Virtus Zevenbergen Innovative Growth Fund Q4 2025: What the -2.74% Return Reveals About Growth Stock Investing
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- The Virtus Zevenbergen Innovative Growth Stock Fund (Class I: SCATX) returned -2.74% in Q4 2025, trailing the Russell 3000® Growth Index (+1.14%) by approximately 388 basis points (roughly 3.88 percentage points).
- U.S. equity markets closed 2025 with three consecutive years of double-digit gains — a feat not seen since the late 1990s dot-com era — but benchmark returns were powered by a dangerously narrow group of mega-cap stocks.
- Sector analysis of the fund reveals Technology (43.08%) and Consumer Cyclical (26.06%) dominate the portfolio, with Q4 headwinds concentrated in public safety industrials and e-commerce and cosmetics within consumer discretionary.
- Despite the Q4 stumble, the strategy earned a grade of "A" in October 2025 with a +6.2% return — more than double the Large Growth category average of +2.9% — suggesting the disruptive-growth approach can still deliver strong alpha (returns above the benchmark) in supportive conditions.
What Happened
The fourth quarter of 2025 was a classic case of headline numbers hiding a much messier reality. On paper, U.S. growth stocks looked fine: the Russell 3000® Growth Index returned +1.14% for the quarter, completing a remarkable third consecutive year of double-digit gains for U.S. equities — a streak last seen during the dot-com boom of the late 1990s. But peel back the surface, and the story becomes far more nuanced.
The Virtus Zevenbergen Innovative Growth Stock Fund (ticker: SCATX, Class I shares) returned -2.74% for Q4 2025, underperforming the benchmark by approximately 388 basis points. The primary drags were unfavorable positioning in public safety companies within the industrials sector, and e-commerce and cosmetics names within consumer discretionary. Partially offsetting these headwinds were positive contributions from healthcare diagnostics holdings and space technology companies within industrials.
What makes this quarter particularly worth examining from an investment research perspective is the market's extreme concentration dynamic. Virtually all of the benchmark's modest gains flowed from a small cluster of mega-cap AI infrastructure companies and dominant platform businesses. Broader growth stocks — including many of the innovative, high-conviction names Zevenbergen specializes in — experienced sharp reversals in momentum factors (the tendency for recent winners to keep winning) and in retail-favorite stock baskets. For investors doing stock analysis on active growth managers, this was one of the hardest quarters to navigate: beating an index increasingly dominated by just a handful of the world's largest companies requires either owning those exact names in enormous size, or betting — correctly — that concentration eventually reverses.
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What the Data Tells Us
Building on that picture of a deeply uneven market, a closer look at the actual numbers reveals both the challenge Zevenbergen faced and the longer-term thesis behind the strategy.
To understand what this quarter means, imagine a class of 30 students graded on a group average. Five students each scored 98%, while the remaining 25 scored between 40% and 65%. The class average looks acceptable, but it hides the fact that most students struggled badly. That is essentially what happened inside the Russell 3000® Growth Index in Q4 2025. A handful of mega-cap AI infrastructure names carried the index while broader market trends turned negative for many growth stocks.
The fund's sector analysis makes the exposure crystal clear: Technology at 43.08%, Consumer Cyclical at 26.06%, Communication Services at 11.48%, Healthcare at 8.45%, Industrials at 7.67%, Consumer Defensive at 2.74%, and Financial Services at 0.52%. Nearly 70% of the portfolio sits in just two sectors. This is a deliberate, high-conviction approach — Zevenbergen typically holds 30 to 60 positions rather than the hundreds found in passive index funds. Concentration is a feature when the right companies are selected; it also means that when even a handful of positions face headwinds, the impact registers quickly in quarterly returns.
The top 10 holdings from the Q3 2025 fact sheet are: Tesla (9.89%), NVIDIA (8.47%), Shopify (6.74%), Axon Enterprise (6.45%), The Trade Desk (6.29%), MercadoLibre (6.07%), Amazon (5.53%), Meta Platforms (4.23%), ServiceNow (4.10%), and Netflix (3.43%). Together these ten names represent roughly 61.7% of the fund — meaning the fund's fate is tightly linked to each company's quarterly performance.
One data point especially relevant to current market trends: in October 2025, the Zevenbergen Growth Institutional strategy returned +6.2%, more than double the Large Growth category average of +2.9%, earning a top "A" grade. This is a reminder that a single difficult quarter does not define a strategy. Zevenbergen Capital has been running growth equity strategies since 1987, and their Q4 2025 commentary argues directly that the extreme concentration driving index returns — where a small group of the largest stocks accounts for the bulk of gains — is unlikely to persist indefinitely. If and when market leadership broadens, strategies built on forward-looking, all-capitalization investment research could be well positioned to benefit.
Key Companies and Supply Chain
Given the sector analysis above, it's worth walking through the major portfolio positions to understand not just what the fund owns, but how these companies fit into broader supply chain and industry dynamics — context that helps explain why Zevenbergen holds them through short-term volatility.
Tesla (TSLA) — 9.89%: The largest holding reflects a view that Tesla is more than an automaker — it is an energy storage and AI robotics platform. In supply chain terms, Tesla anchors demand for advanced battery cells, power semiconductors, and autonomous driving compute. Its vertical integration from manufacturing to software is a key part of the disruptive thesis.
NVIDIA (NVDA) — 8.47%: As the dominant provider of GPUs (graphics processing units — the specialized chips that power AI training and inference), NVIDIA sits at a chokepoint in the entire AI supply chain. Virtually every major AI model, cloud service, and autonomous vehicle program depends on NVIDIA hardware, giving it exceptional pricing power. Stock analysis of NVIDIA's order backlog and data center revenue growth is among the most-watched data series in technology investing.
Shopify (SHOP) — 6.74%: Shopify functions as critical back-end supply chain infrastructure for millions of independent e-commerce merchants globally. Its payment tools, logistics partnerships, and merchant services tie it directly to the direct-to-consumer retail trend — which makes it sensitive to consumer spending cycles, a likely factor in Q4's consumer discretionary headwinds.
Axon Enterprise (AXON) — 6.45%: A public safety technology company whose connected hardware (Tasers, body cameras) and cloud software platform are expanding into enterprise and government markets. Axon was specifically cited in Zevenbergen's Q4 commentary as a source of underperformance within the industrials/public safety bucket — making it a name that warrants continued sector analysis as its business model evolves.
The Trade Desk (TTD) — 6.29%: A programmatic advertising platform connecting brands to ad inventory across the open internet, capturing structural market trends as advertising budgets migrate away from traditional TV and print. Its supply chain role is as an intermediary layer between advertisers, data providers, and publishers.
MercadoLibre (MELI) — 6.07%: Latin America's dominant e-commerce and fintech platform — effectively combining Amazon's marketplace, PayPal's payment network, and a logistics supply chain into one regional ecosystem. It represents exposure to a high-growth, underpenetrated consumer market with dynamics relatively independent of U.S. political cycles.
Rounding out the top 10: Amazon (AMZN, 5.53%) for cloud and e-commerce infrastructure, Meta Platforms (META, 4.23%) for digital advertising reach, ServiceNow (NOW, 4.10%) for enterprise workflow automation, and Netflix (NFLX, 3.43%) for global streaming platform dominance.
What Should You Do? 3 Action Steps
The -388 basis point gap between SCATX and its benchmark in Q4 2025 looks alarming on its own, but investment research into how the Russell 3000® Growth Index is currently constructed tells a more nuanced story. As of late 2025, a tiny handful of mega-cap companies account for a disproportionate share of the index's total weight — meaning "matching the benchmark" increasingly means owning the same few stocks in massive size. Investors are watching whether this concentration dynamic is sustainable or whether it resembles previous periods of narrow market leadership (like the late 1990s dot-com era) that eventually reversed sharply. FTSE Russell's index methodology documents and Morningstar's index concentration data are accessible starting points for this research.
If you hold SCATX alongside other growth-oriented funds or ETFs, it is worth doing a full sector analysis to check for unintended overlap. The fund's 43.08% Technology and 26.06% Consumer Cyclical weighting means it amplifies market moves in both directions — a strength in bull markets and a source of heightened volatility during sector rotations. Free tools like Morningstar's Portfolio X-Ray or ETF.com's overlap analyzer can map your total exposure across all holdings in minutes, helping you understand whether you are inadvertently doubling (or tripling) your bet on growth sectors without realizing it.
Zevenbergen's own investment research philosophy centers on long-term holding periods and multi-year conviction in disruptive business models — and the data supports evaluating the strategy on that same timeframe. October 2025's +6.2% return versus a +2.9% category average shows the strategy is not structurally broken; Q4 2025 was simply a difficult environment for concentrated active growth during a period of extreme benchmark concentration. Investors considering SCATX or similar strategies are well served by tracking rolling 3-year and 5-year returns across different market trends and cycles, rather than anchoring on any single quarter's result. Morningstar and Virtus's own fund pages publish these rolling performance figures publicly.
Frequently Asked Questions
Why did the Virtus Zevenbergen fund underperform in Q4 2025 even though it holds NVIDIA and Tesla?
Even with NVIDIA (8.47%) and Tesla (9.89%) as its two largest holdings, the fund's Q4 2025 return of -2.74% trailed the Russell 3000® Growth Index (+1.14%) by approximately 388 basis points. The primary reason was that the benchmark's gains were driven by an exceptionally narrow group of mega-cap AI infrastructure companies, while broader market trends turned negative for many growth stocks. The fund's specific exposure to public safety industrials (notably Axon Enterprise) and consumer discretionary names in e-commerce and cosmetics created enough drag to outweigh the positive contributions from healthcare diagnostics and space technology positions. This kind of short-term divergence is a normal feature of concentrated active stock analysis strategies — it cuts both ways over time.
Is the Virtus Zevenbergen Innovative Growth Stock Fund (SCATX) worth researching as a long-term investment in 2026?
The fund is worth researching carefully for investors interested in active, concentrated exposure to disruptive growth companies across all market capitalizations. The strategy is managed by Zevenbergen Capital, which has run growth equity portfolios since 1987 — providing a long track record across multiple market cycles. The data suggests the approach can generate meaningful outperformance in supportive environments: October 2025's +6.2% return versus a Large Growth category average of +2.9% is one example. However, the concentrated portfolio (30–60 holdings, with nearly 62% in the top 10 names) and heavy tilt toward Technology and Consumer Cyclical means significant short-term volatility is part of the package. Whether current market trends toward narrower mega-cap leadership eventually reverse is a key variable — because a broadening of growth leadership would likely be a tailwind for this strategy.
How does the Virtus Zevenbergen fund's investment research process differ from a passive growth ETF?
The core difference is active selection versus mechanical market-cap weighting. A passive ETF tracking the Russell 3000® Growth Index holds hundreds of stocks and automatically assigns larger weights to bigger companies — a system that has increasingly rewarded the already-largest mega-cap names as index fund flows grow. The Zevenbergen fund instead applies fundamental investment research to build a concentrated portfolio of 30–60 companies selected for their disruptive growth potential, regardless of current market capitalization. This means the fund can hold earlier-stage disruptors before they dominate an index, but it also means quarterly performance will diverge — sometimes significantly — from benchmark returns during periods of narrow market leadership. The Q4 2025 results are a direct example of that divergence.
What market trends in AI and technology should investors watch to evaluate SCATX's holdings in 2026?
Several key market trends are shaping the outlook for SCATX's top holdings in 2026. First, AI infrastructure spending: NVIDIA (8.47% of the fund) is the central supply chain beneficiary of hyperscaler (large cloud company) capital expenditure, but investors are watching whether that spending translates into sustainable demand growth or eventually overshoots. Second, the sustainability of three consecutive years of double-digit U.S. equity gains — a pattern last seen in the late 1990s — raises valuation questions across the growth universe. Third, the potential broadening of market leadership away from the top five to ten mega-caps would directly benefit active strategies like Zevenbergen that hold a wider set of disruptors. Finally, consumer discretionary dynamics in e-commerce (Shopify, MercadoLibre, Amazon) and advertising technology (The Trade Desk, Meta Platforms) are worth tracking given their collective weight of roughly 37% in the portfolio's top holdings.
How does sector analysis of SCATX help investors understand its risk compared to a diversified growth fund?
Sector analysis is one of the most practical tools for comparing risk profiles between funds. SCATX's breakdown — Technology 43.08%, Consumer Cyclical 26.06%, Communication Services 11.48%, Healthcare 8.45%, Industrials 7.67%, Consumer Defensive 2.74%, Financial Services 0.52% — immediately shows that nearly 70% of the portfolio is concentrated in two high-beta sectors (sectors that tend to move more dramatically than the broader market). By comparison, a broad diversified growth fund might spread exposure more evenly across five or six sectors, dampening swings in either direction. The supply chain and revenue exposure of these Technology and Consumer Cyclical holdings are also more sensitive to interest rate expectations and consumer confidence than, say, utility or healthcare defensive stocks. Investors doing stock analysis on SCATX versus a diversified alternative should map out both sector weightings and individual company revenue drivers to get a true apples-to-apples risk comparison.
Disclaimer: This article is for educational and informational purposes only. It does not constitute financial advice, a recommendation, or an endorsement of any security. Always do your own research and consult a licensed financial advisor before making investment decisions.
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