In this episode of KayneCast, Julie Kutasov, Portfolio Manager of the KAR Small Cap Quality Value Strategy, reviews stock market performance for the volatile first quarter of 2022, which overall led to flat to negative returns across most equity classes.

Interest Rates and Geopolitical Unrest Impact the

Q2 2022 Stock Market Outlook

Multiple factors are impacting the stock market outlook for 2022:Rising interest rates, inflation, labor shortages, and a resurgence of COVID-19 in China and the lingering impact of the pandemic on the supply chain are all contributing pressures. In February, the invasion of Ukraine by Russia dramatically altered the geopolitical landscape, resulting in unprecedented international sanctions and leaving investors skittish —especially those whose strategies focus on Russian and Ukrainian-based commodities. Europe’s reliance on Russian energy imports caused fuel prices to spike. Additionally, both Russia and Ukraine are among the world’s largest wheat, corn, and fertilizer producers, prompting concerns of rising food prices at a global level.

Small Cap Quality Value Outlook for 2022

Kutasov’s stock market commentary highlights slowing economic growth in response to these factors, which she notes “usually leads investors to focus on quality: solid balance sheets, earnings stability, strong returns on capital, and sustainable secular growth.” She also notes the “first quarter’s performance for the Russell 2000 Value benchmark was driven by lower quality names -those with lower earnings’ quality, weaker balance sheets, and higher volatility.” While the outlook for 2022 remains volatile, Kutasov believes that the companies in KAR’s Small Cap Quality Value strategy, while not immune from these disruptions, are better protected than their lower quality counterparts, in part because KAR seeks to avoid capital intensity and direct commodity exposure.

Small Cap Quality Value Contributors and Detractors

Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Small Cap Quality Value strategy for Q1 2022.

Learn more about our Small Cap Quality Value portfolio today.