Q1 2021 Small Companies Comments
by Brian G. McCoy, CFA, on April 01, 2021
Optimism often permeates many areas of our lives at the start of a new year, and as 2021 began, that was certainly the case as countries began to vaccinate their citizens. Economies around the world validated the “V”-shaped recovery scenario as activity resumed from the severe lockdowns earlier in the year as businesses and people proved resilient in the face of the pandemic. Further, governments and central banks moved decisively with fiscal and monetary stimulus. It has been clearly telegraphed that these efforts will continue, particularly here in the U.S. as Fed Chair Jerome Powell has stated that accommodative monetary policy should be expected until maximum employment and 2% average inflation have been achieved. Though unemployment continues to be high, recent data clearly indicate a dramatic economic recovery is here.
Reflecting all these positive aspects, equity markets have continued their historic gains as both the S&P 500® and Russell 2000® achieved historic highs during the first quarter. Our benchmark for the small company strategy, the Russell 2000® finished out the period with a return of 12.69%. Our strategy returned 10.10%, net of fees, trailing the benchmark but not entirely unexpectedly due to strong outperformance over the past several quarters.
Our turnover was approximately 9% as the first quarter saw increased activity relative to the prior year as we sought to lock in gains from some of our larger winners and position the portfolio in accordance with our current assessment of the investing landscape. We trimmed Trupanion (TRUP), Sonos (SONO) and Lovesac (LOVE) as their weights within the portfolio grew from their market-leading performance. Additionally, we exited two positions.
We sold our long-held position in Axon Enterprise (AXON) as it had grown exponentially from our original investment to a market capitalization of approximately $9 billion. In the early part of the quarter, we locked in gains by trimming a significant portion of our holding in Ebix (EBIX) as it spiked higher on some of the frothy, retail-driven short interest speculation.
To start the second quarter, we are overweight Energy, Financials, Consumer Discretionary, Communications and Technology. While matching the benchmark in Real Estate exposure, the portfolio is underweight Healthcare, Consumer Staples, Industrials, and Materials, and continues to have no holdings in Utilities.
With the beginning of 2021, investors have witnessed an impressive achievement in the domestic rollout of vaccines. Though it has not been flawless, the speed and supply have increased dramatically, fostering an improving level of confidence which should continue to support economic recovery and continuing business growth. Reflective of the significant rebound, corporate earnings from large to small have improved and over the next few months year-over-year comparisons will provide some very impressive headlines.
As always, thank you for your confidence in us, and we wish you good health.
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