Understanding Market Volatility and Its Impact on Small Cap Investing
The first quarter of 2025 was marked by heightened market volatility as investors reacted to the new administration’s economic agenda, including the return of tariffs. For small cap equities, this meant increased pressure: the Russell 2000 fell 9.48% during the period, while the CBOE VIX and RVX reached highs not seen since the pandemic era.
Ironwood Investment Management, LLC’s Small Cap Core Strategy declined 13.26% (gross of fees) in Q1 2025. But at Ironwood, volatility is not simply a challenge—it’s a signal. We view it as a chance to apply our small cap investment strategy with discipline and clarity.
A Disciplined Small Cap Investment Strategy for Uncertain Times
At Ironwood, our philosophy embraces the idea that market overreactions can create potential long-term opportunities. This belief is core to how we manage our Small Cap Core investment strategy through economic cycles. Rather than chase headlines, we focus on High I-Q (Ironwood Quality) companies—small-cap businesses that demonstrate financial strength, enduring competitive advantages, and forward-looking ESG practices.
These are the companies we believe are best positioned to withstand and adapt to uncertainty, offering a foundation for potential resilience and growth.
High I-Q Companies: The Foundation of Our Strategy
Our Small Cap Core investment strategy is built on a long-term, research-driven framework. High I-Q companies are identified by:
- Strong financials and low debt burdens
- Clear competitive positioning within their industries
- Resilient and adaptable management teams
- Genuine integration of ESG considerations into their operations
These businesses offer more than temporary performance—they offer the potential for value creation over time.
🔗 For a deeper dive into our investment framework, read our blog post on Unlocking Value Through High I-Q Investing.
Responding to Market Shifts: Portfolio Updates in Q1 2025
Q1 brought several portfolio changes driven by market activity. Three holdings were acquired, in line with our historical M&A-driven turnover. These events, combined with strategic trimming in prior quarters, led to an elevated cash position of 8.1%.
We redeployed capital selectively, adding to existing High I-Q positions. These additions reflect our confidence in companies that showed strength amid valuation compression. Our Small Cap Core investment strategy is flexible but grounded—designed to act when the market misprices quality.
Seeing Opportunity in Cyclical Drawdowns
Many of our portfolio companies have stood the test of time—some operating successfully for over 100 years. That longevity supports our conviction in holding through periods of short-term disruption.
Market drawdowns often bring discomfort, but they also bring clarity. Historically, corrections have set the stage for attractive entry points. Our Small Cap Core investment strategy leverages these moments to invest with purpose, not panic.
Why Choose Ironwood Investment Management, LLC?
Ironwood Investment Management, LLC is an independent, employee-owned firm with a nearly three-decade track record in small cap investing. Our team is unified by a disciplined approach, rigorous research, and a focus on long-term value.
By partnering with Ironwood, Small Cap Core clients benefit from:
- A consistent, proven process tailored for small cap equities
- An actively managed, diversified portfolio
- ESG-aware decision-making integrated into the investment process
- A culture of transparency and client alignment
Partner with Ironwood Investment Management, LLC for Small Cap Investment Success
If you are seeking a partner who can help you navigate small cap investing amid market volatility, we encourage you to contact us today. We would be happy to discuss your investment goals and provide you with more information about our Small Cap Core Strategy and investment approach.
If you’d like to receive a copy of the full Q1 2025 commentary letter, please contact Ironwood Investment Management, LLC at info@ironwoodfunds.com or call us at (617) 757-7600.
Ready to explore how Ironwood can help you achieve your investment goals?
Contact us today for a complimentary consultation.
Additional Ways to Contact Us:
Phone: (617) 757-7600
Email: info@ironwoodfunds.com
Website: https://ironwoodinvestmentmanagement.com
Important Disclosures & Disclaimers
Performance Statistics – as of Q1 2025
Ironwood Investment Management®, LLC (Ironwood) is an independently managed investment advisory firm providing investment advisory services to institutional clients, mutual funds, and high-net-worth clients.
The firm is a registered investment adviser with the Securities and Exchange Commission. SEC Registration does not imply a certain level of skill or training.
Accounts in the Small Cap Core composite include separately managed, fully discretionary, fee-paying portfolios. Portfolios are invested in undervalued securities, the majority of which will have market capitalizations under $2.5 billion at cost, including securities with growth and/or value characteristics. Securities are considered undervalued when management believes the current share price does not accurately reflect the long-term economic value of the underlying company.
Ironwood Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Ironwood Investment Management, LLC has been independently verified for the periods January 1, 1999, through December 31, 2021. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis.
The Small Cap Core composite has had a performance examination for the periods July 1, 2002, to December 31, 2021. The verification and performance examination reports are available upon request. 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.
The creation date of the composite: July 2002. Performance inception date of the composite: January 1, 1999. Prior to July 2002, portfolios were included in the composite when at least 75% of the portfolio was invested in equity securities and when at least 75% of the portfolio was invested according to the investment style of the composite. Subsequent to July 2002, portfolios are included in the composite after the first full month of being fully invested.
Returns are presented gross and net of management fees and include the reinvestment of all income. Net returns are calculated based on the highest fee of 1.00%. Investment management fees are 1.00% on the first $25 million, 0.90% on the next $25 million, 0.80% on the next $50 million, and 0.75% over $100 million on an annual basis, and a client’s return will be reduced by these and other related expenses. The actual fee charged to an individual portfolio may vary by size and type of portfolio and may be negotiated. Actual investment advisory fees incurred by clients may vary.
The Russell 2000 Index consists of the 2000 smallest stocks in the Russell 3000 Index, representing approximately 8% of the U.S. equity market capitalization. The indices have been reconstituted annually since 1989. Ironwood returns and Index performance reflect reinvested interest income and dividends in U.S. dollars.
A list of composite descriptions and a list of limited distribution pooled fund descriptions are available upon request. Past performance is not indicative of future results. Policies for valuing investments, calculating performance, and preparing GIPS Reports are available upon request. Prior to May 2006, the Firm was known as Ironwood Capital Management, LLC.
Past Performance is Not Indicative of Future Results
The performance data provided in this blog reflects past performance, which may not be representative of future results. Investing in small cap stocks and other securities involves substantial risk, including the potential loss of principal. There is no guarantee that any investment strategy will be successful.
Forward-Looking Statements
This blog contains forward-looking statements, including expectations or forecasts about the performance of the market and specific securities. These statements are based on Ironwood Investment Management, LLC’s current beliefs and expectations but are subject to change without notice. Actual results may differ materially from those expressed or implied due to various risks and uncertainties, including market conditions, economic factors, and changes in government policy.
No Offer or Solicitation
This blog is for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities or investments. It is not intended to provide investment advice or to serve as a recommendation regarding any investment strategy. No client-adviser relationship is formed by reading this blog.
Conflicts of Interest
Ironwood Investment Management, LLC may hold positions in or recommend securities discussed in this blog. Clients should carefully review any investment strategy before committing to ensure it aligns with their investment objectives and risk tolerance.
Regulatory Disclosure
Ironwood Investment Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.