In this episode of KayneCast, Jon Christensen, Portfolio Manager and Senior Research Analyst for the Kayne Anderson Rudnick Small Cap Core joins host Jordan Greenhouse to provide a stock market performance review for Q2 2022, a period marked by volatility and overall negative returns.
Market Disruptions from Q1 Continue to Impact Small Cap Investing
Key drivers in the first quarter of the year — Omicron, the Russia-Ukraine war, supply chain issues, and inflationary pressures — continued into the second quarter. Fears of a recession in the year’s second half have increased, resulting in an acceleration of weakness in the market in Q2 and negative returns on small cap stocks. An aggressive response to inflation by the Federal Reserve Board lowered hopes of a soft landing for the economy.
Q2 2022 Small Cap Equity Market Review
Christensen notes the Russell 2000 Index was down over 17%, and that was after being down 7.5% during Q1. While every sector reported negative returns in Q2, some took fewer hits than others. Defensive sectors such as Consumer Staples and Utilities reported the least negative performance. Energy, lost 9% of the 40% gain it saw in Q1. Christensen notes, “Value still maintained its performance over Core and Growth in Q2, but the gap has narrowed.”
The Q3 2022 Stock Market Outlook
Moving into Q3, Christensen believes that inflation and supply chain issues will continue to impact small-cap investing. The Russia-Ukraine conflict adds to the general sense of uncertainty and volatility. In response to these factors, the market is preparing for another down quarter, especially as some indexes have seen the worst six-month start to a year in their histories.
Much of the focus in the market for Q1 and Q2 2022 has been centered on a possible recession. Should a recession occur, Christensen believes the KAR Small Cap Portfolio is well-positioned to ride out the turbulence. KAR’s goal is to find businesses with temporary valuation disconnects which can be taken advantage of while holding companies positioned to persevere during uncertain periods.
Christensen ends his stock market review noting that KAR’s “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.”
Small Cap Core Contributors and Detractors
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Small Cap Portfolio for Q2 2022.
Learn more about the Kayne Anderson Rudnick 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.