July 28, 2026By Julie Kutasov

Waiting for the Flight to Safety

Small Cap Quality Value 2Q 2026 Update | KayneCast 321

“We believe that this broad market-wide disconnect between fundamentals and valuation for high quality companies is bound to end with an inevitable ‘flight to safety’. We are certain that structural vulnerabilities of these AI speculative plays will be exposed at some point be it by monetary policy tightening or other changes in the funding environment.”

Each quarter, Julie Kutasov, Portfolio Manager and Senior Research Analyst, provides an update on the performance of the Small Cap Quality Value strategy and shares her market outlook. Listen to her most recent episode where Julie recaps market activity during 2Q 2026.

Key Insights and Trends

  • A speculative rally concentrated in AI-related companies and unprofitable businesses contributed to strong benchmark returns and created headwinds for high-quality holdings
  • Many portfolio companies are already using AI to improve internal productivity, with management teams continuing to invest in systems that may support future profitability improvements
  • The strategy traded at a lower valuation than the benchmark despite stronger measures of profitability, cash flow generation, and long-term growth potential

Stay Informed with Our Latest Insights

For more insights, read our 2Q 2026 Market Review Commentary or subscribe to KayneCast where we provide the latest updates from the KAR Investment Team on our investment strategies.

KayneCast is available on Apple Podcasts and Spotify.

KARCast is the official podcast series of KAR. This material is provided as a matter of general information and is not intended to be relied upon as a forecast or research. The opinions expressed herein are those of the speakers and are not necessarily the opinions of KAR or its affiliates, are current as of the date and time of the recording, and are subject to change at any time due to changes in market or economic conditions. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by KAR to be reliable and are not necessarily all inclusive. KAR does not guarantee the accuracy or completeness of this information. Any securities included in this podcast are based on objective, non-performance based criteria and such mentions should not be considered a recommendation to purchase or sell the securities mentioned. This podcast should not be construed as an offer or solicitation to purchase or sell any security. KAR’s strategies may not be suitable or appropriate for all investors depending on their specific investment objectives and financial situation. Potential investors should always consult with their own financial professional before determining whether to invest in a particular investment or investment strategy. Reliance upon information in this material is at the sole discretion of the listener. To the extent any performance is discussed, past performance is not indicative of future results.