Eric T. McKissack, CEO and chief investment officer of the Chicago investment firm Channing Capital Management L.L.C., says his company mines the market’s “sweet spot,” stocks of mid-sized corporations that grow faster because they start at a smaller base. At the same time, these equities are seasoned enough to sidestep some of the stumbles that smaller companies make when the economy stalls.
“The area is a very strong performer over the long term,” says McKissack, whose firm manages approximately $800 million in institutional funds. “The group has underperformed this year, but when you look further out, we feel midcaps will retain their performance advantage and are one of the best places in the market.” The numbers support McKissack’s outlook. Over a 10-year-period ending Aug. 31, the Russell 1000 index of large company shares returned 3.16%. The Russell MidCap index—the types of undervalued shares McKissack selects for his portfolios—were up 7.16%.
McKissack doesn’t foresee a double-dip recession but he does expect “more stresses and pressures” from Europe and a weak U.S. job market. As such, the volatile stock market will continue to bounce up and down. “General sentiment is worse than what we see for the economy, and as a result, we think there are attractive opportunities,” he says. “It’s a good time for investors to add selectively to their positions rather than to switch money to fixed income or cash, which yield practically nothing right now.”