All Cap Value – Q4 2025 Commentary

US stocks continued to lift higher during 2025 with the S&P 500® up more than 16% for the year. The strong year capped off a solid 3-year run of nearly 80% appreciation since the start of 2023. The strong year started out unsettled as Trump’s “Liberation Day Tariffs” in early April pushed the S&P 500® down sharply from its February highs. Investors and economist the world over, were alarmed by the largest tariff increases since the Smoot-Hawley Tariffs of 1930 pushed the US and the World economies deeper into a depression. The Smoot-Hawley Tariffs reduced international trade by over 60% from 1929 to 1934, creating significant wealth destruction. During early 2025, people were worried that Trump’s Tariffs would have a similar impact. Mark Twain’s quote, “History Doesn’t Repeat itself, but it often Rhymes” applies here with tariff problems on the early 1930s not repeating but showing some similar but much smaller impacts. The S&P 500® bottomed out in late April then proceeded to increase nearly 39% from its April lows. Driving the appreciation was the easing of tariff barriers, robust Artificial Intelligence (AI) related earnings and capital investment, large productivity gains and better-than-expected GDP growth.

The initial shock of Trump’s “Liberation Day Tariffs” in early April was jarring for both the stock market and global economic growth expectations, representing one of the most significant shifts in US trade policies since the early 1930s. However, the actual impact of the Trump tariffs on GDP growth and inflation was much more muted than people expected. First, Trump delayed, paused, or reduced many of his initial tariff threats as other countries negotiated trade deals. For instance, USMCA trade guidelines with the US’s largest trading partners, Mexico and Canada where mostly left in place and were not nearly as onerous as Trump’s stated tariff levels. Overall, the Trump Admin watered down the initial tariff bite, providing relief. Second, the global supply chains quickly adjusted to the tariffs through frontloading of inventory and country-sourcing changes. Third, currencies quickly adjusted to mitigate the tariff impact. Finally, the US is a service-heavy economy with more than two-thirds of the economy not subject to tariff changes. So far, the tariffs have only had small impacts on US and global inflation. Real GDP for 2025 is expected to be 2% for the US and 3.2% to 3.3% for the world. GDP growth may improve in 2026 as we move past these tariff headwinds with not nearly as much negative impact as people expected.  

During 2025, AI-related stock performance and contribution to US GDP growth represented a positive impact. AI-related stocks (Technology and Communication Services Sectors) accounted for 60% of the S&P 500® Return. Capital investment in Artificial Intelligence contributed almost 1% of GDP growth for the first three quarters of 2025. The stock appreciation is discounting a very strong future with capital expenditures from the top five hyperscalers to grow >36% in 2026 to >$600b.   

Productivity gains also contributed to both GDP growth and stock market performance in 2025. According to the Bureau of Labor Statistics, US labor productivity accelerated to a 4.9% annualized in the third quarter, with 2nd quarter numbers revised higher to 4.1%.  This productivity improvement is starting to improve as AI gains traction, allowing companies to do more with less. This is starting to show up with a softening labor market, even as GDP growth remains solid. Improved productivity should drive higher returns for corporations and allow inflation to stay in check. Further gains from AImay continue to drive strong growth in productivity over the foreseeable future.  

GDP growth has also accelerated as we moved through the year due to improving trade balances (tariffs improved the US balance of trade with higher exports and lower imports), AI investment, increased productivity, and increased government and consumer spending. The strength in these variables continues to more than offset headwinds from softer consumer spending from lower/middle consumers and housing market construction declines. GDP grew at 4.3% in the 3rd quarter (from 3.8% in the 2nd quarter and -0.5% in the 1st quarter) on strong export growth of 8.8% while imports fell 4.7%. GDP projections suggest growth could improve from 2% in 2025 to 2.3% in 2026 as stimulus from Trump tax cuts and lower interest rates support consumer spending, along with further capital investment and productivity growth from AI continuing.

For 2025, All Cap Value appreciated 13.51% (gross of fees) and 12.72% (net of fees), which lagged the Russell 3000® Value Index which increased 15.71% for the same period. Positive contribution stemmed from Financials, Consumer Discretionary and Consumer Staples but was more than offset by underperformance from the Industrials, Materials, and Health Care.  Additional performance information is included in the table below.

Data as of 12/31/2025

Looking ahead to 2026, we are closely monitoring inflation data (which is slowing), central bank interest rate policies, corporate earnings/outlooks along with recent geopolitical developments including Trump’s agenda. While some headwinds remain, particularly concerning inflation and geopolitics, opportunities for growth persist in sectors poised to benefit from ongoing technological innovations. Even with all the recent market cross-currents, our investment approach, which focuses on bottom-up analysis, continues to discover good companies at reasonable valuations. 

As always, we want to thank you for the confidence you have placed in Kennedy Capital, and we appreciate the opportunity to manage your accounts.

Sincerely,

Frank Latuda, Jr., CFA^®

Chief Investment Officer & Portfolio Manager

Thomas Leritz, CFA^®

Assistant Portfolio Manager

Important Disclosures

Kennedy Capital Management LLC (“KCM”) is a Delaware limited liability company headquartered in Missouri.  KCM is registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training. Clients of the Firm include U.S. corporations, pension and profit sharing funds, colleges and universities, trusts, not-for-profit organizations, foundations, and individuals. KCM claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. GIPS® are a set of standardized, industry-wide ethical principles that provide investment firms with guidance on calculating and reporting their investment results to prospective clients to ensure fair representation and full disclosure of an investment firm’s performance history.

Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. A complete list of all securities recommended by KCM in the preceding year, a fully compliant GIPS composite report, and the list of composite descriptions are available upon request from KCM at 10829 Olive Blvd., Suite 100. St. Louis, MO, 63141.

Investing in the stock market involves gains and losses and may not be suitable for all investors. Investing in equity securities is speculative and involves substantial risk.  Small cap and mid cap securities may involve more risk than larger-cap securities.  Investments concentrated in sector or specific industry may involve greater risk and volatility than more diversified investments.  

The All Cap Value Composite invest primarily in value securities of companies without a market capitalization constraint. The Manager generally looks for undervalued companies generating cash flow returns on invested capital greater than industry peers. All Cap Value portfolios generally demonstrate valuations below and growth characteristics at or above those of the benchmark. The weighted average market capitalization of the Account will generally be reflective of the Russell 3000® Value Index. The U.S. Dollar is the currency used to express performance.

Composite specific data provided within this presentation has been calculated from accounts that are discretionary as defined in this paragraph. The assets shown are derived only from discretionary accounts. Non-discretionary accounts, as defined by KCM, are accounts that are not included in the composite due to one or any combination of the following criteria: there were significant cash inflows or outflows within the account; the account’s asset level did not meet the minimum requirement to remain in the composite; the account assets are managed by others using our non-discretionary model. The temporary removal of such an account occurs at the beginning of the month and the account re-enters the composite the month after the criteria has been met.

Performance returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross of fee returns reflect the deduction of transaction costs and custodian fees but do not reflect the deduction of investment advisory fees. Net of fee performance is calculated using gross returns less the actual applicable annual management fee applied monthly. Past performance is not indicative of future results. A client’s return will be reduced by the advisory fees as described in Form ADV Part 2A and other expenses incurred by the account. For example, an annual advisory fee of 1% compounded quarterly over 10 years will reduce a gross 14.44% annual return to a net 13.32% annual return. Form ADV Part 2A is available upon request.

The performance figures reported herein are unaudited, may be based upon information obtained via electronic data sources (”feeds”) and may be subject to change. Data feeds from many of KCM clients’ selected custodians are obtained through third party sources, and are used to compare custodial data to KCM’s client account records as frequently as daily. Monthly, KCM reviews clients’ account holdings along with cash and share quantities against the custodial statements. In some instances, variances may exist between final audited custodial information and the information KCM obtains via such data feeds. Generally, any such variances are researched and reconciled within thirty days of the period end.

The information provided should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in a KCM portfolio at the time you receive this letter or that securities sold have not been repurchased. Allocations among industries, sectors and securities may vary and are subject to change without notice. Any securities discussed do not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the industry or sector allocation decisions mentioned, or securities transactions or holdings discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Sector Weightings are subject to change at any time.  Sectors are based on the Global Industry Classification Standard (“GICS”) classification scheme and are measured as a percentage of the total composite in terms of asset value as of the date indicated above.  Individual client portfolios may be different based on variations in security purchase price and date, and individual client restrictions. 

GICS was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International, Inc. (”MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (”S&P”) and is licensed for the use by KCM. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results thereof),and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability, and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Allocations to various assets classes change over time and deviate from any stated or targeted percentages of a total portfolio as a result of market conditions and reallocation decisions. Therefore, nothing herein reflects a static portfolio allocation that will remain the same or match stated target allocations of asset classes.

Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto.  The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited.  This is a presentation of Kennedy Capital Management.  Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Kennedy Capital Management’s presentation thereof.   

The Russell 3000® Value Index measures the performance of the broad value segment of the US equity value universe. It includes those Russell 3000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years). The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

The Russell 3000® Value Index is used as the benchmark.  The Index is unmanaged and represents total returns including reinvestment of dividends.  The benchmark is used for comparative purposes only and generally reflects the comparable risk or investment style of the Firm’s strategy.  The investment portfolios underlying the Index are different from the investments in the portfolios managed by the Firm. Certain accounts may also use other benchmarks not listed in the GIPS composite report. The Verification and Performance Examination Report does not cover the benchmark returns included in the GIPS composite report.  Investors cannot invest directly in an Index.

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. According to our Annual Survey of Assets, an estimated USD 15.6 trillion is indexed or benchmarked to the index, with indexed assets comprising approximately USD 7.1 trillion of this total (as of Dec. 31, 2021). The index includes 500 leading companies and covers approximately 80% of available market capitalization.