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The Victory Sycamore Small Company Opportunity Fund, holding A Shares without sales charges, experienced a period of underperformance against the Russell 2000® Value Index during the fourth quarter of 2025 and for the entire fiscal year concluding on December 31, 2025. This shortfall was predominantly attributed to specific stock choices rather than broader sector allocations. The fund's management team, Sycamore Capital, adheres to a rigorous, bottom-up, fundamental investment philosophy, aiming to identify strong businesses trading below their intrinsic value. However, the prevailing market conditions, characterized by a preference for high-beta, volatile, and momentum-driven stocks, posed significant challenges for diversified, quality-focused value strategies, leading to lower success rates for active managers. Despite these obstacles, the fund maintains its conviction in its approach, anticipating that increased scrutiny on AI valuations and a potential market broadening could create a more favorable environment for cyclical and value-oriented investments.

Victory Sycamore Fund Faces Q4 2025 Headwinds Amidst Market Shifts

In the final quarter of 2025, the Victory Sycamore Small Company Opportunity Fund (A Shares without sales charge) reported a notable underperformance compared to its benchmark, the Russell 2000® Value Index. This trend extended throughout the entire 12-month period ending December 31, 2025, underscoring a challenging year for the fund.

According to the fund's commentary, the primary factor contributing to this underperformance was unfavorable stock selection. Sectors such as Financials, Materials, and Consumer Discretionary were particularly impactful in this regard. While sector allocation also played a role, its influence on the relative underperformance was marginal when compared to the specific stock choices made by the fund managers.

The management team at Sycamore Capital, responsible for the Small Cap Value investment strategy, employs a disciplined, fundamental approach. Their investment philosophy centers on identifying robust businesses that are trading at a discount relative to their estimated intrinsic value. However, the market dynamics witnessed in 2025 presented significant headwinds. The period was characterized by a strong investor preference for high-beta, volatile, and momentum-driven stocks, which inadvertently penalized diversified, quality-focused value strategies like that of the Victory Sycamore Fund. This environment resulted in a lower-than-usual success rate for active managers and exerted considerable pressure on performance.

Looking ahead, the fund management expresses optimism, suggesting that the current market concentration, particularly around AI-driven themes, might eventually broaden. They anticipate that a closer examination of AI valuations and a potential shift in market sentiment could create a more fertile ground for cyclical and value stocks. This outlook supports their continued adherence to a disciplined, bottom-up value investment strategy, despite the recent challenges.

The challenges faced by the Victory Sycamore Small Company Opportunity Fund in late 2025 offer valuable insights into the dynamic nature of financial markets and the ongoing debate between growth and value investing. This situation highlights that even well-structured, fundamentally driven strategies can experience periods of underperformance when market sentiment heavily favors specific investment styles, such as high-beta growth or momentum stocks. It underscores the importance of a long-term perspective in investing and the need for investors to remain patient through various market cycles. Furthermore, it reinforces the idea that market leadership is not static; periods of concentrated gains in a few sectors often precede a broader market recovery or rotation into undervalued assets. Thus, while past performance is never a guarantee of future returns, a disciplined investment philosophy that focuses on intrinsic value may still be poised for success when market conditions eventually normalize or shift.