Small Cap Commentary – 3Q17
The third quarter is behind us, with the Argent Small Cap portfolio returning a strong 12.62% (net of fees) on a year-to-date basis ahead of the Russell 2000® Index returning 10.94%. For the quarter, however, Argent’s strategy trailed the Russell 2000 Index, 2.82% (net of fees) to 5.67%. Small caps started the quarter with year-to-date highs in July, touched lows for the year near mid-August, then picked up steam in September as small caps received a bump as the Trump administration reinforced its push for a corporate tax overhaul.
As a reminder, The Argent Small Cap Core Equity strategy is comprised of both growth and value stocks. Combining both styles produces a portfolio with favorable characteristics that we expect to outperform the Russell 2000 Index on a long-term basis.
The mix between growth and value names in the portfolio is driven by our stock analysis. Quite simply, we’re looking for the best opportunities. For the last few years, growth names have generally looked more attractive than value. Recently, that trend has shown signs of reversing. In the third quarter, for example, July favored value stocks, August saw a return to growth but September shifted back to value. The Argent process simultaneously has been identifying more value opportunities as of late as confirmation of that shift. Two of our current holdings are excellent examples of our blended investment style.
GoPro, Inc. (GPRO) is a recent addition to the portfolio that highlights a value name. GoPro is a sports and action camera company, headquartered in San Mateo, California. They have struggled over the last few years due to slowing sales growth that forced lower pricing and discounting. They are shifting their growth focus to improving margins and developing new products around their premier extreme cameras. These new products are subscription-based cloud tools for storing, sharing and editing pictures and videos. We believe the company has turned a corner as they focus on improving profitability rather than growing sales. We also see positive trends from millennials interested in more experience based and outdoor entertainment spending. GoPro is the leading camera for documenting those adventures. We feel much of the bad news is currently priced into the stock at a time when things are looking better for the company, providing us with a compelling value opportunity.
MasTec, Inc. (MTZ) is a diversified construction company based in Miami, Florida and a good example of a company experiencing growth. During the time the company was impacted by the slowdown in the oil and gas markets in 2014-2015, they were investing in their communication segments. These segments provide construction support for wireless carriers as they deploy fiber optic lines for faster cell phone data speed and internet access. We saw an opportunity for MTZ to resume growth as the energy markets started stabilizing in 2016, particularly given the increased demand in fiber deployments which benefitted the communication segments. Recently, the tragic damage caused by the hurricanes could help the MTZ segments even more – with increased need for electrical transmission lines, power generation and alternative energy.
We appreciate your interest in Argent Capital Management. We have three successful equity strategies- Large Cap U.S., Small Cap U.S., and Dividend Select. If you have questions or an interest in these strategies, please call us.
Eddie Vigil, Portfolio Manager
Past performance is no guarantee of future results. Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Argent Capital. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Argent’s presentation thereof. The information provided in this report should not be considered a recommendation to purchase or sell any particular security. You should not assume that investments in any securities were or will be profitable. A list of stocks recommended by Argent in the previous year is available upon request.