Jon Christensen, senior portfolio manager and analyst for KAR’s Small Cap Core portfolio, called Q1 and Q2 a pretty impressive period in general for mid cap stocks. After climbing over 8 percent in the first quarter, the Russell mid cap index increased 7.5 percent in the second. Energy and healthcare led the way. Quality was a bit mixed, although the market was still overall ranking lowest quality highest.
However, he believes that the wind may have started to shift and this is the time for fundamentals to come back into focus, as businesses strive to sustain their high valuations.
Key Contributors and Detractors in Mid Cap Core
To learn more about the top 5 contributors and detractors in KAR’s Mid Cap Core strategy for Q2 2021 listen to the podcast above.
Patience and Diligence in the Post-COVID World
Christensen believes the market has taken into account the return to normalcy with strong index returns over the past year.
“Valuations are being stretched as a result. So, the businesses with higher than usual evaluations have high expectations built into them. Some may be able to grow and sustain this value, while others with small or no competitive advantages may struggle to meet expectations.
“Our goal is to buy those businesses that have temporary valuation disconnects so that we can take advantage. We need to have patience and diligence in researching for these companies while monitoring our existing holdings for changes in their shortfall investment stories. The post-COVID world will look very different in the years to come versus pre-COVID. The opportunity set is promising; we just need to be clear and consistent in our mandate to focus on high-quality businesses.”
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.