DH - ClearBridge Small Cap Growth Strategy Q2 2024 Commentary

2024-07-17 10:40:00 ET

Summary

• ClearBridge is a leading global asset manager committed to active management. Research-based stock selection guides our investment approach, with our strategies reflecting the highest-conviction ideas of our portfolio managers.
• Small cap stocks are enduring their largest period of underperformance versus large caps to start a year in the last 51 years, creating significant relative value for investors willing to look past market leaders.
• Strategy performance was negatively impacted by weakness among our software names as the industry has seen meaningful negative growth and earnings revisions due to an AI overhang diverting budgets and providing greater support to semiconductor and hardware stocks.
• We continue to deliver strong new idea generation with six new investments in the quarter across four sectors that build on the momentum of the last four quarters. We are encouraged by a positive hit rate and solid overall contributions from these newer names.

By Jeffrey Bailin, CFA & Aram Green

Uncertainty, Volatility Fuel Still-Narrow Small Growth Market

Market Overview

In many ways, the second quarter of 2024 has been a continuation of the narrow, thematic-driven market backdrop. While the benchmark Russell 2000 Growth Index was only down 2.9% in the quarter, underlying volatility was greater with a maximum drawdown of nearly 9% through late April. Meanwhile, small cap stocks continue to screen at significant relative value relative to their large cap brethren given one of the longest periods of relative underperformance. Research from Jefferies suggests that the year-to-date difference between the S&P 500 Index ( SP500 , SPX ) and the Russell 2000 Index ( RTY ) represents the largest period of underperformance to start a year in the last 51 years, a divergence that would look even worse ex-Super Micro Computer ( SMCI )....

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