Please forgive the rumblings in the background. We’re in the midst of a summer thunderstorm here in New York City.
This week in the podcast we’re taking a deep dive into the holdings of actively managed Large and Small Cap funds, based on their 1Q filings. Though the data lags, it usually provides important insights into active manager positioning and sentiment, and this time it was actually quite insightful.
The big thing you need to know – the favorite stocks of long-only managers in both Small Cap and Large Cap aren’t performing very well recently, but it doesn’t really matter as the funds themselves are still having a very good year, due to good stock picking in 1Q and some favorable sector exposures.
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If you’d like to hear more, here’s another three minutes. While you’re waiting a quick reminder that if you find our work helpful and vote in the Institutional Investor All America Research survey, we appreciate your support in the Portfolio Strategy and Thematic Research categories.
Now, the details.
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Takeaway #1 – The most popular stocks in long-only Large Cap and Small Cap funds haven’t been performing well lately.
- We run a few different versions of the most popular baskets, based on the different fund categories.
- The Small Cap lists are all underperforming YTD, and the Large Caps are all either lagging a little YTD or outperforming only very slightly.
- And if we look at the performance over the past few months, they are all choppy, flattish or range bound.
these lists did well early in:
- What we’ve been seeing in terms of recent performance of popular stocks has admittedly been better than what we saw at the end of last year, but it has been a bit of a headwind, unlike what we saw early last year through spring.
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Takeaway #2 – The good news is that long-only active managers – both Small cap and Large Cap funds – are still having a good year.
e beating their benchmarks in:
- In Small Cap, the best category is Core (those who benchmark against the Russell 2000 itself). There, 73% are outperforming.
benchmark against the Russell:
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Takeaway #3 – The strong fund track records are partially due to good stock selection.
- In both Small Cap and Large Cap, our lists of the stocks that saw the most new positions added in 1Q on a net basis are outperforming YTD, with leadership in both 1Q and 2Q.
- In Small Cap, six of ten names are from Financials, Materials, Industrials, and Energy.
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- In Large Cap, eight of 11 names are from these sectors.
- To us, that’s evidence of a willingness to rotate into Value / commodity / cyclical names.
- This is noteworthy because the Large Cap version of this list in particular used to be dominated by Growth sectors, areas like Tech, Health Care, and Consumer Discretionary.
- What this is all telling us is that long-only managers have become willing to participate in the great style rotation underway.
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Takeaway #4 – The strong fund track records are also partially due to some favorable sector exposures.
- In Large Cap, neutral positions on Energy and overweights in Financials have helped fund performance, along with Tech underweights.
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- In Small Cap, neutral positions on Energy and overweights in Industrials helped.
- Small Cap funds tend to be overweight Tech – something that’s admittedly a headwind at the moment – but we did find that the overweights to Tech in Small Cap funds did narrow in 1Q which removed a little bit of pressure.
That’s all for now. Thanks for listening. And please reach out to your RBC representative with any questions.
