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US Equity Markets had broadly positive returns in the quarter and specifically a widening rally in the last two months of the year.  As we discussed in prior letters this year, positive equity market returns for the first ten months of the year were almost entirely due to the performance of the ten largest stocks by market capitalization – as of October 31, 2023, these companies were 25.5% of the US Total Market Index and accounted for 97.8% of the 9.4% gain in the market year to date. In contrast, the small cap index was down 4.5% for the first ten months of the year. By October 31, profitable small and mid-capitalization stocks were selling at the lowest level relative to large capitalization stocks since early 2000. However, in November this trend began to change, and small cap stocks rose 22.4% in the last two months versus 14.1% for the S&P 500.

Time will tell if this was a major trend change or just a temporary pause in the domination of the market by large cap technology stocks. In the last fifteen years, large cap stocks, especially large cap tech stocks, have benefited from a significant decrease in tax rates versus small cap stocks. This has been one key factor supporting their earnings growth during this period, though we believe it is likely to be less of a tailwind going forward. Recently, they have also benefited from the increase in interest rates as many hold large amounts of cash or short term investments. Historically, small capitalization stocks have often begun periods of outperformance versus large capitalization stocks when relative valuation spreads reach the current extreme levels as well as when the Federal Reserve begins to cut interest rates. The Fed has yet to start cutting rates, but Federal Open Market Committee (FOMC) members have indicated that they expect to start cutting rates at some point in 2024.  Investor hopes and expectations for rate cuts in the range of 1.5 – 2.0% in 2024 helped trigger a rally in the last two months of 2023. While investor euphoria has moderated some over the last month as to the magnitude of cuts in 2024, there is still a general expectation that the process of cutting rates will begin in 2024, and we expect this to be supportive of positive equity returns this year.

Discussion of Fourth Quarter Performance and Positions

In the Shaker Fundamental Growth strategy, the largest positive contributors to returns during the quarter were Axos Financial (AX), Broadcom (AVGO), Micron (MU), Dexcom (DXCM), and Monolithic Power Systems (MPWR). Our largest detractors during Q4 were Fox Factory (FOXF), United Airlines (UAL), Paylocity (PCTY), Paycom (PAYC), and Kirby Corp. (KEX).

In the Shaker Small Cap Growth strategy, the largest positive contributors to returns during the quarter were Axos Financial (AX), Installed Building Products (IBP), Medpace Holdings (MEDP), and Euronet Worldwide (EEFT). Our largest detractors during the quarter were Fox Factory (FOXF), Paylocity (PCTY), Henry Schein (HSIC), and Lantheus Holdings (LNTH).

Despite a mixed macroeconomic environment, we are finding opportunities to upgrade the portfolio across a range of industries, and we continue to work to identify companies with a robust growth outlook over the next 3-5 years trading at attractive valuations.

Investment Outlook

The economic outlook at the beginning of 2024 is looking more favorable as a soft landing appears increasingly likely. The broader economy clearly developed some excesses due to the significant stimulus provided by the government and Federal Reserve in response to the detrimental effects of the Covid pandemic. However, it appears that these excesses are being worked through at different times by different industries making it more likely that we will be able to avoid a broad-based recession. For example, in 2020 and 2021 consumers spent large amounts on goods due to the difficulty of travel and dining out, and as a result, product shortages increased. In response to this surge in demand, retailers increased orders and inventories grew to what became excessive levels when customers shifted spending to travel and dining out as pandemic limitations eased.  Retailers and consumer product companies then experienced recessions as both reduced excess inventories, but from a broader economic perspective, this was essentially offset by strong growth in travel and services spending. At this point, retail and consumer product inventories appear to be at healthier levels and these industries look poised to return to normalized growth. While this is just one, there are numerous examples of growth in one area of our economy offsetting a decline in another over the last several years which leaves us optimistic that we will in fact see the much hoped for soft landing.

We expect the economy to grow in 2024, though at a slower pace than in 2023. As stated earlier in the letter, we expect the Fed to start cutting rates this year, and if the market responds as it has in the past, small cap stocks should be a significant beneficiary of these interest rate reductions.

We look forward to updating you in April and we are always available to assist in any way we can.

Sincerely,

The Shaker Investment Team

It's a Popup Test

Andrew Frye

Research Analyst

Andrew first joined Shaker in 2022 as an intern on the research team. Following his internship, Andrew accepted a full-time position with Shaker Investments as a Research Analyst. Andrew’s primary role is to work with the Portfolio Managers on monitoring existing ideas, tracking competitors, and new idea generation. Andrew brings an analytical approach to modeling companies.

Prior to joining Shaker Andrew worked as a summer analyst intern with Progressive Insurance in the Real Estate Control Group. Andrew received his BA in Economics, Political Science, and Business Management and his Masters of Business Analytics and Intelligence from Case Western Reserve University.

Ashley Arsena, CFP®

Senior Business Development and Client Service Officer

Ashley's journey with Shaker began in 2016 where she quickly established herself to be an integral part of the team. From handling operations to executing trades and providing top-notch client services, Ashley has showcased her versatile skill set. Currently, a vital member of the Business Development and Client Services team, she dedicates her days to building strong relationships with both existing and potential clients.

Ashley is a CERTIFIED FINANCIAL PLANNERâ„¢ professional. She has earned a Certificate in Financial Planning from New York University School of Professional Studies and received her BA in Business Management from Baldwin Wallace University with a minor in Human Resources.

Ashley was recognized on AdvisorHub's 100 Women Advisors to Watch in 2024 (#29) and Top 50 Woman Advisors to Watch in 2023 (#48). She has also been recognized as a Five Star Wealth Manager by Five Star Professional in 2024.

Ashley currently serves on the board of Hope for Kids Geauga. She is also an active member of CFA Society of Cleveland, serving as a member of the Women's Advisory Committee.

Ashley lives in Bainbridge with her wife Jessica and young children Connor and Avery.

*Participating in the ranking is free and AdvisorHub received no compensation from participating advisors. To read more about Advisor Hub's methodology and to view the full list please click here.

Chris Hemmelgarn

Portfolio Manager and Research Analyst

​Chris is a Portfolio Manager and Research Analyst at Shaker Investments. He is responsible for researching new and existing investments as well as portfolio management at Shaker Investments. He joined Shaker in 2017 and covers a range of companies and sectors with a focus on technology, financial services, energy, and utilities.

Prior to joining Shaker Investments, Chris worked in Sell-Side Research as a Vice President at Barclays covering Semiconductors. His primary responsibilities included company and market analysis and forecasting, publishing research, client marketing, and relationship management of company and industry contacts. He also worked as an Associate at Morgan Stanley developing and analyzing business management metrics.

Chris earned his MBA (with Distinction) specializing in Finance and Corporate Finance at the NYU Stern School of Business. He also received his BSFS in International Politics from Georgetown University.

Chris is an avid golfer and cook, and is learning the joy of maintaining a 100-year-old home after a decade plus in Manhattan apartments.

Sasha A. Kostadinov, CFA

Portfolio Manager and Research Analyst

Sasha is co-manager of the Small Cap Portfolio and conducts research on consumer discretionary, consumer staples, materials, and health care sectors for all of the portfolios at Shaker Investments. He has spent more than twenty years working in the equity markets, the last nineteen with Shaker Investments.

Prior to joining Shaker Investments, he was a research analyst at Clarion Group, a Cleveland, Ohio-based long-short hedge fund. Prior to that, he was a research analyst at KeyBanc Capital Markets (formerly McDonald Investments). Prior to that, Sasha was a Financial Consultant at Smith Barney.

Sasha is a holder of the Chartered Financial Analyst designation and received his BA in Economics and Political Science and MA in Economics at Cleveland State University.

He and his wife, Ruthann, reside in Lakewood with his guitars.

Raymond J. Rund

Managing Director, Senior Research Analyst

Ray is the Senior Research Analyst and has been covering the technology and industrials sectors since joining Shaker Investments in 1996. 

Prior to joining Shaker Investments, Ray was a General Partner in an early-stage venture capital partnership for nine years, where he organized the first round of venture funding for RF Micro Devices and served on their board for six years prior to the company’s IPO. In 2015 RF Micro merged with Triquint Semiconductor to become Qorvo, a leading supplier of integrated circuits used in wireless communications.  Ray also headed marketing at Keithley Instruments, was a consultant at McKinsey & Company, and worked in engineering and marketing for Intel. Early in his career Ray worked as an engineer for Combustion Engineering and Westinghouse Electric in Pittsburgh.

Ray currently serves on the Investment Committee of the Harvard Business School Club of Northeast Ohio, is a member of the Finance and Investment Committee of the Jewish Federation of Cleveland, and serves on and was former chair of the Retirement Fund Committee for the Jewish Federation of Cleveland.

Ray earned his BS, magna cum laude in Engineering & Applied Science at Yale University, an MS in Electrical and Computer Engineering at Carnegie Mellon University, and an MBA from Harvard University.

Ray is a long time Clevelander, and an avid Lake Erie sailor. He and his wife Jeanne live in Shaker Heights where they enjoy being close to their three adult children and grandson. 

Kacie Wick

Chief Compliance Officer

Kacie joined Shaker Investments in 2011 as the company’s controller. In 2022, Kacie was promoted to Chief Compliance Officer. She brings over 20 years of professional experience in operational and financial management for various for-profit and non-profit organizations in Boston and Cleveland.

Prior to joining Shaker Investments, she was Director of Clinical Research Administrative Operations in the School of Medicine at Case Western Research University where she managed a research grant portfolio of over $40 million. She has also worked as the Director of Finance for the Weatherhead School of Business at Case Western Reserve University, Director of Operations at Village Preparatory School; Operations Manager at Northeast Ohio Council on Higher Education; and Center Financial Manager at Education Development Center.

Kacie received her Masters of Accounting from Case Western Reserve University, where she graduated magna cum laude and her BS in Management from Babson College in Wellesley, MA. Kacie is currently working towards her Investment Advisor Certified Compliance Professional (IACCP) designation.

Kacie currently serves as a trustee for the Tod Homestead Cemetery in Youngstown, Ohio and is a former treasurer for her local girl scout Troop 70204 and the Onaway PTO. She lives in Shaker Heights with her two daughters.

Brandon A. Hemmelgarn

Co-Chief Investment Officer and Portfolio Manager

Brandon is the co-Chief Investment Officer at Shaker Investments. With over 14 years of industry experience, Brandon leads the investment team at the firm. He is also responsible for researching new and existing investments and portfolio management for all three of the firm’s strategies. Prior to being promoted to co-Chief Investment Officer in 2020, Brandon was a Portfolio Manager and Research Analyst at the firm for 8 years. He covers a range of companies and sectors including technology, consumer products and services, industrials, and materials.

Prior to joining Shaker, Brandon worked on the investment team at Audax Group, a Boston-based private equity firm focused on growing middle market companies.

Brandon is a former board member of the Washington Association of Money Managers and the Private Equity Association of Boston.

Brandon received his BA, summa cum laude, in Economics from Princeton University and is a Registered Investment Advisor Representative (FINRA Series 65). He and his wife, Shelby, reside in Arlington, Virginia, with their sons Thomas and Ted. When time permits, Brandon still enjoys lacing up his skates and taking to the ice rink.

Bradley Wheeler

President

Brad Wheeler is the President of Shaker Investments.  With more than twenty-five years of experience in the financial service industry, he is responsible for overseeing the firm’s strategy, business development and operations.  Prior to being named President, Brad served as Vice President and Head of Business Development for Shaker.  He has spent over twenty years in the financial service industry calling on endowments, pension funds and institutional investors.

Prior to joining Shaker Investments, Brad was a founding partner at Cleveland Research Company where he developed institutional relationships with clients in Boston and opened the firm’s London office.  Prior to that, Brad was a partner with FTN/Midwest Research and worked at US Bank in commercial banking.

Brad is currently a member of the Association for Corporate Growth in Greater Cleveland.  He is the prior President of the Shaker Youth Hockey Association and Shaker Heights High School Sports Boosters.

Brad received his BA in Public Finance from Miami University and an MBA from Case Western Reserve University, Weatherhead School of Management.

He and his wife, Laura, reside in Shaker Heights and have two adult children.

Edward P. Hemmelgarn

CEO & Co-Chief Investment Officer

Edward Hemmelgarn is the CEO and Co-Chief Investment Officer at Shaker  Investments. Edward’s primary focus is leading the investment team as well as portfolio management for all three of Shaker’s strategies. His research focus includes healthcare, financial services, and real estate.

Prior to founding Shaker Investments in 1991, Edward was the Chief Financial Officer of Retail Banking at Ameritrust Corporation (now KeyBank). Prior to that, Edward worked at Ernst & Young focusing on mergers and acquisitions and strategic and financial management consulting.

He received a BA in Chemistry and a MBA from the Case Western Reserve University, where he also served as an instructor for numerous courses. Mr. Hemmelgarn is a former CPA.

Edward is currently a board member at the Cleveland Museum of Art. Edward is also on the Visiting Committee of Case Western Reserve University’s College of Arts and Sciences. He is a past recipient of the Outstanding Alumni Award from Case Western Reserve University’s Weatherhead School of Business. He was named Accounting Alumnus of the Year in 2003, and a recipient of Case Western Reserve University’s Department of Chemistry’s Distinguished Alumnus Award in 2016.

Edward and his wife, Jan, reside in Shaker Heights.