, speculative names, temporarily pushing fundamentals aside. We believe this dynamic will prove short-lived. Company-specific fundamentals—strong balance sheets, consistent earnings growth and sustainable competitive advantages—tend to reassert their importance, especially in uncertain markets. These qualities remain central to our investment approach.
We are entering the second half of 2025 with confidence in our small-cap portfolio. Recent volatility provided opportunities to increase exposure to high-quality names at attractive valuations. Today, our portfolio exhibits materially better financial characteristics than the benchmark, including stronger balance sheets, superior earnings growth, higher profit margins and enhanced returns on equity and invested capital. We continue to focus on companies with strong fundamentals and compelling long-term growth profiles. Historical results show that, assuming reasonable valuations, long-term equity returns are largely driven by earnings growth.
Our portfolio companies have consistently delivered stronger earnings growth than both small- and large-cap benchmarks over the past 25 years. We expect this trend to continue, supporting our outlook for outperformance over full market cycles. While the broader market may remain sensitive to macro and political developments in the near term, we believe our disciplined focus on quality, valuation and earnings power leaves us well positioned for the period ahead. With all key quality metrics well above benchmark levels, we believe the portfolio is well-positioned for long-term outperformance.
- Tetra Tech, ESAB, Privia Health, SPX Technologies, Willscot, CCC Intelligent Solutions and Chart Industries: We increased our positions on compelling valuations and strong long-term fundamentals.
- Five9, FTI Consulting, Globus Medical, Hamilton Lane and RLI: We added to these core holdings during temporary price weakness driven by broader market or earnings volatility.
- Brunswick Corp.: We exited this position due to elevated earnings volatility, macro and tariff risks, and deteriorating financial flexibility within a highly cyclical marine industry.
- Gentherm: We sold this holding after years of underperformance and strategic concerns tied to industry headwinds, leadership turnover and geopolitical risks.
- Federal Signal, StoneX, HealthEquity, Shake Shack, Ormat, Grand Canyon Education, Grocery Outlet, Silicon Labs and Armstrong World: We trimmed these positions after strong Q2 performance to rebalance at higher valuation levels.
Outlook
Despite a strong finish to the June quarter, with markets shifting from early volatility to a late-quarter rally, we remain cautious about the outlook for the second half of 2025. A number of risks persist that could affect investor sentiment and financial market performance. These include ongoing policy unpredictability from the Trump administration, geopolitical tensions, the potential reintroduction of tariffs and lingering inflationary pressures tied to existing trade restrictions.
The U.S. Federal Reserve continues to navigate a highly uncertain environment, with benchmark interest rates and the yield curve still in flux. Meanwhile, soft data indicators are not fully aligned with stronger hard data, adding to uncertainty about the economic trajectory. Corporate profit forecasts face headwinds from muted demand in certain end markets, residual inflation and a subdued M&A landscape. Valuation levels, while not extreme, have become more demanding following the recent rally.
In June, investor appetite shifted toward low-quality, speculative names, temporarily pushing fundamentals aside. We believe this dynamic will prove short-lived. Company-specific fundamentals—strong balance sheets, consistent earnings growth and sustainable competitive advantages—tend to reassert their importance, especially in uncertain markets. These qualities remain central to our investment approach.
We are entering the second half of 2025 with confidence in our small-cap portfolio. Recent volatility provided opportunities to increase exposure to high-quality names at attractive valuations. Today, our portfolio exhibits materially better financial characteristics than the benchmark, including stronger balance sheets, superior earnings growth, higher profit margins and enhanced returns on equity and invested capital. We continue to focus on companies with strong fundamentals and compelling long-term growth profiles. Historical results show that, assuming reasonable valuations, long-term equity returns are largely driven by earnings growth.
Our portfolio companies have consistently delivered stronger earnings growth than both small- and large-cap benchmarks over the past 25 years. We expect this trend to continue, supporting our outlook for outperformance over full market cycles. While the broader market may remain sensitive to macro and political developments in the near term, we believe our disciplined focus on quality, valuation and earnings power leaves us well positioned for the period ahead. With all key quality metrics well above benchmark levels, we believe the portfolio is well-positioned for long-term outperformance.
U.S. Small-Mid Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom U.S. Small-Mid Cap Composite (in U.S. dollars), compared to the Russell 2500 Small Cap Index (as at June 30, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : September 30, 2017
Portfolio Positioning
The portfolio delivered a strong second-quarter return, slightly outperforming the benchmark. This gain moved us into positive territory for the year.
In Q2, sector allocation was the primary driver of relative performance, while stock selection modestly detracted. This outcome is somewhat atypical for our approach, as our strategy generally generates value through bottom-up stock picking. However, in a risk-on environment led by lower-quality names, even strong businesses can temporarily lag.
Our lack of exposure to underperforming sectors—namely Real Estate and Energy—contributed a combined 133 basis points. Overweights in Industrials and Information Technology added another 37 and 30 basis points, respectively, as both sectors outperformed the broader market.
From a stock selection standpoint, our strongest contributions came from Consumer Discretionary and Industrials. On the downside, Information Technology, Financials and Healthcare detracted from performance. Within IT, we have gradually reduced exposure over the past 18 months due to a limited pool of names that align with our quality-growth style. Only one of our seven IT holdings—Silicon Labs—outperformed the sector’s 18.7% return, while just three (Silicon Labs, Dynatrace and PTC) posted double-digit gains. In Financials, three of our seven holdings—RLI, Euronet and Hamilton Lane—underperformed the sector due to market rotation out of defensive names rather than any fundamental deterioration.
Overall, the portfolio remains aligned with our disciplined investment approach, favouring high-quality companies with strong fundamentals. While short-term rallies led by speculative stocks can create periods of relative underperformance at the stock level, our sector positioning and long-term conviction in our holdings continue to support our goal of delivering consistent, risk-adjusted outperformance.
Substantial contributors to our Q2 performance include:
- Shake Shack (+60.0%), on margin gains and leadership strength, and
- Construction Partners (+48.9%), after strong earnings and raised guidance.
- Federal Signal (+46.9%), from industrial tailwinds.
- API Group (+43.6%), following solid results and a long-term growth framework.
- SPX Corporation (+31.0%), on guidance upgrades and M&A execution.
- Silicon Labs (+30.8%), as demand returned in key segments.
Substantial detractors to our Q2 performance include :
- Chemed (-20.8%), following a Medicare cap issue in its hospice business and weakness in Roto-Rooter’s residential segment.
- Globus Medical (-19.4%), following a revenue miss tied to manufacturing delays and slower sales.
- Grocery Outlet (-11.2%), after moderating same-store sales guidance.
- RLI (-9.9%), impacted by rising competition in key markets.
- Bio-Techne Corp (-9.8%), on NIH funding concerns despite solid execution.
Portfolio Changes
In Q2, we reallocated capital by exiting two holdings and adding two new high-quality companies, driven by valuation opportunities and long-term growth potential. Key portfolio changes were as follows:
Sold
- DoubleVerify: We exited this position following continued weak performance and disappointing execution. Despite a positive investor day and Q1 beat, limited visibility and persistent customer concentration issues led us to move on from this low-conviction name.
- Ormat Technologies: We exited this holding after a six-year holding period due to subpar return (~7% CAGR) and limited upside. While its outlook remains stable, its performance has closely tracked interest rate movements and broader utility sector returns.
Added
- ESAB: We entered this position at attractive valuation. A global welding and gas control leader, ESAB benefits from strong exposure to emerging markets, margin expansion via operational improvements and growth in medical and specialty gas segments. ESG initiatives also support long-term sustainability.
- Tetra Tech (TTEK): We initiated this position after a significant pullback. TTEK is a top-tier provider of water and environmental consulting services, with strong organic and acquisition-driven growth. Its asset-light model, high project volume and alignment with long-term ESG trends make it a compelling addition. Lower valuation and robust profit growth potential support our long-term return target.
Outlook
While Q2 delivered strong market returns, we expect volatility to persist into the second half of 2025. The Trump administration’s use of tariffs as both an economic and political tool adds uncertainty. Not all countries will comply with U.S. demands, especially if local political backlash grows, increasing the risk of unresolved trade conflicts.
The path forward depends heavily on how the tariff situation unfolds. Broad implementation would likely trigger both higher inflation and slower economic activity, forcing the Federal Reserve to maintain a wait-and-see stance. A clear resolution could allow the Fed to act pre-emptively to support growth, but for now, monetary policy is in a holding pattern.
The bond market is another key factor. With the federal deficit ballooning, increased issuance of 10- and 20-year bonds will be necessary. These longer-term yields influence U.S. mortgage rates, and further increases could put pressure on the housing market. While short-term stimulus may lift consumer spending, long-term fiscal imbalances remain a concern.
Uncertainty also surrounds the macroeconomic cycle. Conflicting data makes it difficult to determine whether we are entering a new growth phase or in the final innings of the current cycle. While the budget provides near-term stimulus, including delayed cuts to Medicaid and social spending, structural risks remain. Corporate tax certainty may boost M&A and capital investment, but the broader outlook is still clouded.
In recent weeks, speculative and low-quality stocks have outperformed, but we expect fundamentals to regain importance. High-quality businesses with strong management, durable competitive advantages, solid earnings growth and disciplined capital allocation are best positioned to navigate the current environment.
Our portfolio remains focused on these types of companies. Compared to the benchmark, our holdings exhibit stronger balance sheets, higher profit margins, better free cash flow generation and superior returns on equity and invested capital. In an environment with both elevated risks and opportunities, we believe this is the right positioning.
Over the long term, returns are primarily driven by earnings growth. Most of our portfolio companies are capable of delivering double-digit growth, which should support continued outperformance versus U.S. benchmarks. We remain confident in our strategy and its ability to deliver strong, risk-adjusted returns through a full market cycle.
Added
- ESAB: We entered this position at attractive valuation. A global welding and gas control leader, ESAB benefits from strong exposure to emerging markets, margin expansion via operational improvements and growth in medical and specialty gas segments. ESG initiatives also support long-term sustainability.
- Tetra Tech (TTEK): We initiated this position after a significant pullback. TTEK is a top-tier provider of water and environmental consulting services, with strong organic and acquisition-driven growth. Its asset-light model, high project volume and alignment with long-term ESG trends make it a compelling addition. Lower valuation and robust profit growth potential support our long-term return target.
Outlook
While Q2 delivered strong market returns, we expect volatility to persist into the second half of 2025. The Trump administration’s use of tariffs as both an economic and political tool adds uncertainty. Not all countries will comply with U.S. demands, especially if local political backlash grows, increasing the risk of unresolved trade conflicts.
The path forward depends heavily on how the tariff situation unfolds. Broad implementation would likely trigger both higher inflation and slower economic activity, forcing the Federal Reserve to maintain a wait-and-see stance. A clear resolution could allow the Fed to act pre-emptively to support growth, but for now, monetary policy is in a holding pattern.
The bond market is another key factor. With the federal deficit ballooning, increased issuance of 10- and 20-year bonds will be necessary. These longer-term yields influence U.S. mortgage rates, and further increases could put pressure on the housing market. While short-term stimulus may lift consumer spending, long-term fiscal imbalances remain a concern.
Uncertainty also surrounds the macroeconomic cycle. Conflicting data makes it difficult to determine whether we are entering a new growth phase or in the final innings of the current cycle. While the budget provides near-term stimulus, including delayed cuts to Medicaid and social spending, structural risks remain. Corporate tax certainty may boost M&A and capital investment, but the broader outlook is still clouded.
In recent weeks, speculative and low-quality stocks have outperformed, but we expect fundamentals to regain importance. High-quality businesses with strong management, durable competitive advantages, solid earnings growth and disciplined capital allocation are best positioned to navigate the current environment.
Our portfolio remains focused on these types of companies. Compared to the benchmark, our holdings exhibit stronger balance sheets, higher profit margins, better free cash flow generation and superior returns on equity and invested capital. In an environment with both elevated risks and opportunities, we believe this is the right positioning.
Over the long term, returns are primarily driven by earnings growth. Most of our portfolio companies are capable of delivering double-digit growth, which should support continued outperformance versus U.S. benchmarks. We remain confident in our strategy and its ability to deliver strong, risk-adjusted returns through a full market cycle.
Global Small Cap Equity Strategy
Investment Performance (%)
The following table shows the investment performance of the Van Berkom Global Small Cap Fund, compared to the MSCI ACWI Small Cap Index in CAD (as at June 30, 2025).
Returns are calculated using the time-weighted method and presented gross of management and trustee fees and withholding taxes. Returns are annualized for periods longer than 12 months.
* Note : July 31, 2022
Portfolio Positioning
Van Berkom strategies have historically outperformed during volatile periods and lagged in more exuberant markets. The sharp swings following “Liberation Day” provided a clear test of this thesis—and affirmed it. In Q2, the portfolio outperformed the benchmark by 737 basis points, with security selection contributing 724 bps of the gain.
We’ve positioned the portfolio to thrive in a more fragmented global economy. Our holdings fall into two strategic buckets:
- Local champions with limited exposure to cross-border disruption and growing tailwinds from protectionist policies
- Global niche leaders with pricing power and differentiated offerings, enabling them to pass on tariff-related costs and gain market share
The volatility in Q2 allowed us to act on several long-standing watchlist ideas and increase weightings in high-conviction names trading at attractive valuations. Our process incorporates a detailed analysis of tariff sensitivity—including supply chain complexity, inventory resilience, and end-market pricing—so we were well prepared to act decisively. As markets calmed, quality and resilience were rewarded.
Europe was the top-performing region, contributing 368 bps to relative returns. Standouts included Vusion Group, up 44% on strong contract wins, and two take-private transactions: Datagroup (KKR) and Marlowe (Mitie). As we’ve noted, private equity tends to step in when public markets undervalue quality small caps—a trend we expect to continue across our portfolio.
North America added [351 bps], with Canadian holdings 5N Plus, Badger, and MDA all rebounding after indiscriminate selling. Our longstanding relationships and deep research allowed us to add to these positions confidently. In the U.S., core holdings like Federal Signal and SPXC performed well, while our new position in Shake Shack, added during the Q2 dip, contributed 121 bps.
Asia contributed 117 bps, led by our Japan holdings, which are domestically focused and largely insulated from global trade disruptions. We had no exposure to key detractors in the region, such as Taiwan, India, and South Korea.
In Q2 2025, key portfolio performers included these names:
- 5N Plus (+68.4%), on solid Q1 results, and strong demand in the renewables and space divisions.
- Datagroup (+45.4%), after a take-private offer from KKR, validating our view that it was materially undervalued.
- Marlowe (+37.2%), on a premium bid from Mitie, affirming our thesis on its acquisition-driven growth.
In Q2 2025, key detractors included these stocks:
- Globus Medical (-19.4%), on revenue misses driven by supply chain issues and lengthened sales cycles.
- Grocery Outlet (-11.2%), after moderating same-store sales guidance.
- Brunswick (-3.41%), due to earnings uncertainty tied to consumer sentiment.
Portfolio Changes
Following the sharp market dislocation surrounding “Liberation Day,” we took advantage of compelling valuations and high-conviction opportunities. The following portfolio changes were made during the quarter:
- Diploma: We initiated a position in this value-added distributor benefiting from structural growth tailwinds and a disciplined M&A track record. We believe it’s early in its compounding journey and trades at a discount to comparable industrial compounders.
- Johns Lyng Group: We built a position after a share price pullback, reflecting temporary weakness. The company’s national scale, insurer relationships and expansion into U.S. and Australian compliance services offer strong long-term growth drivers.
- Munters: We added exposure to this global climate control leader with resilient end-market demand and pricing power. Its focus on mission-critical niches and disciplined bolt-on M&A supports attractive margins and mid-teen returns on capital.
- Shake Shack: We initiated a position during the “Liberation Day” dip. Strong brand equity, improving unit economics and international expansion create a compelling early-stage compounder profile despite high valuation.
- Primoris: We initiated a position in this specialty infrastructure contractor, supported by grid modernization and energy transition trends. Its recurring utility work, disciplined M&A and undervaluation versus peers offer attractive upside.
- Richards Packaging: We added this defensive, value-added distributor with recurring demand and resilient margins. Its strong free cash flow and overlooked valuation make it a quality long-term holding.
- FTI Consulting, Ormat and Samsonite: We exited all three positions to reallocate capital to higher-conviction opportunities.
Outlook
While U.S. markets ended Q2 on a strong note, shifting from April’s volatility to a broad risk-on rally, significant uncertainties remain heading into the second half of 2025. Policy changes under the Trump administration, persistent political gridlock, and the threat of renewed tariffs if trade negotiations falter continue to weigh on investor sentiment. Inflation risks persist, especially as broad-based tariffs begin to affect input costs, while the Federal Reserve continues to operate in an unusual interest rate environment. Corporate earnings are under pressure from weak demand, sticky cost inflation and inconsistent economic data. Valuations have rebounded, but following the recent rally, they offer less margin for error. With macro indicators sending mixed signals, it remains uncertain whether markets are entering a new growth cycle or approaching the end of the current one.
In Europe, sentiment has improved post–Liberation Day, with both public and private players showing greater willingness to reinvest locally. However, execution has lagged expectations. German industrial activity remains muted pending fiscal stimulus, and consumer confidence across the Eurozone is still weak. Even so, European small caps continue to trade at a deep discount to U.S. peers—14.8x 2025 EPS vs. 20.2x for the Russell 2000—highlighting a potential valuation gap.
In Asia, Japan’s weak yen has supported exporters but is contributing to rising domestic inflation, eroding household purchasing power. If wage growth solidifies, the Bank of Japan may need to tighten policy more aggressively than the market currently anticipates. Meanwhile, China’s industrial output has remained steady, but consumer behaviour is shifting. Households are moving away from high-end discretionary purchases toward more value-oriented spending—a trend likely to reshape domestic consumption patterns.
Despite the rally, corporate behaviour globally remains cautious. Many firms have paused capital expenditures and M&A plans while awaiting more policy clarity. Consumers are also under pressure, squeezed by elevated prices and interest rates, with early signs of fatigue showing across several sectors.
In this environment, we remain focused on owning businesses with strong balance sheets, durable free cash flow and valuations that still reflect underlying fundamentals. As the market gradually reassesses what constitutes long-term quality, we believe our portfolio is well-positioned to navigate the challenges ahead and to benefit from any upside that comes with greater clarity and stability.
- Munters: We added exposure to this global climate control leader with resilient end-market demand and pricing power. Its focus on mission-critical niches and disciplined bolt-on M&A supports attractive margins and mid-teen returns on capital.
- Shake Shack: We initiated a position during the “Liberation Day” dip. Strong brand equity, improving unit economics and international expansion create a compelling early-stage compounder profile despite high valuation.
- Primoris: We initiated a position in this specialty infrastructure contractor, supported by grid modernization and energy transition trends. Its recurring utility work, disciplined M&A and undervaluation versus peers offer attractive upside.
- Richards Packaging: We added this defensive, value-added distributor with recurring demand and resilient margins. Its strong free cash flow and overlooked valuation make it a quality long-term holding.
- FTI Consulting, Ormat and Samsonite: We exited all three positions to reallocate capital to higher-conviction opportunities.
Outlook
While U.S. markets ended Q2 on a strong note, shifting from April’s volatility to a broad risk-on rally, significant uncertainties remain heading into the second half of 2025. Policy changes under the Trump administration, persistent political gridlock, and the threat of renewed tariffs if trade negotiations falter continue to weigh on investor sentiment. Inflation risks persist, especially as broad-based tariffs begin to affect input costs, while the Federal Reserve continues to operate in an unusual interest rate environment. Corporate earnings are under pressure from weak demand, sticky cost inflation and inconsistent economic data. Valuations have rebounded, but following the recent rally, they offer less margin for error. With macro indicators sending mixed signals, it remains uncertain whether markets are entering a new growth cycle or approaching the end of the current one.
In Europe, sentiment has improved post–Liberation Day, with both public and private players showing greater willingness to reinvest locally. However, execution has lagged expectations. German industrial activity remains muted pending fiscal stimulus, and consumer confidence across the Eurozone is still weak. Even so, European small caps continue to trade at a deep discount to U.S. peers—14.8x 2025 EPS vs. 20.2x for the Russell 2000—highlighting a potential valuation gap.
In Asia, Japan’s weak yen has supported exporters but is contributing to rising domestic inflation, eroding household purchasing power. If wage growth solidifies, the Bank of Japan may need to tighten policy more aggressively than the market currently anticipates. Meanwhile, China’s industrial output has remained steady, but consumer behaviour is shifting. Households are moving away from high-end discretionary purchases toward more value-oriented spending—a trend likely to reshape domestic consumption patterns.
Despite the rally, corporate behaviour globally remains cautious. Many firms have paused capital expenditures and M&A plans while awaiting more policy clarity. Consumers are also under pressure, squeezed by elevated prices and interest rates, with early signs of fatigue showing across several sectors.
In this environment, we remain focused on owning businesses with strong balance sheets, durable free cash flow and valuations that still reflect underlying fundamentals. As the market gradually reassesses what constitutes long-term quality, we believe our portfolio is well-positioned to navigate the challenges ahead and to benefit from any upside that comes with greater clarity and stability.
