Smaller companies continued to lag, as the Russell 2000 grew just 0.34% in 4Q24 compared to an increase of 2.41% for the S&P 500. However, it is worth pointing out that the Magnificent Seven (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla) continued to have an outsized impact on the S&P 500, accounting for more than half of the index’s gains in 2024 overall. We believe that this is ultimately unsustainable, and we continue to prioritize ownership of innovative, well-managed companies that are in (or are about to enter) the prime of their respective growth stories, rather than behemoths whose best growth periods are largely behind them.
Even if the Federal Reserve decides to be conservative with additional interest rate cuts in 2025, we remain confident that the companies we have decided to back are the best positioned to navigate the challenges ahead. We will continue to diligently optimize our portfolios by adhering to the same long-term approach we have always held, as we firmly believe there is no substitute for a high-conviction ownership mentality. The incoming administration has made bold promises to reduce government bloat and regulatory overreach. If its leaders can deliver on these promises, it could unleash a period of economic prosperity on which we believe our companies are well positioned to capitalize.
Over the past few years, we believe growth companies became severely undervalued relative to their fundamental performance due to a shortsighted, “risk-averse” mentality that many market participants adopted. Signs that this began to change have appeared over the last year as growth companies actually outperformed the broader market, albeit just slightly. Nonetheless, contrary to the fickleness of many current market participants, we remain convicted in our favorable view of the companies in our portfolio and have refused to be shaken out of our highest-conviction positions by this extended volatile turbulence. We believe we will ultimately be vindicated in our approach as our growth companies reach market valuations more commensurate with their true potential.
Stay tuned.
