Small Cap Growth Investing Across Market Cycles

Markets are unpredictable, which is one of many reasons it is difficult to consistently deliver alpha over long periods. In their latest commentary, our small cap growth team explains why their approach to managing the trade-off between risk and reward gives them the opportunity to outperform across market cycles.

The past few years have been a roller coaster for small cap growth investors.

  • 2020 was strong, powered by a spike in technology adoption due to Covid shutdowns. The Russell 2000 Growth Index surged 34.6%.
  • 2021 was a transition year. The index increased a modest 2.8%.
  • 2022 was tough for most asset classes, as the war in Ukraine, rampant inflation, and Fed tightening put downward pressure on the markets. The index declined 26.4%.

It is a great reminder that markets are both difficult to predict and subject to rapid change.

We believe it is easier to assess the ability of emerging growth companies to compound revenues and profits over multiple years. In our view, fundamental analysis is the most reliable way to identify such companies. As experienced small cap growth investors, we understand markets can be extremely volatile but strive to build portfolios that deliver long-term alpha over 3–5-year periods. To achieve our objective, we focus on a few themes that have proven effective across multiple market cycles:

I. Balancing quality, growth, and valuation

II. Investing for the long term while maintaining sell discipline

III. Staying opportunistic