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The third quarter of 2025 built on the rebound we saw in Q2, as fundamentals once again took center stage. Since “Liberation Day,” small-cap equities have rallied strongly, with notable pockets of strength in the AI supply chain and companies positioned to address ongoing power shortages.  While the small-cap market experienced brief rotations into value — favoring lower-quality, high-debt companies — earnings season reaffirmed the advantage of high-quality growth stocks, rewarding businesses with strong fundamentals and execution.

For the quarter ended September 30, 2025, the Hood River U.S. Small-Cap Growth Fund (Institutional Share Class) returned +18.68%, or 649 basis points (“bps”) ahead of the Russell 2000® Growth Index’s +12.19% gain.  Year-to-date, the fund is up +17.63%, or +598 bps ahead of the benchmark.  A table of longer-term performance is provided below.

Performance quoted represents past performance for the Fund’s institutional class shares and there is no guarantee of future results.  Short-term performance may reflect conditions that are unsustainable and may not be repeated or consistently achieved in the future.  The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost.  Current performance may be higher or lower than the performance data quoted above.  Please call 800-497-2960 to obtain current and the most recent month-end performance data.  The gross expense ratio:  1.07%; net expense ratio: 1.07%.  Performance would have been lower without limitations in effect.  Fund inception: 01/02/2003

As is expected with Hood River’s fundamental research process, stock selection was the primary driver of outperformance for the quarter (+709 bps).  Industries driving the outperformance included information technology (+758 bps), utilities (+46 bps), and communication services (+20 bps).  These were slightly offset by industrials (-61 bps), materials (-38 bps), and consumer discretionary (-20 bps). 

The buildout of AI infrastructure and the associated power needs continue to reverberate across the economy.  Demand for semiconductors, energy, industrial capacity, and drone technology remains robust, and the ripple effects are increasingly extending beyond the technology sector itself.  In fact, according to Bridgewater Associates, nearly half of U.S. gross domestic product (GDP) growth in the first half of 2025 was driven by technology capital expenditures — underscoring the magnitude of this transformation — and we believe this elevated pace of investment is poised to continue. 

While infrastructure beneficiaries have largely delivered beat-and-raise quarters, traditional software companies came under pressure as investors questioned whether AI could erode their competitive advantages, leading to multiple compression across various segments.  Our focus remains on companies demonstrating tangible earnings power from AI adoption, rather than chasing broad exposure to the theme.  Notably, even with select investments in AI infrastructure, the portfolio is entering Q4 with a more balanced profile and a smaller “AI tilt” than at the start of 2025.  Our largest sector overweight is indeed information technology (+985 bps), but only about half of the 32% sector weighting in the portfolio has predominately hyperscaler AI capital expenditure exposure.  No other sector has +/- 375 bps exposure versus benchmark weightings.

The story for Hood River in 2025 has been one of steady execution, with stock selection driving results even as Q1 was overshadowed by macro noise.  Most companies have adapted well to the current tariff environment, with impacts spread across supply chains, pricing, and margins in ways that have proven manageable.  Tariffs seem to be settling at levels lower than feared, allowing fundamentals to reassert themselves, and the prospect of additional Fed rate cuts further supports the outlook for small-cap equities.  Valuations in this segment remain compelling: while the S&P 500® Index trades at ~23x 2026 earnings — back to peak levels last seen in September 2020 — the Russell 2000® Growth Index trades at a similar multiple despite historically commanding a premium.  Against this backdrop, we see attractive opportunities for small-cap investors, particularly as powerful secular trends in AI, power, and drones could create company-specific growth drivers that are less visible in larger-cap benchmarks.

As always, we are grateful for your continued trust and partnership.  Our focus remains on a disciplined, bottom-up process that seeks to identify mispriced opportunities while carefully managing risk.  In our view, today’s backdrop underscores the importance of active management in small-caps, and we are optimistic about the breadth of opportunities as we move toward 2026.  Thank you for your time, and we look forward to connecting should you wish to discuss these views in more detail.

Brian Smoluch & David Swank

Basis Points (“bps”) is a unit of measure used to describe the percentage change in the value of an investment. Earnings are a company’s profit after taxes.  The S&P 500 Index is a market-capitalization weighted index of 500 leading publicly traded companies in the U.S.  Capital Expenditure refers to the investments a company makes to acquire, improve or maintain long-term assets such as buildings, land, machinery or equipment.  This commentary may contain forward-looking statements, which are not guarantees of future performance and are subject to risks and uncertainties.

Investment Considerations:

All investing includes risk, including the loss of principal.  There can be no guarantee that any strategy (risk management or otherwise) will be successful.  The Fund invests in small-cap securities which present a greater risk of loss than large-cap securities, and in growth companies which can be more sensitive to the company’s earnings and more volatile than the stock market in general.  The Fund also invests in foreign securities which are subject to risks including currency fluctuations, economic and political change and differing accounting standards.  The Fund may invest in derivatives and IPOs, which are highly volatile.  Additional risk information may be found in the prospectus.

All information in this report is as of September 30, 2025 unless otherwise indicated.  The benchmark is the Russell 2000® Growth Index, defined as an unmanaged, capitalization weighted index of those Russell 2,000 companies with higher price-to-book ratios and higher forecasted growth values. Index returns include dividends and/or interest income and do not reflect fees or expenses. In addition, unlike the composite, which periodically maintains a cash position, the Russell 2000^® Growth Index is fully invested.   Investors cannot directly invest in an index.

Investors should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing.  For a prospectus, which contains this and other important information about the Fund, please call 800-497-2960.  Please read the prospectus carefully before investing or sending money.

The Hood River Small Cap Growth Fund is distributed by Quasar Distributors, LLC.  Hood River Capital Management LLC serves as the advisor to the Hood River Small Cap Growth Fund.              

NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE