4Q2024 - U.S. Small Company Growth Commentary
There are many examples of high beta, AI-adjacent growth companies outperforming the broader investable universe. While we did not own such stocks due to their low quality, which impacted our performance, we believe the Portfolio overall is well-positioned to benefit from the Gen AI-driven transformation—albeit in a more sustainable, long-term-oriented manner.
- In 2024, U.S. small cap growth was dominated by narrow performance drivers—crowded AI trades and interest rate-sensitive sectors like housing and biotech—with the top ten contributors accounting for nearly half of the Russell 2000 Growth Index (the “Index”) return. This created a challenging environment for most profitable, high-quality companies and highlighted the market's increasingly short-term focus.
- The U.S. Small Company Growth Composite Portfolio (the “Portfolio”) delivered 5.09% gross of fees and 4.73% net of fees for the quarter, outperforming the Index return of 1.70% amid a volatile market shaped by post-election gains and Federal Reserve policy shifts.
- The top contributors to the Portfolio’s relative and absolute performance in the fourth quarter were Warby Parker, Revolve Group, and Dutch Bros.
- The most significant detractors from the Portfolio’s relative performance were Insight Enterprises, AMN Healthcare Services, and Option Care Health. The greatest absolute detractors were Insight Enterprises, Installed Building Products, and Option Health Care.
- During the quarter, we initiated positions in Willscot Holdings, Trex, Fabrinet, and Belden. We added to several existing positions. We eliminated our positions in Option Care Health, Euronet Worldwide, NV5 Holdings, and Alarm.com, and trimmed several existing positions.