Fundametrics® Small Cap Equity Q418 Performance Summary and Observations

Algorithm

Returns by Period

  • Investor sentiment moved to defense during 4Q as small cap stocks hit bear territory. Factor leadership changed from “Best Momentum” and “Highest Earnings Forecast”, which had dominated through September, to “Low Volatility” and “Best Dividend Yield.”
  • Notably, with 4Q, the performance gap between Low Beta stocks and High Beta stocks reached an extreme, making “Low Vol” the dominant theme of the year—and potentially creating compelling opportunity in cyclical stocks for long term investors.
  • CornerCap’s Fundametrics® Small Cap Equity Composite returned -18.23%, outperforming the Russell 2000 Value Index by 44 basis points. Our model worked as expected when “macro fears” prevail, with our Alpha Composite essentially neutral but our Financial Warnings Overlay aiding in downside protection.
  • During 4Q18, we saw encouraging signs for value investors: after trailing significantly for some time, several of our Value factors generated positive alpha while Growth leadership sold off.
  • We cannot call a trend yet, as Value lagged again in December, but we note that 1) small cap valuations are at levels not seen since 3Q11; 2) their valuations are now more attractive than large- or mid-cap equities; and 3) several indicators in our broader fundamental 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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