Teague Sanders, Whittier Trust Senior Vice President & Portfolio Manager
Whittier Trust’s overall view of small caps and how investors should think about them for their portfolios in 2018:
Small cap is a levered play on the strongest economy in the world with catalysts
Expect to see Small Cap perform very well in 2018 if there is tax reform or if there is increased infrastructure spend.
Expect headwinds from increased interest rates negatively impacting valuation multiples.
A reduction in US Tax rates disproportionately benefits Small Cap as a larger percentage of revenues come from US sources vs Large Cap
Historically, small cap equities tend to outperform immediately following market downturns
Small Cap tend to underperform in periods when we see a steadily rising stock market like have been in since about 2011.
In the last 4 years 2016 was the only year we saw small cap outperform, and in 2017 small cap underperformed large cap by over 7%.
Within Consumer Discretion in 2017, the prevailing thesis was “experiences vs. things” our 2018 thesis is evolving into “Everything as a Service.”
In Small Cap we like the names:
Monarch Casino & Resort – (MCRI)
Winnebago – (WGO)
Bright Horizon Family Solutions – (BFAM)
Monarch Casino & Resort – (MCRI) – More levered toward experiences
Regionally dominant player in the Reno casino and gaming space
Expanding intelligently into new markets outside Denver
Winnebago – (WGO) – Capitalizing on both themes of experience and Service,
WGO makes RV’s which are purchased to help facilitate experiences but are also bought by large rental fleets which help provide the “vacation as a service” to customers looking for that differentiated experience as well.
Bright Horizon Family Solutions – (BFAM) – provides “On demand child care as a service,” by partnering with large corporations they are providing on demand child care when working parents find themselves in a pinch or you can enroll your child full time
– Teague does not own the stocks personally
– Whittier does not hold more than 1% of the outstanding shares of each company
– Whittier does hold the stocks in the portfolio for clients