Virtus KAR Mid-Cap Core Q4 2025 Review (VIMCX)

Performance Overview

The Virtus KAR Mid-Cap Core Fund (VIMCX), specifically the Class I shares, recorded a return of -2.44% over the fourth quarter of 2025. This outcome trailed the benchmark Russell Midcap Index, which posted a modest gain of 0.16% during the same timeframe. Several key holdings significantly influenced these results, with standout performers and underperformers shaping the fund’s quarterly performance.

Among the top contributors to the fund’s performance were Cooper Companies and Ross Stores. These positions delivered strong gains, helping to mitigate some of the quarter’s losses. On the other hand, Houlihan Lokey and Pool Corporation emerged as the primary detractors, weighing on overall returns due to specific challenges within their respective sectors.

Portfolio adjustments were made during this period to refine the fund’s positioning. The investment team initiated a new position in Jack Henry & Associates, viewing it as an attractive opportunity within the mid-cap universe. Conversely, they completely exited their holding in FactSet Research Systems, reflecting a strategic decision to reallocate capital amid evolving market dynamics.

• The fund’s Class I shares declined by 2.44% in Q4 2025, lagging the Russell Midcap Index’s 0.16% advance.
• Cooper Companies and Ross Stores led positive contributions through robust operational results.
• Houlihan Lokey and Pool Corporation subtracted from returns due to industry headwinds.
• New addition: Jack Henry & Associates; complete sale: FactSet Research Systems.

Market Environment

Throughout the final quarter of 2025, technology sector stocks, especially those tied to artificial intelligence developments, continued to capture significant investor focus. Market participants closely scrutinized the ongoing rally in these names, debating its long-term viability and the implications of substantial capital spending commitments. Growing apprehension surrounded the potential ramifications of massive investments in AI infrastructure, prompting questions about profitability and return on capital for involved companies.

Investors expressed heightened concerns regarding whether the enormous expenditures on AI technologies would ultimately translate into sustainable competitive advantages and earnings growth. This uncertainty contributed to volatility within the technology space, influencing broader mid-cap market movements. The fund’s managers navigated this landscape by maintaining a disciplined approach to stock selection, emphasizing companies with resilient business models capable of weathering sector-specific turbulence.

Key Drivers of Underperformance

The Virtus KAR Mid-Cap Core Fund’s relative underperformance against the Russell Midcap Index in the fourth quarter stemmed primarily from suboptimal stock picks in the information technology and financial sectors. Despite these setbacks, the portfolio benefited from constructive positioning in healthcare and real estate, which provided some offset to the losses elsewhere.

In information technology, certain holdings faced pressure from the broader market’s reassessment of growth prospects amid AI hype. Similarly, financial sector selections encountered headwinds from macroeconomic factors and interest rate sensitivities. However, the healthcare exposure capitalized on steady demand and innovation trends, while real estate holdings gained from favorable market rotations.

Strategic Portfolio Adjustments Amid AI Dynamics

Responding to emerging competitive pressures in the AI arena, the fund management team made deliberate changes to the portfolio composition. They divested from FactSet Research Systems, driven by worries that advancing AI capabilities could empower rival data analytics platforms, potentially eroding FactSet’s market position over time. This move underscored a proactive stance on technological disruption risks.

To replace this position and capitalize on perceived undervaluation, the team introduced Jack Henry & Associates. This financial technology provider was selected for its strong fundamentals, recurring revenue streams, and potential to benefit from digital transformation trends in community banking—a segment less exposed to intense AI competition.

Top Contributors and Detractors Analyzed

Delving deeper into individual holdings, Cooper Companies stood out as a major positive influence. The company reported enhanced growth metrics and issued optimistic forward guidance, rewarding shareholders with share price appreciation. Ross Stores similarly impressed, leveraging its off-price retail model to post solid comparable sales and margin expansion amid consumer spending resilience.

In contrast, Houlihan Lokey grappled with sector-specific headwinds in investment banking, including deal flow slowdowns and valuation pressures. Pool Corporation faced industry-wide concerns, such as softening demand for pool products due to economic caution and weather-related factors, leading to disappointing results that dragged on performance.

These dynamics highlight the fund’s bottom-up investment process, which prioritizes companies with durable competitive edges while remaining agile in response to changing fundamentals. Looking ahead, the team remains focused on mid-cap opportunities offering a blend of growth potential and valuation discipline.

• Positive Impacts: Cooper Companies (growth acceleration), Ross Stores (operational strength).
• Negative Impacts: Houlihan Lokey (sector slowdowns), Pool Corporation (demand weakness).