Fundametrics® Smid Cap Equity
Q3 2023 Performance Summary and Observations
The idea of higher interest rates for longer seems to be the new consensus for investors. The longer-term 10-year rate continued to rise throughout the quarter, starting at 3.8% and finishing at 4.6%. With interest rates, bank lending standards and the price of oil all becoming more restrictive to the economy, investors sold risk assets.
High beta stocks underperformed low beta this quarter, but the outperformance by high beta over low beta remains significant year-to-date at almost 1300 bps. As of the end of the quarter, the portfolio is overweight low beta stocks relative to high beta. High beta is generally overweight energy and consumer discretionary and low beta dominates healthcare and utilities.
The market environment for long term investors appears favorable for Small Cap Value stocks. The Fed is close to peak rates and the broad market, outside of the largest capitalization names, contains attractive valuations. Small-cap P/E multiples suggest investors continue to price in significant recession risk.
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