In this episode of the KayneCast podcast, host Jordan Greenhouse, Managing Director with Kayne Anderson Rudnick, is joined by Julie Kutasov, Portfolio Manager of the KAR Small Cap Quality Value Strategy, to discuss the 2021 stock market performance review and her 2022 outlook.
The 2021 Stock Market in Review
Kutasov notes that while the overall picture remains “mixed,” the market saw a focus on fundamentals re-emerge in the third and fourth quarter of 2021. The Russell 2000 Value benchmark’s performance in Q4 2021 was led by names with higher earnings quality, higher returns on equity, and lower volatility but still those with weaker balance sheets. However, it’s worthwhile to consider that higher ROE can be achieved by increasing financial leverage. The 2021 stock market outlook as a whole was led by names with lower earnings quality, lower balance sheet quality, and higher volatility.
A change in the interest rate outlook was the most important driver of renewed focus on fundamentals, due to inflationary pressures on input costs triggered by post-pandemic supply chain disruptions and labor shortages — pressures that intensified in the second half of 2021 and which are anticipated to increase rates in 2022.
Key Contributors and Detractors in Small Cap Quality Value Performance
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Small Cap Quality Value strategy for Q4 2021.
Moving Forward in 2022
As we head into 2022, the interest rate environment and inflation expectations will be significant factors, with possible COVID variants remaining an unpredictable wild card. Kutasov notes that as KAR enters 2022, “we continue doing what we have always done- focusing on differentiated, protectable businesses.”
For more insight into Kutasov’s 2021 stock market performance review and the outlook for Small Cap Quality Value in 2022, listen to the accompanying podcast.
Learn more about our small cap quality value 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.