While we expect financial conditions to improve in 2024, we believe the macro environment, going forward, will remain much different than the one that characterized the post-Global Financial Crisis world (i.e., low inflation and low interest rates).
Thus, the biggest opportunity for us as small-cap managers will be investing in quality companies that are able to withstand the impact of higher interest rates, with strong balance sheets and robust cash flow generation, and weather higher inflation with flexible cost structures and pricing power.
Inflation and interest-rate shocks of the past several years have shone a light on the importance of ‘quality’ investing to preserve client capital in challenging times, as well as compound returns through a full cycle. In our view, quality companies that made decisions in 2023 to gain market share or invest in their businesses will outperform their competitors who are struggling with leverage and remaining defensive.
The decisions made today will benefit companies in the coming three to five years. As always, we will adhere to our tried-and-true philosophy of investing in high-quality businesses with company-specific drivers of outperformance that have not yet been priced in by the market.
The above is an excerpt from Rockefeller Asset Management’s comprehensive 2024 Perspectives on the Year Ahead. To access the full report, including unique insights from Small Cap, Global and International Equity, Fixed Income and Thematics, click below.