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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Driehaus Small/Mid Cap Growth Fund 2025 Q1 Investor Letter | Buyside Digest

Back to Fund Profile (Driehaus Small/Mid Cap Growth Fund)

Primary Source Intelligence • Q1 2025 Letter Analysis

Driehaus Small/Mid Cap Growth Fund Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Driehaus Small/Mid Cap Growth Fund. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD-15.77%

YTD-15.77%

Annualized+13.37%

Positioning StanceConstructive

Market CapSMID Cap

GeographyUS

Digest Analysis

Quick Take

"Strategy underperformed amid historic tariff-driven volatility and AI theme collapse. Trump's massive tariff announcement caused unprecedented selling before pivoting to 90-day pause."

Executive Summary

The Driehaus Small/Mid Cap Growth strategy declined 15.77% in Q1 2025, underperforming the Russell 2500 Growth by 497 basis points amid unprecedented market volatility. The quarter was dominated by two major disruptions: DeepSeek's AI breakthrough in January that ended the AI infrastructure theme, and Trump's massive tariff announcement in April causing historic selling. Trump initially proposed reciprocal tariffs of at least 10% globally with rates up to 50% on some countries, triggering the steepest two-day market decline since Covid. After extreme volatility, Trump pivoted to a 90-day pause with 10% rates except China at 145%. Healthcare was the largest sector detractor despite increased allocation, pressured by RFK Jr's FDA appointment concerns. The strategy reduced industrial and technology exposure while maintaining focus on companies positioned to navigate trade disruptions. Looking forward, the outlook depends entirely on tariff negotiations, with potential for market relief if rates are reduced and favorable trade deals emerge.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

75%

CautiousHigh

High Conviction (75%)

Manager demonstrates high conviction in their approach to crisis management, citing 27 years of experience navigating multiple market crises. Strong conviction expressed in healthcare holdings despite headwinds and clear positioning decisions around tariff-sensitive sectors.

Growth Outlook

38%

BearishBullish

Neutral (38%)

Manager expresses cautious optimism about potential tariff resolution and market recovery, but acknowledges significant economic damage and uncertainty. Multiple silver linings are identified including potential for negotiated tariff reductions and Trump's history of pivoting under market stress.

Risk Appetite

30%

DefensiveAggressive

Defensive (30%)

Portfolio shows defensive positioning with significant reductions in cyclical exposures including industrials and technology. Cash position at 3.9% and active de-risking in volatile sectors demonstrates risk-off posture, though some selective additions in healthcare show measured risk-taking.

Capital Deployment

25%

De-riskingDeploying

De-risking (25%)

Significant de-risking evident through major sector allocation reductions in industrials and technology. Cash position at 3.9% and active trimming of cyclical exposures indicates moderate capital preservation mode, though some selective deployment in healthcare.

Forward Guidance

45%

CautiousExpansionary

Neutral (45%)

Manager maintains focus on identifying companies positioned to emerge stronger from crisis while acknowledging extreme uncertainty. Guidance is cautiously optimistic about potential positive resolution but emphasizes dependence on tariff negotiations and policy outcomes.

Language Signal

35%

BearishBullish

Bearish (35%)

Language emphasizes crisis, unprecedented volatility, historic selling, and extreme uncertainty. While silver linings and opportunities are mentioned, the dominant tone reflects significant concern about policy-driven market disruption and economic damage.

Perceived Risk

85%

Low RiskElevated

Elevated Risk (85%)

Manager identifies extreme systemic risks including unprecedented tariff policies, potential recession, historic market volatility, and policy uncertainty. Multiple references to crisis conditions, economic damage, and comparison to worst periods in decades indicate very high perceived risk.

Opportunity Density

40%

ScarceAbundant

Selective (40%)

Manager acknowledges that crisis will create opportunities and mentions stocks of strong businesses have declined sharply but will emerge positively. However, current focus is more on navigating risks than identifying abundant opportunities, suggesting selective opportunity set.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

Manager emphasizes focus on companies positioned to emerge stronger heading into second half of 2025, 2026 and beyond. Long-term perspective on themes like reshoring and healthcare innovation suggests patient capital approach despite near-term volatility.