OZK - Diamond Hill Mid Cap Strategy Q4 2024 Market Commentary

2025-03-12 11:00:00 ET

Summary

• Markets rose unevenly in Q4, with large-cap stocks leading gains, while mid-caps and small-caps added modestly to solid calendar-year returns.
• Trade policy uncertainty and geopolitical volatility remain significant concerns, impacting market sentiment and sector performance, particularly in technology, energy, and health care.
• Our portfolio underperformed the Russell Midcap Index in Q4, with relative weakness in consumer discretionary and real estate holdings, but health care and utilities provided strength.
• Despite high valuations and economic uncertainties, we continue to seek undervalued, high-quality companies to generate above-average returns over the next five years.

Market Commentary

Markets rose unevenly in Q4, concluding another nicely positive year for markets. Following the US election, stocks broadly gained, but some gave most or all of those gains back through the end of the year. For the quarter, US stocks rose +2.6% (as measured by the Russell 3000 Index), bringing calendar-year returns to roughly +24%. Large-cap stocks rose the most (+2.8%), while mid-caps (+0.6%) and small-caps (+0.3%) added more modestly to solid calendar-year numbers (as measured by their respective Russell indices). For the year, large-cap stocks were the standout, rising +24.5%, while mid-caps gained +15.3% and small-caps added +11.5%. From a style perspective, value underperformed growth across the cap spectrum in Q4, adding to the full-year divergence between growth and value stocks. In Q4, large-cap value stocks fell -2.0% while large-cap growth rose +7.1%; mid-cap value declined -1.8% versus mid-cap growth’s +8.1% rise; and small-cap value declined -1.1% while its growth counterpart rose+1.7% (all returns as measured by their respective Russell indices).

4Q24 Russell Midcap Index Sector Returns (%)

From a sector perspective, information technology and energy were the standouts, though financials and communication services also delivered solid returns in Q4. Conversely, materials declined the most, with health care, real estate, consumer staples, utilities, consumer discretionary and industrials also in the red. For the year, financials and utilities stocks were the clear leaders, though technology, energy, industrials, communication services and consumer discretionary all provided solid double-digit returns. Health care, consumer staples and materials were in the red for the calendar year, and real estate delivered a modestly positive return relative to other sectors....

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