October 22, 2026By Hyung Kim

Is the Valuation Gap Justified?

International Small Cap 3Q 2026 Update | KayneCast Ep. 325

“It is tempting to assume that companies adopting AI will automatically become more productive and earn higher margins. However, if everyone, including your competitors, can adopt AI, much of that benefit may be competed away, over time.”

Each quarter, Hyung Kim, Portfolio Manager and Senior Research Analyst, provides an update on the performance of the International Small Cap strategy and shares his market outlook. Listen to his most recent episode where Hyung recaps market activity during 3Q 2026.

Key Insights and Trends

  • International small cap markets posted modest gains during the quarter, with energy, banks, and metals and mining leading, while real estate, technology, and utilities trailed
  • The strategy has less exposure than the benchmark to semiconductors and other perceived direct AI beneficiaries, reflecting uncertainty around where the long-term economic benefits of AI will ultimately accrue
  • The strategy is trading at a discount to the benchmark despite maintaining the quality characteristics that have historically supported a premium, including higher returns on equity, lower leverage, and more consistent earnings
  • Company fundamentals showed both strengths and weaknesses during the quarter, while overall portfolio earnings growth remained positive and reasonably broad

Stay Informed with Our Latest Insights

For more insights, read our 3Q 2026 Market Review Commentary or subscribe to KayneCast where we provide the latest updates from the KAR Investment Team on our investment strategies.

KayneCast is available on Apple Podcasts and Spotify.

KARCast is the official podcast series of KAR. This material is provided as a matter of general information and is not intended to be relied upon as a forecast or research. The opinions expressed herein are those of the speakers and are not necessarily the opinions of KAR or its affiliates, are current as of the date and time of the recording, and are subject to change at any time due to changes in market or economic conditions. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by KAR to be reliable and are not necessarily all inclusive. KAR does not guarantee the accuracy or completeness of this information. Any securities included in this podcast are based on objective, non-performance based criteria and such mentions should not be considered a recommendation to purchase or sell the securities mentioned. This podcast should not be construed as an offer or solicitation to purchase or sell any security. KAR’s strategies may not be suitable or appropriate for all investors depending on their specific investment objectives and financial situation. Potential investors should always consult with their own financial professional before determining whether to invest in a particular investment or investment strategy. Reliance upon information in this material is at the sole discretion of the listener. To the extent any performance is discussed, past performance is not indicative of future results.