Fundametrics® Smid Cap Equity
Q4 2023 Performance Summary and Observations
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The Fundametrics® Smid Cap Value strategy returned 14.06% for 4Q slightly outperforming the Russell 2500 Value Index’s return of 13.76%.
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The 10-year treasury yield started the quarter at a 15-year high. Lower inflation statistics in November helped fuel the yield reversal and subsequent rally in small-cap stocks. The party continued in December after the FED communicated a change to looser monetary policy along with expectations of three rate cuts in 2024. The Russell 2000 Value index beat the S&P 500 by 10% since mid-November.
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Low valuation and high dividend factors continued to show leadership in the second half of the year after a poor 1st half. The 4th quarter outperformance was led by banks and homebuilders, which benefited from the decline in interest rates from its peak.
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Headwinds for the strategy came from the parts of the model that focus on peer-group valuations, relative valuations and the other diversifying styles like quality and growth, which ended the quarter flat or negative
- The market environment for long-term investors still appears favorable for Small Cap Value stocks, which offer attractive absolute and relative valuations vs. large caps. Small caps started the year at two standard deviations below their historical P/E average and, although have rebounded, still stand at one standard deviation below.
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