Small caps have historically performed well in rising rate environments, even outpacing large caps.
Why it Matters
If interest rates rise resulting in price to earnings multiples and profit margins peaking, avoiding marginal companies with a greater emphasis on high-quality companies trading at attractive prices will be increasingly important. We are already seeing this play out in the Russell 2000 Index where one-third of the stocks in the Russell 2000 have not been profitable in 12 months, a level normally only seen in recessions.
Source: Strategas Research Partners, 2017. Past performance is not indicative of future results.
Take Action: Learn More About Our Approach to Small Cap Investing
Westwood SmallCap: Key takeaways
A high-quality approach to small cap investing could be a way for investors to strategically allocate to the asset class in an attempt to improve consistency over the long term.
We believe high-quality businesses that are operating well with undervalued earnings potential offer competitive risk-adjusted returns.
Focused best ideas portfolio with historically high active share. Number of securities typically ranges from 50 to 70.
Our strategy utilizes a team-based fundamental bottom-up approach to identify high-quality companies.