The Goldman Sachs Small/Mid Cap Growth Fund's third-quarter 2025 performance review reveals a period of underperformance relative to its benchmark, the Russell 2500 Growth Index (net). During this quarter, the fund made notable strategic adjustments to its portfolio, reflecting dynamic investment management decisions aimed at optimizing returns amidst prevailing market conditions.
Key portfolio adjustments included the acquisition of a new stake in Planet Fitness, Inc., a significant franchiser and operator in the fitness sector, representing 1.3% of the fund's holdings. This move suggests a bullish outlook on the fitness industry or the specific growth prospects of Planet Fitness. In contrast, the fund completely divested its position in Shake Shack Inc., a well-known fast-casual restaurant chain. This divestment indicates a shift in investment strategy, possibly due to concerns about the company's performance or market valuation, or a reallocation of capital to more promising opportunities.
Portfolio Performance Overview
In the third quarter of 2025, the Goldman Sachs Small/Mid Cap Growth Fund's Institutional Shares demonstrated a performance that trailed its comparative benchmark, the Russell 2500 Growth Index, after accounting for fees. This underperformance suggests that the fund's holdings or strategic allocations did not capture market upturns as effectively as the benchmark or were more susceptible to market downturns during this specific period. Such fluctuations are a natural part of active portfolio management, where deviations from the benchmark can occur due to specific stock selections or sector weightings.
The fund's relative underperformance during Q3 2025 against the Russell 2500 Growth Index (net) highlights challenges in navigating the small and mid-cap growth segments of the market during this period. Active managers continuously strive to outperform their benchmarks, and periods of underperformance often lead to detailed analyses of portfolio construction, sector bets, and individual stock selections. Factors such as shifts in market sentiment, unexpected company-specific news, or broader economic trends could contribute to such outcomes. The fund's managers are likely evaluating the drivers behind this performance to refine future strategies and capitalize on emerging opportunities in the dynamic market landscape.
Strategic Portfolio Adjustments
During the same quarter, the Goldman Sachs Small/Mid Cap Growth Fund strategically introduced a new investment in Planet Fitness, Inc., acquiring a 1.3% stake. This initiation reflects a deliberate decision to tap into the growth potential identified within the fitness industry, possibly driven by Planet Fitness's franchising model, market expansion, or favorable consumer trends in health and wellness. Concurrently, the fund made the significant decision to completely liquidate its holding in Shake Shack Inc., signaling a reassessment of its value proposition or future growth trajectory within the fast-casual dining sector.
The strategic moves of adding Planet Fitness and exiting Shake Shack are indicative of the fund's active management approach, continuously seeking to optimize its portfolio for growth. The investment in Planet Fitness could be based on a belief in its robust business model, expanding membership base, or resilience in various economic conditions. Conversely, the divestment from Shake Shack might stem from concerns over competitive pressures, valuation issues, or a less optimistic outlook on its future earnings growth. These adjustments are critical to how the fund positions itself to maximize returns while managing risks in the evolving small and mid-cap growth investment universe.