In this episode of KayneCast, Craig Thrasher, Portfolio Manager and Senior Research Analyst for KAR’s International Small Cap Portfolio joins Managing Director Jordan Greenhouse to provide a stock market review and his outlook for international small cap investing in Q1 2022.
Thrasher offers insight into key economic drivers expected to impact the remaining 2022 stock market outlook.
War in Ukraine Impacts Q1 2022 International Small Cap Stocks
The invasion of Ukraine by Russia and the subsequent war had the most impact on the international small cap market in Q1. According to Thrasher, “The MSCI ACWI ex USA SC was down 6.5% during the quarter, with Russian markets experiencing a significant decline due to the intensifying pressure of Western sanctions as well as ripple effects on neighboring countries in the region.”
Concerns that the war would spread to other nations led to a sell-off in small cap stocks in the region that Thrasher believes was premature, as the risk of NATO countries and Russia-friendly Kazakhstan being pulled directly into the conflict is remote. Indeed, stocks in those regions have since bounced back.
Small cap stocks in Europe and the UK underperformed as well, due to concerns surrounding energy prices. Energy prices had been increasing rapidly across Europe in the months before the invasion, which worsened an already challenging situation and caused headwinds for international small caps in the first quarter.
Inflationary Pressures and International Small Cap Investing
Inflationary pressures continue to dominate stock market commentary concerns, with inflation rates higher than the market has seen in decades. While concerning, Thrasher notes “the market believes that this inflation spike is in fact temporary in nature and inflation will come back down in the coming months and years.”
Thrasher believes KAR’s International Small Cap Portfolio is well-positioned to withstand inflationary pressures, as the company’s investment philosophy favors solid, established companies and stocks that are less capital intensive and don’t require significant capital expenditures.
International Small Cap Contributors and Detractors
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s International Small Cap strategy for Q1 2022.
Learn more about the Kayne Anderson Rudnick International Small Cap Portfolio today.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.