Markets Generally Favored the Wasatch Approach During the Second Quarter

Our overall performance went from lackluster in the first quarter to excellent in the second, and individual stock selections—rather than broad themes—seemed to be the main reason. On an international basis, we see the U.K. as a “value market” with exciting small-cap growth opportunities.

In our previous Market Scout, we discussed how almost all of the Wasatch funds outperformed their benchmarks over the preceding five years. But during the first quarter of 2021, which is admittedly too short a period for properly evaluating returns, only two of the 18 funds outperformed their benchmarks.

What we saw during the second quarter, by contrast, was a sharp reversal in which 14 of the 18 funds outperformed their benchmarks. Again, while a quarter is too short for evaluating returns, we’d like to take this opportunity to describe conditions during the period and offer some longer-term insights.


Broadly speaking, the Wasatch funds and strategies underperformed in the first quarter as growth-oriented stocks fell out of favor to some extent and value-oriented stocks became the market darlings. The conventional wisdom is that a disproportionate share of growth-company earnings will be generated far into the future. So in an environment of rising interest rates (which occurred during the first quarter), those future earnings are worth less in today’s dollars.

Value companies, on the other hand, tend to be more economically sensitive and are generally perceived as benefiting to a greater extent from rising interest rates, higher inflation and continued economic reopening. Banks, for example, can charge much higher rates on loans than they pay on deposits. And as the economy heats up, energy companies can raise prices faster than their costs increase.