Jon K. Christensen joins host Jordan Greenhouse on this episode of KayneCast. Christensen, Portfolio Manager and Senior Research Analyst for the KAR Small Cap Core Portfolio, offers a stock market performance review for the first quarter of 2022, identifying key drivers poised to impact small-cap stocks heading into the next quarter.
Small-Cap Investing, Inflation, and the Ukraine War
The last two years have been volatile for equities. Still, there was hope the COVID pandemic was in the rearview mirror, and the economy could begin moving forward. The emergence of the fast-moving Omicron variant in late 2021 created further delays and disruptions to supply chains. Inflation rates were high, but most stock market commentators believed rates would peak in the first two quarters of 2022.
The invasion of Ukraine by Russia in February of 2022 caught markets by surprise for the most part. The ongoing war — and the unprecedented sanctions leveled against Russia by the international community — added to existing supply chain and inflationary pressures while causing a spike in oil, natural gas, and other key commodities. Further pressure was put on the market as China’s zero-COVID policy resulted in the shutdown of Shanghai, Hong Kong, and several other major Chinese cities.
Christensen observes that “energy had one of its best quarters in its history – with the energy sector in the Russell 2000 Index increasing almost 42% in Q1. In fact, in the Russell 2000 Index, the only other sector to be positive in the quarter was utilities.” On the downside, sectors that performed the worst were Consumer Discretionary, HealthCare, and Technology.
Looking Forward; The Q2 2022 Stock Market Outlook
Moving into Q2, Christensen believes inflation, supply chain issues, and the Russia-Ukraine conflict will continue to impact small-cap stocks. He notes that KAR’s Small Cap Core strategy remains focused on seeking out “those businesses that have temporary valuation disconnects that we can take advantage of while riding out the ups and downs of the market by having stocks that can persevere during these uncertain periods.”
By focusing on high-quality businesses that KAR views as capable of outgrowing their markets over the long term, Christensen believes investors can take advantage of current market volatility.
Small-Cap Investing Contributors and Detractors
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Small Cap strategy for Q1 2022.
Learn more about our Small Cap Core 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.