July 2024, In the Spotlight -
Smaller-cap valuations have been relatively attractive versus their large cap peers for some time now.
But valuation alone is not a catalyst for outperformance.
You need valuation, but you also need fundamentals.
Over the coming years, we’ve seen an inflection in small-cap fundamentals as industries like industrials and the energy complex improve relative to the past.
Those inflecting fundamentals support many of the smaller companies and in aggregate will help small-cap earnings on a relative basis versus their large-cap peers, providing a tailwind to the fundamentals for these businesses.
Today, we're finding attractive opportunities in the energy complex as falling energy productivity, the unwinding of the shale revolution, is creating the need for greater investment in the energy industry, and in suppliers that help combat falling productivity.
As well, we're finding attractive areas of opportunity in health care, as the next generation of medicine takes hold in some of the most innovative companies that are driving that change.
We're seeing an extreme bifurcation where parts of a given industry are performing very well, as in the AI companies within the semiconductor universe.
But within semiconductors, there's also parts that are experiencing deeply recessionary volumes, like analog and microcontrollers and diodes.
Matt Mahon
Co-Portfolio Manager
Matt Mahon is co-portfolio manager of the US Smaller Companies Equity Strategy at T. Rowe Price Investment Management. He is a member of the Small-Cap Stock, Mid-Cap Growth, Institutional Small-Cap Stock, and Institutional Mid-Cap Equity Growth Investment Advisory Committees. Matt is a vice president of T. Rowe Price Group, Inc.
Portfolio Specialist Julian Cook discusses his outlook and expectations for U.S. growth companies.
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