Goldmark Benetton Private Wealth Management View On Small Cap

Online, November 8, 2013 (Newswire.com) - For the second quarter, we are pleased to report that the Small Cap Opportunity portfolio generated a +3.8% return vs. +3.1% for the Russell 2000 index.

Strong stock selection added +1.7% of relative out performance, which more than offset the headwind from our defensively positioned portfolio, including a higher than typical average cash weighting of 8.0%.

Stock selection was a positive contributor to relative returns in all sectors except Energy.

This alpha generation represents a positive inflection point for the Small Cap strategy and an important indicator of improving returns for our clients.

From a style perspective, the portfolio benefited from our modest but meaningful allocation to micro-cap stocks, as the Russell Micro Cap index outperformed the Russell 2000 by 2.0%.

This was offset negatively by our value-tilt, with Small Cap Growth stocks significantly outperforming Value stocks during Q2.

Recent investor sentiment has been a paradox to us - by and large, bad news has been viewed as good news.

Market participants have been interpreting weak economic data as additional fuel to feed the Federal Reserve's "QE" flame.

We would prefer to see robust economic growth and less financial market stimulus.

Paltry yields on fixed income securities have pushed many investors into "riskier" equity markets.

The hunt for yield and focus on risk, however, has led these investors to the "safe" sectors within the equity markets, particularly those that pay a meaningful dividend, such as Utilities, REITs, and Consumer Staples.

We view these areas to be generally overvalued as a result. Not surprisingly, these stocks were hit hardest in June, when 10-year Treasury yields were headed higher.

Beginning in mid-May, the CBOE Volatility Index (VIX) began a rise from 12 to briefly peak above 20 near the end of June.

The heightened perception of risk has forced investors to more carefully analyze their investments - the durability of business models, valuations, and fundamental outlooks.

This renewed bottom-up focus has benefited our strategy, as we adhere to this disciplined approach in all market environments.

We remain conservatively positioned due to our focus on preservation of capital and our current view that valuations are full and corporate fundamentals remain lackluster.

Despite our defensiveness, we believe increased M&A activity may be a positive factor that supports stock prices over the next twelve months. Domestic M&A activity is up significantly in 2013 and our portfolio has been a beneficiary.

During the second quarter, three holdings either received take-over offers or are rumored to be take-over candidates (with an additional buy-out offer on July 1).

These events had a significant positive impact on Q2 performance.

We expect this trend to continue, due to [still] low interest rates, healthy corporate balance sheets, and modest economic prospects, which will lead larger companies to look to M&A to drive earnings growth.

Maria H. Rockefeller
Public Relations Chief Representative
Goldmark Benetton Private Wealth Management