In this episode of KayneCast, host Jordan Greenhouse speaks with Craig Thrasher, portfolio manager for the Kayne Anderson Rudnick International Small Cap Portfolio, about inflation, its effect on the 2022 stock market outlook, and how higher inflation rates impact international small-cap investing.
Fiscal and Monetary Stimulus Efforts Translating into Higher Prices
At present, global inflation is running high and well above long-term government bond rates. Thrasher notes this type of inflation has not been seen in decades and if inflation continues at or near current rates it could harm small-cap stocks and bonds.
Multiple factors play into the current inflation rate, including supply chain disruptions brought about by the COVID-19 pandemic. While most believe supply chain issues are a temporary problem, a more long-term impact could be the unprecedented amount of fiscal and monetary stimulus provided to consumers and industry in recent years. Thrasher notes this stimulus has not immediately triggered higher inflation, “at least as measured by things like the consumer price index and the producer price index. But now we are starting to see prices increase at a rapid pace.”
As for whether high inflation is a transitory issue, Thrasher notes the answer remains unclear, but that he would not be “totally surprised to see inflation remain high for much longer than what would appear to be baked into financial markets, judging mainly by long-term interest rates.”
Key Contributors and Detractors to International Small Cap
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s International Small Cap strategy for Q4 2021.
Positioning International Small Caps for High Inflation
When asked about small-cap stocks in high inflation environments, Thrasher believes in the importance of owning companies with pricing power: “We have always tried to identify companies that have unique products and services and can therefore be a price setter in the market rather than a price taker. These types of companies can typically pass on higher prices to at least keep up with inflation.”
For more stock market commentary focused on international small-cap investing and high-inflation environments, listen to the accompanying podcast.
Learn more about our 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.