During a volatile first quarter of 2018 for equities, small cap stocks largely outperformed both large cap and mid cap stocks. There were wild swings in investor sentiment during the quarter, starting with strong corporate profits and equity performance driven largely by recently passed tax cuts and continued strength in global economic growth. Equity markets then turned sour, fearing an unexpected rise in inflation and the potential for an associated Federal Reserve response of faster-than-anticipated interest rate increases. And, lastly, the fear of trade wars and their potential impact on US economic growth and corporate profit placed further headwinds on markets. That final dynamic, a fear of trade wars, caused many investors to be more concerned about larger companies with global exposure than small cap companies generating most of their revenue in the US. In the small cap space, Health Care, Technology and Financials outperformed. Industrials, Energy and Utilities underperformed. The Saratoga Small Cap Portfolio’s overweight to Financials and underweight to Utilities and Energy helped relative performance. By contrast, the Portfolio’s underweight to outperforming Healthcare stocks hurt relative performance.
If domestic-oriented fiscal policies are implemented in a manner producing US economic growth acceleration, and retaliatory global trade actions do not spread widely to domestic economic activities, then growth-sensitive small cap stocks could continue to see strong gains, reaping the potential benefits of investors maintaining a high appetite for risk. ____________________
Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of a factual nature constitute opinions which are subject to change without notice.
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