Segall Bryant & Hamill
December 06, 2023
Segall Bryant & Hamill leverages its proprietary investment research, deep industry experience and long‐tenured team to provide intelligently constructed portfolio solutions.

Russell 2000 Quality Concerns: Is Active Management the Answer?

Russell 2000 ®  Quality Concerns: Is Active Management the Answer?

Despite near-term headwinds in the market and economy, SBH is finding opportunities in high quality small and SMID cap companies.  Jeff Paulis, CFA , Senior Portfolio Manager, provides insight on the Russell 2000 ®  Index degradation, why active management matters, and his 2024 market outlook.

Key Takeaways

  • Our analysis shows that, over the last 20 years, the top half of the Russell 2000 has retained quality while the bottom half, especially the lowest market cap quartile, has seen concerning degradation across factors like return on invested capital (ROIC), cash flow margin, and profitability.
  • With the declining quality profile of the Russell 2000, we believe that active managers can capitalize on stock selection by building higher-quality small and SMID cap portfolios.
  • While SBH’s portfolios remain oriented towards high ROIC companies, an inflection to more attractive reward-to-risk ratios and potential Fed easing could accelerate a rotation into improving ROIC opportunities.
  • We expect to see ongoing earnings weakness and economic challenges in the first half of 2024, with the potential for a market rebound in the second half if the Fed decides to cut rates.

 

 

 

Additional Resources:

 

 

 

SBH Domestic Equities Strategies

 

 

 

Domestic Equities Insights

 

 

 

“You’re Killing Me, Smalls”

 

 

 

 

 

 

 

 

 

 

 

The opinions expressed in this video are solely the opinions of Segall Bryant & Hamill or an unaffiliated third party. You should not treat any opinion in this video as specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinions. The opinions expressed in this video are based upon information considered reliable, but completeness or accuracy is not warranted, and it should not be relied upon as such. Market conditions are subject to change at any time, and no forecast can be guaranteed. Any and all information perceived from this video does not constitute financial, legal, tax, or other professional advice and is not intended as a substitute for consultation with a qualified professional. The opinions and statements are subject to change without notice and Segall Bryant & Hamill is not obligated to update or correct any information in this video. For illustrative purposes only.

 

 

 

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