Many small capitalization companies struggled to keep-up with their large- and mid-size counterparts during the first quarter of 2017. Although the presidential election outcome promised more domestic-oriented fiscal stimulus and infrastructure investments, the quarter lacked any concrete progress in legislating or implementing these measures. This lowered market expectations for an immediate acceleration in economic growth. Furthermore, lack of progress in the nation’s capitol helped create an environment favoring larger cap companies in sectors that can maintain and grow earnings in a moderate US growth environment as opposed to smaller companies whose revenues are often more leveraged to US economic growth. The Saratoga Small Cap Portfolio’s primary contributors to relative performance included an overweight in the outperforming Technology sector and an underweight to the underperforming Financial sector. In contrast, our underweight to the outperforming Health Care and Materials sectors hurt performance.
If domestic-oriented fiscal policies are implemented in a manner producing US economic growth acceleration, growth-sensitive small cap stocks could continue to see strong gains, with small cap stocks reaping the benefits of investors maintaining a high appetite for risk. This could lead to attractive relative returns for small cap stocks looking forward.
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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