Unconventional Strategy Triggers Success for a Small-Cap Investment Portfolio
In the midst of this year's market selloff, fund manager David Wagner of the T. Rowe Price Small-Cap Value Fund (PRSVX) adopted a contrarian investment strategy. This approach involved trimming his holdings in utility stocks and real estate investment trusts (REITs), sectors that were relatively resilient, and instead increasing exposure to economically sensitive and tariff-impacted companies.
Wagner believed the market was overreacting to tariff concerns, viewing them as unresolved but not fully detrimental. He saw opportunities in the most tariff-exposed names when these sectors were beaten down by market fears.
Specifically, Wagner's approach involved trimming positions in defensive sectors that were performing well despite the selloff. He doubled down on companies sensitive to economic cycles and tariffs, including retail and restaurant businesses, materials, and chemicals firms exposed to global trade risks.
One such investment was in Carvana, a now large-cap company that Wagner bought stock in when it teetered toward bankruptcy for $30 a share in late 2023. Since then, the stock has recovered significantly, trading recently for $327.
Another investment was in Steven Madden, the number-one importer of women's shoes in the country, with a significant portion coming from China. Since hitting a low in mid-April, the stock of Steven Madden has recovered 27%.
The T. Rowe Price Small-Cap Value Fund (PRSVX) fared better than the market during this period, logging a 3.0% gain over the past 12 months, while the Russell 2000 Index, a benchmark for small-cap stocks, fell as much as 28% during the selloff.
David Wagner has been managing the Small-Cap Value fund since mid-2014, and over the past decade, his 7.7% annualized return has beaten 72% of his peers. His strategy of buying into fear-driven selloffs within tariff-exposed areas where fundamentals might still be intact or could recover once tariff issues stabilize seems to be paying off.
This information was first published in Kiplinger Personal Finance Magazine.
[1] Reference for the contrarian strategy explanation.
David Wagner, fund manager of the T. Row Price Small-Cap Value Fund, implemented a contrarian investment strategy, shifting investments from resilient sectors like utility stocks and REITs to economically sensitive and tariff-impacted businesses, such as retail, restaurant, materials, and chemicals firms.
Embracing this contrarian strategy, Wagner identified specific investments, like Carvana and Steven Madden, which have seen significant recoveries since his purchases during the market selloff.
