“The third quarter was indeed a reversion of the broadening phenomenon we observed in the second quarter in the small-mid cap markets. This reversion was largely driven by investor “flight to balance sheet quality” in the face of rising interest rates and resurfacing inflationary pressures.”
Each quarter, Julie Kutasov, Portfolio Manager and Senior Research Analyst, provides an update on the performance of the Small Mid Cap Core strategy and shares her market outlook. Listen to her most recent episode where Julie recaps market activity during 3Q 2026.
Key Insights and Trends
- Small-mid cap markets declined during the quarter as rising interest rates and renewed inflationary pressures prompted a flight toward balance sheet quality, while energy and health care were the benchmark’s only sectors with positive returns
- Favorable stock selection in information technology, financials, and industrials was offset by sector allocation, including the strategy’s overweight exposure to industrials and lack of exposure to energy
- A higher-for-longer interest rate environment may highlight differences between self-funding businesses and companies that depend more heavily on external capital for growth
- Primary contributors and detractors to the Small Mid Cap Core strategy
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.
