Domestically, some of the smallest market caps, the lowest quality, and most highly leveraged businesses outperformed in the first half of 2021. According to Craig Thrasher, Senior Portfolio Manager and Analyst with KAR’s International Small Cap portfolio, this pattern was quite pronounced internationally through Q1 2021 but became more mixed in Q2 and, by Q3, more highly leveraged companies were actually underperforming the benchmark.
According to Thrasher, “It seems that investor sentiment overall has shifted from unbridled enthusiasm to one where some of the risks in the market, including inflation, are being taken more seriously.”
Key Contributors and Detractors in International Small Cap
Listen to the podcast above to learn about the top contributors and detractors in KAR’s International Small Cap strategy for Q3 2021.
Avoiding Rather Than Partaking in China’s Problems
In addition to the uncertainty around one of the largest commercial real estate companies in China, there have already been defaults by other smaller property developers in China. The Chinese government has asserted that the fallout will be controllable. Still, Thrasher puts little weight on these reassurances and believes there is reason to be worried about the Chinese economy. “Property development has been a significant driver of economic growth, and there are clearly signs of stress, if not distress, there in China.” However, for KAR’s International Small Cap portfolio, China is a minimal contributor.
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.