Chris Armbruster, portfolio manager of Kayne Anderson Rudnick’s Mid Cap Sustainable Growth Portfolio, joins host Jordan Greenhouse in this episode of KayneCast to take a look at the key drivers in Q4 2021 that impacted the Mid Cap Sustainable Growth strategy, and what to expect in 2022.
Pandemic Remission Positive for Higher Quality Company Growth
Q4 2021 saw a continuation of a Q3 trend, with investors less willing to “pay up” for the promise of future growth and earnings. Many of the companies defined as high quality exhibited strong levels of profitability and were relative outperformers in the second half of the year.
Future growth companies fall into two broad categories. First are those which performed strongly over the last two years, as they provided in-demand products and services during the pandemic. It is becoming evident at least some of that demand was pulled forward from 2022.
The second group of future growth companies had their growth curtailed by COVID-19 and its remission setting the stage for resumed growth. Armbruster notes “there are companies that exist in both universes (high growth and high quality) and right now those companies are being impacted more by the evolution of the “growth” side of their ledger and as a result, their performance is lagging. This ties back to our philosophy for the Mid-Cap Growth product: Seek to own high quality companies that can exceed expectations over a reasonable investment time horizon.”
Key Contributors and Detractors for Q4 2021
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Mid Cap Sustainable Growth strategy for Q4 2021.
Influences on Mid Cap Growth Heading into 2022
As we head into the first quarter of 2022, we believe supply chain and logistics issues will become less acute than they were during 2021. Instead, wage pressures caused by low employment rates and staffing shortages will become larger factors. In response to low employment — driven in large part by the “Great Resignation,” Armbruster notes the “Federal Reserve has telegraphed a much more aggressive removal of stimulus, with quantitative easing ending in 1Q22 and three rate hikes on tap for this year followed by three next year. In this type of environment, long-duration assets like high-growth equities can come under pressure, especially those coming off back-to-back banner years.” In this environment, we believe steady growth companies are likely to have more opportunities to exceed expectations.
For more of Armbruster’s Mid Cap stock market commentary, listen to the accompanying podcast.
Learn more about our mid cap growth 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.