Fundametrics® Small Cap Equity Q3 2019 Performance Summary and Observations

Algorithm

  • CornerCap’s Fundametrics® Small Cap Equity Composite returned 0.42% for the quarter, outperforming the Russell 2000 Value Index by nearly 100 basis points.
  • Factor leadership this quarter was not uniform—momentum in July, low volatility in August, and value in September—yet the mainstays of our research process, in combination, navigated the overall environment effectively.
  • Specifically, our Alpha Composite Buy-rated stocks discriminated well in July and September, allowing the portfolio to beat our Equal Weighted Universe by 295 bps and our Sell-rated stocks by 587 bps for the quarter.  When the market sold off in August our Financial Warnings Risk Overlay correctly identified stocks with higher downside risk, enabling “Safe”-rated stocks to outperform “Avoid/Fail”-rated stocks by 241 bps for the quarter.
  • Are we seeing the beginning of a style shift toward Value?  We witnessed extreme reversals out of momentum and into value during September.  Notably, the return spread between high/low one-month momentum made a dramatic swing from favorable to negative, whereby September’s inverted spread was in the bottom 2.25% of observations since 2006.  We must go back to the beginning of 2009 to find a larger reversal.
  • The setup for Value continues to look favorable as small cap valuations are historically attractive, both in absolute terms and relative to large-cap equities. In corroboration, key indicators in our broader models show extreme opportunities in Value.

For a full copy of the report, please contact Derek Tubbs, VP of Institutional Development and Associate Portfolio Manager, at dtubbs@cornercap.com or 404-968-2619.

Past performance is no guarantee of future results, and all investments are subject to risk of loss.

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