Listen to Allen Steinkopf, Lead Portolio manager of the Mairs & Power Small Cap Fund, and Chris Strom, co-manager, as they talk with Scott Howard, VP, Investor Relations Manager, on April 22, 2021 to provide an update on current economic and market conditions and their impact on the Mairs & Power Small Cap Fund.
In the first quarter, the Mairs & Power Small Cap Fund gained 16.08%, the benchmark S&P Small Cap 600 Total Return (TR) Index was up 18.24%, and the Fund’s peer group of small cap funds as measured by the Morningstar U.S. Fund Small Blend category rose 15.14%.
In other words, the Fund is off to a strong start in 2021. The combination of vaccine rollouts and government stimulus has put the wind behind the sails of the market, including small caps. In the first quarter, small cap performance has been broad-based, with every sector performing positively for the Fund.
Sector Overview and Performance
The Fund saw particular strength in the Consumer Discretionary sector, which gained 37% in the first quarter. We enjoyed notably powerful performance from Sleep Number, which was up about 75%.
Financials, which were a negative on Fund performance last year, have turned around strongly, gaining about 18% in the first quarter. One key reason: The yield curve has started to rise. The 10-year has risen from about 100 basis points up to as high as about 1.75%, and it is now sitting at around 1.6%. That has provided a significant lift for banks, which ended the quarter up about 27%.
Healthcare was extremely strong for us in 2020. So far this year, it too has been up, though it has trailed the other sectors somewhat. IntriCon, one of the Fund’s larger Healthcare holdings, has had a very good start to the year, and that helped our performance in that sector.
The Industrial sector’s performance has been in line with the S&P 600, gaining about 17% in the first quarter. The Fund’s largest Industrial holding, Oshkosh Corp., benefited when it won the contract to provide nearly 6,000 trucks to the U.S. Postal Service over the next four to five years.
During the quarter, the Fund added Tuscan Holdings Corp (Microvast), a very promising battery company in the EV (electrical vehicle) space. It also exited glass manufacturer Apogee, which we believe is too levered towards the sluggish commercial construction industry.
The Fund has started the year well, with many of its companies posting solid numbers. But while its performance has been very strong compared to the S&P 600, the valuation gap between small and large caps remains fairly wide.
At the end of last year, small cap stocks looked particularly attractive. That is still the case so far in 2021. Small cap stocks are trading more than a standard deviation wide of their typical range relative to large caps. That has been giving us an opportunity to identify good, cheap stocks across most sectors. And as we go through earnings season, we believe that there will be more opportunities to add companies with attractive valuations to the Fund portfolio.
Top 10 Fund Holdings (subject to change)
The statements and opinions expressed are those of the speakers and are as of the date of this call. All information is historical and not indicative of future results and subject to change.
Standard deviation measures the dispersion of a dataset relative to its mean.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance as of the most recent month end is available by calling 800-304-7404. Click Here for standardized performance.