JEF's SMID-Cap Strategy—Thoughts & Observations

研报英文原文证据摘录

JEF's SMID-Cap Strategy—Thoughts & Observations

Positioning &Themes—Broader earnings have NOT changed market

dynamics:

▪Broadening of market—We are only half right. Earnings growth has improved broadly, but the market has become more concentrated, not less,

especially down cap. NOT helpful for active.

▪Value has slipped of late, but winning YTD and 1-year—The Bond Proxies are holding Value back, but the style is still outperforming with more to

come, we think. Value is slightly cheaper, earnings for Growth is heading lower not higher, and lower-quality lagging would hurt the R2G more than

R2V.

▪Cyclicals are thriving thanks to Semis, still cheap—Cyclicals’ trade <14x versus >26x for the Bond Proxies. Secular Growth’s PTS is back to 2.8x. The

Cyclicals are seeing its ’26 growth rate move up, down for the other two cohorts.

▪Move weighted-average cap back in line with index—Flows are still weak to Small Caps but could turn and boost smaller small caps. M&A remains

strong down cap, as these stocks trade at just over book.

▪Quality makes sense—With market “Risk On”, lower quality is back to leading the way but trade at >4x sales vs. 2.2x sales for the highest ROE

names. Quality is OW Cyclicals, continued better performance should be helpful for the theme.

▪Foreign is in front of Domestic—LEIs in US are heading higher; thus, stocks with more overseas exposure are outperforming. A weaker dollar helps,

and the Cyclicals outperforming drives this theme. Not cheap given how strong performance has been recently.

▪Our factors of choice:

▪Own names that are cleaning up their balance sheets, thanks to HY spreads well below average.

▪Cheaper has not worked, reached another extreme—If earnings and the market continue to broaden out, valuations will start to matter. The