All Cap Value – Q2 2023 Commentary

The unprecedented stimulus by the Federal Government over the last 30 months has proved difficult to contain and continues to drive a hot economy with demand outstripping the supply chain’s ability to keep up. Regarding demand, since 2020, the Federal Government has unleashed close to $5 trillion of stimulus related to the COVID19 Pandemic with the funds directly distributed to individuals ($1.8 trillion), businesses ($1.7 trillion), state and local governments ($745b), healthcare ($482b) and other ($288b) (Parlapiano, Ngo, Cowley NY Times). In addition, the Federal Government announced spending of close to $3 trillion dollars through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the Chips Act. The federal spending is positioned to improve US-based infrastructure, transform the economy from reliance on hydrocarbon-derived energy towards cleaner renewable energy and improve domestic semiconductor production capacity and security. From a supply perspective, all this new demand has strained supply chains which have also been impacted by COVID-related lockdowns and the Russian/Ukrainian war which added fuel to the inflationary fire through commodity inflation and supply-chain disruptions/inflation. The unprecedented stimulus over the last 30 months has created a strong resilient economy that has taken time to slow down but has also resulted in some of the highest inflation in over 40 years. Supply chains are finally catching up, and the Federal Reserve’s tightening is also finally starting to make an impact.  

The unprecedented federal stimulus and subsequent inflation surge has also created an unprecedented response by the Federal Reserve to slow things down. The Federal Reserve has increased the Federal Funds Rate from zero in mid-March of 2022 to 5.08% by the end of the second quarter of 2023. The tightening by the Federal Reserve has created much higher short-term interest rates and has also inverted the yield curve; this has caused some high-profile bank failures but has also started to have a positive impact on inflation. June’s Consumer Price Index came in at 3%, which was the smallest increase in 24 months and well below the 9.1% level experienced in June of last year.  

The equity markets experienced a strong first-half performance for the year as investors anticipated an improving inflation environment with the S&P 500® and Nasdaq up 16.9% and 32.3%, respectively. The market was also helped by flattening long-term interest rates, lower energy prices and improving supply chains. The equity markets struggled in 2022 when longer-term rates surged with the 10-year treasury yield increasing from 1.5% at the start of 2022 to 4.2% by mid-October of 2022. Since the 10- year yield’s peak in mid-October of 2022, yields have moved sideways to slightly lower as inflation headwinds started to improve. Energy prices also saw sharp declines with both natural gas and oil prices falling off their peaks on a strong global supply response and softer demand on a mild weather. Supply chains also improved as markets adjusted to the initial shock of the Russian/Ukraine war and have allowed some cost relief.    

For the first half of 2023, most of the strong performance in equities stemmed from large-cap growth stocks which were helped by the rollout of Artificial Intelligence and a modest correction in long-term interest rates which helped drive earnings multiple expansion. We expect the market to broaden out to other sectors as the rest of the year unfolds.     

For the first half of 2023, All Cap Value increased 5.65% (gross of fees) and 5.28% (net of fees). The Russell 3000® Value Index increased 4.98%. Positive stock selection has helped drive the positive performance relative to the benchmark year-to-date with positive contribution from Information Technology, Materials, and Consumer Discretionary which more than offset headwinds from Health Care, Communication Services, and Financials.  Additional performance information is included in the table below.

Data as of 6/30/2023

Even with the strong recent appreciations in equity values, our investment approach, which focuses on returns on invested capital, continues to uncover good companies at reasonable valuations.

As always, we want to thank you for the confidence you have placed in Kennedy Capital Management, and we appreciate the opportunity to manage your accounts.


Frank Latuda, Jr., CFA®


Chief Investment Officer & Portfolio Manager

Thomas Leritz, CFA®


Assistant Portfolio Manager

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Important Disclosures

Kennedy Capital Management LLC (“KCM”) is a Delaware limited liability company headquartered in Missouri.  KCM is registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training. Clients of the Firm include U.S. corporations, pension and profit sharing funds, colleges and universities, trusts, not-for-profit organizations, foundations, and individuals. KCM claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. GIPS® are a set of standardized, industry-wide ethical principles that provide investment firms with guidance on calculating and reporting their investment results to prospective clients to ensure fair representation and full disclosure of an investment firm’s performance history.

 Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. A complete list of all securities recommended by KCM in the preceding year, a fully compliant GIPS composite report, and the list of composite descriptions are available upon request from KCM at 10829 Olive Blvd., Suite 100. St. Louis, MO, 63141.

The All Cap Value Composite invest primarily in value securities of companies without a market capitalization constraint. The Manager generally looks for undervalued companies generating cash flow returns on invested capital greater than industry peers. All Cap Value portfolios generally demonstrate valuations below and growth characteristics at or above those of the benchmark. The weighted average market capitalization of the Account will generally be reflective of the Russell 3000® Value Index. The U.S. Dollar is the currency used to express performance.

Composite specific data provided within this presentation has been calculated from accounts that are discretionary as defined in this paragraph. The assets shown are derived only from discretionary accounts. Non-discretionary accounts, as defined by KCM, are accounts that are not included in the composite due to one or any combination of the following criteria: there were significant cash inflows or outflows within the account; the account’s asset level did not meet the minimum requirement to remain in the composite; the account assets are managed by others using our non-discretionary model. The temporary removal of such an account occurs at the beginning of the month and the account re-enters the composite the month after the criteria has been met.

Performance returns are presented gross and net of investment advisory fees and include the reinvestment of all income. Gross of fee returns reflect the deduction of transaction costs and custodian fees but do not reflect the deduction of investment advisory fees. Net of fee performance is calculated using gross returns less the actual applicable annual management fee applied monthly. Past performance is not indicative of future results. A client’s return will be reduced by the advisory fees as described in Form ADV Part 2A and other expenses incurred by the account. For example, an annual advisory fee of 1% compounded quarterly over 10 years will reduce a gross 14.44% annual return to a net 13.32% annual return. Form ADV Part 2A is available upon request.

The performance figures reported herein are unaudited, may be based upon information obtained via electronic data sources (”feeds”) and may be subject to change. Data feeds from many of KCM clients’ selected custodians are obtained through third party sources, and are used to compare custodial data to KCM’s client account records as frequently as daily. Monthly, KCM reviews clients’ account holdings along with cash and share quantities against the custodial statements. In some instances, variances may exist between final audited custodial information and the information KCM obtains via such data feeds. Generally, any such variances are researched and reconciled within thirty days of the period end.

The information provided should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in a KCM portfolio at the time you receive this letter or that securities sold have not been repurchased. Allocations among industries, sectors and securities may vary and are subject to change without notice. Any securities discussed do not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the industry or sector allocation decisions mentioned, or securities transactions or holdings discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Sector Weightings are subject to change at any time.  Sectors are based on the Global Industry Classification Standard (“GICS”) classification scheme and are measured as a percentage of the total composite in terms of asset value as of the date indicated above.  Individual client portfolios may be different based on variations in security purchase price and date, and individual client restrictions. 

GICS was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International, Inc. (”MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (”S&P”) and is licensed for the use by KCM. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results thereof),and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability, and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Allocations to various assets classes change over time and deviate from any stated or targeted percentages of a total portfolio as a result of market conditions and reallocation decisions. Therefore, nothing herein reflects a static portfolio allocation that will remain the same or match stated target allocations of asset classes.

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 Kennedy Capital Management, Inc.  Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Kennedy Capital Management’s presentation thereof.   

The Russell 3000® Value Index measures the performance of the broad value segment of the US equity value universe. It includes those Russell 3000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years). The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics.

The Russell 3000® Value Index is used as the benchmark.  The Index is unmanaged and represents total returns including reinvestment of dividends.  The benchmark is used for comparative purposes only and generally reflects the comparable risk or investment style of the Firm’s strategy.  The investment portfolios underlying the Index are different from the investments in the portfolios managed by the Firm. Certain accounts may also use other benchmarks not listed in the GIPS composite report. The Verification and Performance Examination Report does not cover the benchmark returns included in the GIPS composite report.

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. According to our Annual Survey of Assets, an estimated USD 15.6 trillion is indexed or benchmarked to the index, with indexed assets comprising approximately USD 7.1 trillion of this total (as of Dec. 31, 2021). The index includes 500 leading companies and covers approximately 80% of available market capitalization.