Jon Christensen, portfolio manager of Kayne Anderson Rudnick’s Small-Cap Core portfolio, joins host Jordan Greenhouse on this episode of KayneCast to look back at the 2021 stock market outlook and discuss what the key drivers of 2021 mean for Small-Cap investing as the market moves into 2022.
Higher Quality Company Bias in Q4 2021
The first half of 2021 was led by lower quality equities, with fundamentals becoming more of a focus in Q3 and Q4. According to Christensen, “the announcement of vaccines in late 2020 added to the momentum of businesses that were positioned well for the economic re-opening.”
The economy’s ability to sustain growth met several challenges in 2021, chief among them the emergence of new COVID variants and inflationary pressures including disruption of raw materials, supply chain issues, and labor shortages. The result was an increased emphasis on higher-quality businesses beginning in the third quarter and becoming more apparent in the fourth. Overall, Christensen’s 2021 stock market review concluded the market year “was very even on a high vs. low-quality basis.”
Key Contributors and Detractors in Small Cap Core Strategy
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Small Cap Core strategy for Q4 2021.
What to Expect as Small-Cap Investing Moves into 2022
The beginning of 2022 feels in many ways like the start of 2021, with hope for a growing economy tempered by the threat of new COVID variants, inflation, and supply chain issues. Such unknowns make for a volatile market.
Christensen ends his Q4 2021 stock market performance review by noting KAR’s “goal is to find 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. This means we need to have patience and diligence in researching these companies while monitoring our existing holdings for changes in their structural investment stories. But our mandate is clear and consistent as we focus on high-quality businesses that we believe should outgrow their markets over the long term and take advantage of this market volatility.”
For additional stock market commentary, listen to the accompanying episode of KayneCast.
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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.