00:00well it's been a long time where they've been underperforming i mean really for over a decade
00:04and you know right now you have some some cyclical positives because they they've been in an earnings
00:09recession finally started to come out of that and you've had the manufacturing recovery in the u.s
00:14finally take hold the ism manufacturing indicators the the single most correlated macro indicator
00:21with the russell 2000 oh is that right um yeah when we've looked at like you know 30 or 50
00:25different
00:25macro indicators so manufacturing actually matters a lot for for that index and then you had
00:31you know oil prices higher the the russell 2000 actually has more exposure to industries that
00:36benefit from higher oil than the consumer industries that that get hurt by it um and then you know
00:41performance was actually a bit more concentrated than usual so when you look at a lot of the top
00:45performers it was actually some of the thematic ai infrastructure stocks that were some of the
00:51biggest contributors so even though the index is up so much this year i think there were parts of
00:56the index that could still play catch up um you know health care has been underperforming but m a
01:01activity years yes and and health care and biotech had not looked particularly attractive in our work
01:07in small caps but finally are starting to the rap is there's no profit or less profit how does profit
01:13play across successful and less successful russell 2000 yeah the the index is you know about a
01:21third of the companies are non-profitable um so that is historically elevated we we obviously just
01:27went through two earnings recessions coveted and then the recent one that started in you know 2022
01:312023 um and you also had an ipo boom in in 2021 that caused a lot of non-profitable stocks
01:39to get added so
01:40the the amount of stocks that don't have earnings is elevated it's starting to come down and even for
01:45an area like biotech biotech is actually the highest quality it's been in about 12 years you're
01:51starting to see more companies turn profitable get more mature um but we did see this sort of you
01:57know unprecedented period of low quality out performance within the small cap index over the
02:04past year or so where you know usually if you're a small cap investor you own you want to own
02:10higher
02:10quality stocks because the the profitable stocks the higher quality ones do tend to do better over the
02:15long term but that's not what we saw over the last year or so so that that kind of three
02:21standard
02:21deviation event and how much low quality stocks outperformed i think now kind of paves the way that we
02:27could go back to a more normal environment where higher quality stocks work within small caps in the
02:32second half i learned early in my career smid means small mid cap that's a cool term now for you
02:38uh jill in the first half you preferred small versus mid cap now in the second half you're saying
02:44mid cap versus small why yeah i think even though we do still think that both small and mid caps
02:50could
02:50outperform mega caps in the second half you're you're still expected to see a big profits pickup in in
02:56small and mid caps uh to kind of similar levels that should outpace large cap profits in the second
03:01half we're we we saw much better performance for small caps in the first half so i think just
03:07performance wise there's more catch-up potential now for mid caps on a similar level of profits
03:11and we're seeing uh fed hikes start to get priced into the market our economists at b of a now
03:17expect
03:18the fed will hike three times this year at the end of the toward the end of the year russell
03:232000 has a
03:24lot more leverage a lot more refinancing risks given the debt exposure is more towards short-term
03:29and floating rate debt so i think given those increased risks from higher rates we'd tilt more toward
03:35the mid caps than the small caps for the second half just just given those do their executives
03:40particularly in mid cap striving every day they've got their hurdles their equity kickers and all that
03:45do they do m a like big caps i mean is are they essentially equivalent or is it a whole
03:51different
03:51world i mean right now you know a lot of the the deal activity is you know small caps are
03:57the targets
03:58and you know a lot of the the larger companies are the the acquirers um so you have a lot
04:04of you know
04:05large large pharma buying smaller biotech that's been a key area of of activity um so you know while you
04:13may see some in mid that a lot of the activity is you know large buying small and that's where
04:18the the
04:18relatively cheaper valuations are as well you know mega caps are the most expensive area small caps are kind of
04:25the least stretched although now small and mid are trading at similar valuations you have one of the
04:29coolest double majors going you're at lafayette were you in economics and said i'm going to take
04:34a double major in english or were you in english saying i'm going to take a double major in economics
04:38i was uh i was econ and math and then i decided to drop the math and picked up english
04:45i i always i always liked writing so i decided if i was taking some writing courses might as well
04:50make
04:50it a second major so you got to your schrodinger equations and differential equations instead
04:56yeah i got to calc three and then i said i think i've had enough
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