Small-growth funds have yet to fully dig themselves out their 2022 hole.
Rising interest rates hit the category particularly hard, as small-growth companies tend to be valued on long-dated future earnings, which become less valuable as interest rates rise. Since the Russell 2000 Growth’s February 2021 peak, that index is still down 10.3% through July 2025, compared with the S&P 500’s 65.3% gain and the Russell 1000 Growth’s 73.1% gain.
In 2025’s volatile markets, small growth’s underperformance continued, and the Russell 2000 Growth eked out a 1.2% year-to-date return through July, while the Russell 1000 Growth was up 10.1% and the S&P 500 was up about 8.6%.
Despite the macro headwinds, we think there are some highly skilled managers in the category who can identify tomorrow’s leading businesses regardless of macro conditions. On top of that, our research has shown that there is relatively strong positive alpha potential in the category.
Here are three funds that have had a rough recent go relative to broader equity markets but that remain very compelling options.
Gold-rated Champlain Small Company CIPSX is run by an excellent portfolio management team led by Scott Brayman. He plies a quality, valuation-focused approach that isn’t as aggressive as some peers but stands out for being relatively resilient on the downside. For instance, since the Russell 2000 Growth’s February 2021 peak, this fund gained 6.4% versus the index’s 10.3% loss, amounting to over 15 percentage points of outperformance. It still widely lags the broader equity benchmarks, and it can look out of step in risk-hungry markets, but Brayman won’t let underperformance shake his confidence. Through full market cycles, we believe this portfolio can deliver for investors.
Silver-rated Artisan Small Cap ARTSX has struggled against the Russell 2000 Growth benchmark recently, ranking in the bottom decile of the category over the last five years, but its process is sound, and the managers are focused on correcting some recent missteps.
Failure to recognize frothy valuations on a number of big winners stung Artisan Small Cap when the market pulled back and high-multiple stocks were particularly punished. This fund tends to rank among the most growth-oriented in the category, and while it has a quality bent to it, the growth exposure can often dictate relative performance. This team’s ability to identify companies entering profit cycles should set it apart over the long run.
WCM Small Cap Growth WCMNX is a Bronze-rated strategy that we think remains a compelling option despite recent underperformance. John Rackers and Chad Hoffman generally focus on owning companies with competitive advantages, though they will own young biotechnology companies, which can swing results depending on macro conditions. While they do not overweight the industry, they also do not wholly ignore it as some peers do, so biotech’s volatility can make this strategy look distinct from other quality-oriented peers.
Still, broader stock-picking missteps have hurt recent performance, and its 10.2% loss since February 2021 was largely in line with the index’s pullback. However, the team has managed through tough stretches before, and its repositioned its healthcare holdings in an attempt to right the ship.
A version of this article appeared in the July 2025 issue of Morningstar Fund Investor. Click here for a free sample issue.