Boring small-cap value poised for reversal
The guest argued that the recent underperformance of active small-cap value managers is driven by speculative, non-earning concept stocks dominating the Russell 2000, leaving cash-generative, conservatively financed companies highly undervalued.
The argument
The guest noted that while speculative names without earnings multiples have driven index momentum, fundamentally sound companies generating real free cash flow are trading at attractive price-to-value discounts. This setup is viewed as a strong entry point for absolute-return, value-focused portfolios.
The thesis, stress-tested
✓ What validates it
- ✓Active small-cap value funds outperforming the Russell 2000 index
- ✓A decline in the valuations of non-earning concept stocks within the index
▸ Risks discussed
- ▸Continued momentum in non-earning speculative stocks
- ▸Prolonged underperformance of active value strategies relative to the index
Hear it yourself
"So, you know, I might start with with kinda two things on on why I thought it was a good time to to come on today. First, you know, I feel like sometimes these these pods, seek out those who have done the best over the last twelve months. You know that's not us we we have and that's that's why we we we like you guys. That's why we can tell your true value investors but but a time like now is when you get the best prospective long term clients, because, you know, we have attractive price to value ratios in the portfolio, own high quality companies on offense, but no one wants them, you know? And, and then, then kind of secondly, you know, I was, just reading Jeremy Grantham's new book this year."
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