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Trends are in place for whoever is in office come January: Portfolio Manager

Chris Retzler, Needham Small Cap Growth Fund portfolio manager, joins The Final Round to discuss recent market action and what this means for small caps.

Video Transcript

- Chris Retzler, Needham Small Cap Growth Fund Portfolio Manager. And Chris, before we get into some of your picks in the small cap world, I just read this statistic. And I want to ask you about it. So Apple, as I'm sure you read, has crossed the 2 trillion market cap level. And that is-- makes Apple worth more than all of the small caps.

So you're a small cap guy. I mean, what do you think-- like just that-- it kind of puts it in perspective to me sort of how big Apple is. That it's worth more than all the small caps combined in the Russell. Does that-- does that seem out of whack to you as somebody that makes their bread and butter in small caps?

CHRIS RETZLER: I think there's a few things you can pick up on that is, you know, there's a tremendous amount of liquidity that was pushed into the marketplace. So dollars had to go somewhere. Interest rates are incredibly low. So those people that participated in the bond markets might have kind of begin to put some of their money into names like Apple that probably have very good safety and long term growth with some dividend to it.

So I think it's, you know, it's at the confluence of a lot of different investors. But I also view it as probably an opportunity as people begin to potentially rebalance their portfolios away from-- that was concentrated say top 10 holdings. And an area that does probably offer quite a bit of value are the small cap names where we spend most of our time.

- So if you are thinking, I gotta take some money off the table in these five big cap stocks that are basically driving the market, where in small caps should people look? Because, you know, they're walking away from the table where these stocks have really performed well for them. So they-- it's like the opportunity cost of getting out of them is big. When you're looking at small caps, like, is this going to do it? Where would you go in small caps?

CHRIS RETZLER: So obviously small caps historically, you've had to have a bit of a good risk tolerance to get into that space. But we do see that there's a lot of value. You know, a theme that we've been investing in and we think can continue for some time is the whole investment into connectivity.

And whether that's wireless connectivity or landline cable connectivity, all of the systems both here and globally are running, quote, hot, right. And so investment needs to come in to maintain this increased traffic, increased wireless traffic. You know, we're all watching colleges go back. And there are some bumps in the road already with a few where they're going to go to remote classes.

We're not even back into the K through 12, which, you know, hopefully they can get back in the classroom, even if on some modified basis. But again, everyone needs connectivity to the system. And we think that there's still a lot of investment opportunity. And many of us are small cap companies, which haven't had the run like the top 10 which have gotten a bucket-- a lot of the money into their stocks. So again, there's opportunity out there.

- Chris, when you think about the connectivity issue, even during the second night of the DNC Convention yesterday, the word broadband was thrown around a lot. The word nationwide connectivity, so many of our students and laborers don't actually have access to the internet. And I think for us coastal elites-- I will acknowledge that. That's such a hard pill to swallow.

How do you anticipate a potential Biden administration accelerating those investments? Do you see it coupled with the political environment? Or do you feel as though a lot of these innovators and entrepreneurs are kind of making waves regardless of who's in charge?

CHRIS RETZLER: Yeah, so I'm going to say regardless of who's in charge versus a Biden administration. I think the trends are in place for whoever's in the White House come January. I think that it's a very competitive environment, where you have satellite connectivity that's out there. There are companies that are providing that. And that's an improved speed.

You also have 5G being built out, which is also going to provide a lot of connectivity that areas haven't had in the past. And then just your traditional cable and landline where those are being optimized as well. So I think there's a lot of opportunity for people to get connected. I think it's important for everyone to get connected.

It just expands so much of what people can do. You know, you think about ranchers in Montana that need to be connected. They need to know what the weather is going to be. They need to know what the price is. It's just a very dynamic economy. And I think, you know, going forward that investment is going to be there with whoever wins the White House.

- And while we're on politics, how important is stimulus for small caps? Another round here.

CHRIS RETZLER: Yeah, I don't think stimulus is as significant for small caps as overall recovery of the economy. Generally coming out of even a short-lived recession, the accelerated growth, the economic growth is good for small caps. Generally, they have more concentrated products or services as opposed to some of the larger companies like, for example, Microsoft, which can kind of sustain itself through a downturn a little bit better.

But if we have accelerated growth, which is what we think will happen in Q3 and in Q4 off of very low numbers in Q1, Q2, that should be a good tailwind to small caps. So again, we see a lot of opportunity there. We've been finding opportunities all summer. And here in the month of August where people tend to go away and volumes are a little bit lighter, for those who are sticking around, some things can come for sale that are probably pretty good bargains.

- Chris Retzler, great time to talk with you. Needham Small Cap Growth Fund Portfolio Manager, thanks so much.