Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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.
The third-quarter investment environment saw follow-through of the same trends dominating markets in recent years, namely continued flight to safety and crowding into momentum/growth factors, at the expense of cyclical value sectors. Concerns about tightening liquidity, expanding tariffs and sluggish consumer spending hurt international small company equities.
In the context of our portfolio, rising rates would benefit financial stocks and companies with cyclical operating leverage. Both cohorts are selling at near record-low valuations and poised to significantly outperform as the yield curve normalizes and policymakers act to stimulate their local economies. Stronger domestic demand is often a driver of small company shares, as they tend to be more locally-oriented.
The ClearBridge International Small Cap Strategy underperformed its MSCI EAFE Small Cap Index benchmark for the third quarter. The portfolio continues to be positioned pro-cyclically and for a long-term normalization of inflation and interest rates.