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Over Time, Fundamentals Break Through the...

Over Time, Fundamentals Break Through the Noise

Mid Cap Growth Review of the Third Quarter of 2021 | KayneCast 165

October 27, 2021

Chris Armbruster, portfolio manager for KAR’s Mid Cap Sustainable Growth strategy, believes that, over time, stock prices are a product of the underlying fundamentals of a company. Admittedly, there are plenty of ups and downs in the short term, caused by headlines and macro forces. However, Armbruster regards these factors as just noise and says that “as long as a business is growing, while keeping its eyes on profitability dynamics, experience has shown that the stock price will eventually reflect its progress.”

One bit of noise that is rearing its head today is the upward pressure on interest rates. Anticipation of economic growth, labor shortages, supply chain disruptions, and expansive fiscal and monetary policy have conspired to raise expectations for rising prices and sooner-than-expected rate increases by the Fed.

Growth stocks have exhibited a strong negative correlation to rising rates this year, as much of their cash flows are expected to come in the “out years.” Armbruster believes that as long as there is confidence in the fundamentals of the underlying business, there’s no reason to be less confident that those cash flows will materialize.

Key Contributors and Detractors in Mid Cap Sustainable Growth 

Listen to the podcast above to learn more about the top 5 contributors and detractors in KAR’s Mid Cap Sustainable Growth strategy for Q3 2021.

Watching Margins in the Tricky Holiday Season

It’s hard to miss the news about how supply chain issues may impact margins during the upcoming holiday season. The global pandemic wreaked havoc on companies’ ability to source raw materials, disrupted traditional logistics channels, and raised operating costs as a result.

Armbruster believes most of the high-quality companies in the Mid Cap Sustainable Growth portfolio can flex their pricing power muscles to offset these rising costs, passing them on to customers, but cautions that the supply chain turmoil warrants continued monitoring, as it could remain a factor for some time.

DISCLOSURE

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.

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