216-292-2950 [email protected]

The market environment was challenging during the first quarter of 2022.   Investors wrestled with inflationary trends not seen in a generation, the first of several Federal Reserve interest rate increases and geopolitical turmoil triggered by Russia’s invasion of Ukraine which led to a dramatic shift in investor risk tolerance.

The Shaker Small Cap Growth Strategy (SCG) on absolute terms declined 13.06% in the first quarter, trailing the US Small Cap Growth Index (SCGI) which declined 12.63%.  Over the last 12 months the SCG was up on absolute terms 4.83% compared to a loss of 14.83% for the SCGI.  While our goal is to outperform the index over the long term, short term underperformance can and does occur.

The following is a summary of returns for the Shaker Small Cap Growth strategy (SCG) and selected indexes for the first quarter, trailing twelve months, and last three, five, and ten years:  

3 Months
Ending
03/31/22
12 Months Ending
03/31/222
3 Year
Annualized
Returns
5 Year Annualized Returns10 Year Annualized Returns
   
Shaker Small Cap Growth   
   
-13.06%   
   
4.83%   
   
23.49%   
   
20.76%   
   
14.59%   
   
Shaker Small Cap Growth (net)*   
   
-13.31%   
   
3.79%   
   
22.28%   
   
19.57%   
   
13.47%   
   
US Small Cap Growth Index    
   
-12.63%   
   
-14.33%   
   
9.88%   
   
10.33%   
   
11.21%   
   
US Small Cap Index   
   
-7.53%   
   
-5.79%   
   
11.74%   
   
9.74%   
   
11.04%   

                        *returns are preliminary and net of 1% management fee and expenses.

1Q Portfolio Update 

As is typical during market downturns, fewer sectors and stocks positively impacted performance during the 1st quarter.  Energy and consumer staples were the best performing sectors in the portfolio.  Our allocation into more defensive names late last year had a positive impact on the portfolio during the quarter.   While maintaining a concentrated portfolio we did focus on position sizes as we did not want to be over-exposed to a correction in any one sector.  As of quarter end, the top ten positions comprised 35.6% of the portfolio with no individual position size greater than 5%.   Typically, the portfolio is more concentrated (top ten holdings account for 40%-45% of the portfolio) and as our conviction level rises we will return to these levels.  Stock selection continued to be our focus and we relied on the characteristics important to Shaker. 

Given the risk-off environment in the markets we did see more turnover in the portfolio.  New positions were initiated in Matador Resources (MTDR) and Callon Petroleum (CPE).  Both are energy companies that have strong balance sheets and high-quality assets in strategic geographies. 

In addition, new positions were initiated on Amphastar Pharmaceuticals, Inc. (AMPH – specialty pharmaceutical manufacturer), Cadence Bank (CADE – a strong regional bank), CarGurus Inc. (CARG – a car research and shopping disruptor),  On Semiconductor (ON – domestic semiconductor supplier), KB Homes (KBH – homebuilder) and Winnebago Industries (WGO – manufacturer of mobile homes). 

We also added to existing positions in Diamondback Energy (FANG) and Cirrus Logic (CRUS).  

We eliminated positions in Boot Barn (BOOT), LGI Homes (LGIH), Liveperson (LPSN), Manitex (MNTX), Pager Duty (PD), Photronics (PLAB) and Qorvo (QRVO).  While many of these are companies we like, the ability to model and forecast risk in the current environment is difficult.

We reduced investments and took profits in long time holdings Alarm.com (ALRM), Charles River Laboratories (CRL), CoStar Group (CSGP), Monolithic Power (MPWR), Snap-on (SNA), Synnex (SNX), Wesco International (WCC) and Zebra Technologies (ZBRA).

The strategy does not actively use sector weight to differentiate returns, but sector weights can deviate from the benchmark weight and did account for some of the variance during the quarter. The portfolio is overweight Financials  (+5.2%) and underweight Health Care (-9.1%) and Consumer Discretionary (-5.4%). All other sectors are within +/- 3% of the benchmark weight.

The top contributors and detractors for the quarter are shown below:

   
Holding   
   
Return Contrib. (%)   
   
Sector   
Original Purchase Date (Firm)

Diamondback Energy, Inc (FANG)

0.36%

Energy

Sept 2021

ServisFirst Bancshares (SFBS)

0.17%

Financials

January 2020

Sprouts Farmers Market (SFM)

0.14%

Cons. Staples

November 2017

Matador Resources (MTDR)

0.14%

Energy

January 2022

Amphastar Pharmaceuticals Inc (AMPH)

0.12%

Health Care

March 2022

Zebra Technologies Corp (ZBRA)

-0.80%

Industrials

February 2019

Axos Financial Inc (AX)

-0.84%

Financials

May 2008

The Trade Desk, Inc. (TTD)

-0.92%

Cons Discretionary

May 2017

EPAM Systems, Inc (EPAM)

-0.98%

Technology

March 2020

Installed Building Products (IBP)

-1.01%

Industrials

March 2019

Note: Individual position return contributions are preliminary and based on gross returns prior to fees, interest, and other expenses.

Among the top contributors were Diamondback Energy (FANG) and Matador Resources (MTDR) both energy.  Both are energy companies focused on exploration (Hydrocarbon and oil/natural gas) and are leaders in their respective industries.

ServisFirst Bancshares (SFBS) is a bank holding company based in Birmingham, Alabama.  We like SFBS’s footprint and earnings have been very consistent.  Sprouts Farmers Market (SFM) is a supermarket chain that offers a wide selection of natural and organic food.  Management is experienced and we like the specialty grocery niche.  It remains a long-term holding.

Largest detractors included Installed Building Products, Inc.  (IBP) and EPAM System, Inc (EPAM).  Based in Columbus, Ohio IBP is a leading insulation installer for both new residential and commercial construction. IBP saw input costs rise rapidly over the previous four quarters but gross margin did improve in 1Q2022 as management has aggressively been pushing hard to offset rising costs.  EPAM is an IT outsourcing/consulting firm based in Pennsylvania.  A concern is the company has considerably exposure to Eastern Europe but did grow revenue 50% over the last quarter.  We continue to like both businesses and maintain full positions in both stocks. 

Investment Outlook

We entered 2022 with much uncertainty and that has not changed.  Inflation, tightening monetary policy, geopolitical turmoil driven by Russia’s invasion of Ukraine, and rising Covid-19 cases in China are investing headwinds we continue to monitor. 

Against this backdrop, we expect earnings to contract as companies look to the next several quarters and lower expectations.  We believe some of this is priced in as multiples have contracted from a high of 24X (forward P/E) for large cap stocks to 17X, which is the 25 year average. 

While cautious, the US economy continues to show signs of strength.   The US labor markets remain favorable as unemployment declined to 3.6% as 1.6 million jobs were created during the quarter.  With people employed, consumer spending remains healthy as consumers spent 18% more in March 2022 than they did two years earlier (McKinsey & Company article March 4 2022). 

Small Cap Growth Outlook

While still a little premature to feel optimistic, we believe the outlook for “growth” stocks will improve later in the year as the equity markets incorporate this new interest rate environment.  The Federal Reserve has been transparent that multiple rate hikes and tightening will occur.  Small cap stocks valuations have corrected materially and currently remain below their long-term averages.  This pullback should provide opportunity for high quality companies with the growth characteristics important to Shaker Investments.

The SCG strategy continues to be a bottoms-up, long term investment strategy with a focus on high quality companies.  We will continue to focus on the characteristics that are important to a Shaker stock and when the market does ultimately bottom, there will be very attractive investment opportunities, especially for profitable growth stocks. 

We look forward to discovering more great companies in the year ahead.  

Sincerely,

The Shaker Investment Team

General Disclosures: Disclosure: Past performance is not indicative of future performance. It should not be assumed that any investment or strategy discussed in this publication will be equally profitable in the future. Investment in this strategy carries risks, including loss of principal. There is no guarantee that any specific investment strategy will be suitable or profitable. Investments in smaller companies may be riskier, less liquid, more volatile and more vulnerable to economic, market and industry changes than investments in larger, more established companies. The strategy’s overall return is a composite of clients’ separately managed account returns. Some clients’ investment returns were more or less than the overall strategy return. Not all our client’s returns surpassed the benchmark and the strategy is more concentrated than the benchmark. The index performance information in the table is based on public information which we believe to be accurate but have not been verified.

The specific securities identified in this report does not represent all of the securities purchased or sold or recommended to clients. Holdings / sector weightings in any strategy are subject to change and should not be considered investment advice or a recommendation to buy or sell a particular security. Actual holdings may vary by client. A list of all the stocks selected for any of our strategies during the trailing twelve months is available upon request. This document is confidential and for the sole use of the intended original recipient. It is not intended as investment advice or recommendation, nor is it an offer to sell or a solicitation of an offer to buy any interest in any fund or product.

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 PLANNER™ 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.