Can Small Be Beautiful? Life Outside the Mag 7

Greg Dowling (00:09): Welcome to the "FEG Insight Bridge." This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. It has been a mega-cap world for a long time. The biggest stocks in the US have outperformed the smallest by a wide margin. Are we nearing a turning point? To help us answer this question, we have invited Sean Kammann of Wellington Management. Sean is a senior managing director, partner and an equity manager for small-value team. We will try to tackle some of the criticisms thrown at small cap stocks like being lower-quality, being susceptible to higher interest rates and tariffs and the lack of IPOs. Sean will try to answer the question of whether small can be beautiful again. Sean, welcome to the "FEG Insight Bridge."

Sean Kammann (01:07): Thank you, glad to be here.

Greg Dowling (01:09): Would you mind introducing yourself and Wellington?

Sean Kammann (01:12): Wellington is a firm that's been around almost 100 years. In 2027 we'll celebrate our 100th birthday. We are one of the world's largest privately held asset managers with about $1 trillion in assets. All we do is manage assets for external shareholders. In terms of me, I grew up in Portland, Oregon, always loved competing and being outside, exploring, studied engineering in college. That shaped me as an investor, I think. And along the way I found the world of value investing and switched to investing about 25 years ago. And along the way I've had some great mentors, mentors in value-vesting, of course, but also in growth investing, quantitative investing. All over, I've grabbed little pieces and brought that into my own philosophy and process on investing.

Greg Dowling (01:56): Well, that's great. So I usually end the podcast with a fun fact, but just to get to know you a little bit better, I'm going to start with one now. A fun fact for you is that you were on the U.S. Rowing team. So rowing was a big part of your life, competitive rowing. Is there anything in rowing that kind of lends itself to investing?

Sean Kammann (02:15): Yeah, for me, rowing in the beginning was, I saw this river quite like Cincinnati here, where we are today, that beautiful river I wanted to get out and explore. But way that I started to get into a little competition and had some early success -- and with that grew some aspirations. And when those aspirations grew, they started to grow into trying to thinking, what if I could be the best in my club, the best in the region? Maybe I could go to the national championships. What if I could win the national championships or the world championships? Maybe the Olympic games. As these aspirations grew, I had failure. With that failure, you start to take some reflection. And what I realized is, you've really got to have a process that's actually capable of potentially achieving that aspiration and a real commitment to that process. And commitment goes down to daily goals, what happens on a daily basis, and really the achievement of those daily goals because that's what sets that foundation and the trajectory for the achievement of that ultimate aspiration. So, for me, in investing I'm trying to produce superior results while taking less risk, and so that's my aspiration. And so I've produced a process that's actually capable of getting me there, and I'm really just focused on those daily goals, achieving those goals that will set that foundation and the trajectory.

Greg Dowling (03:27): Great comment. In investing, especially in the short-term, there's a lot of noise. There's a lot of luck. You're not guaranteed that outcome, but you can focus on process. Do you have the right process? And I love that discipline from rowing and how that kind of influences your investment style. It's very good.

Sean Kammann (03:43): It really is freeing. It's easy to get involved in whatever the noise is. And we just think about, this is what I need to accomplish today. It really just focuses you on what's going to get you to that aspiration.

Greg Dowling (03:53): All right. The reason we're here today is to talk about small caps because we live in a Mag 7 world and have been for many, many years. So --

Sean Kammann (04:03): Yeah.

Greg Dowling (04:03): -- I was kind of raised onto -- There was this small-cap premium. Does that even still exist?

Sean Kammann (04:09): It does. It very much does. Let's just look at the facts, I guess. So from that longer term perspective, from 1927, if you look at Fama-French data. So 1927 through last year, 2024, small caps on average outperformed by 270 basis points a year. If you look at that on a rolling 10-year basis -- Because I think all of us, we're saving for things that aren't next quarter, not next year. We're saving for our retirement. We're saving for our children's education. We're saving for that first house. And if you look at it on a decade level or 10-year rolling basis, 66 percent of those rolling 10-year periods, small caps outperformed. I think you can also look at that in value, and you see an even more striking number. So I think it's clear that over time that has existed, and what's also clear is that the Mag 7, the large-cap growth has clearly outperformed over really this post-GFC period. What's interesting there is that what happened after that post-GFC period, we had interest rates go down to zero. We had deleveraging throughout the system. Growth was hard to find. What you could produce was valued very highly, and so we saw small-cap value underperform from a stock perspective. But I think all of us really believe that, in the long term, what drives the stock prices are the fundamentals of these businesses, the value creation. So let's look at the value creation. We have had a slowdown in the economy, some hiccups and over the period after the Fed started raising rates in 2022. So if we look back from, say, 2023 backwards and go back a decade, if you were to take the fundamentals, the earnings growth plus dividend return of small-cap value, and look at that versus every other box, so large-cap growth, large-cap value, small-cap growth, you would see that the earnings and dividends outperform, in small-cap value, each one of those other boxes. And what caused that stock outperformance was all multiple. And so I think as we sit here today, we sit here with obviously now quite a compressed multiple. And during that entire time, despite that low interest rate environment, we actually saw the fundamentals outperform. So I think it's very much still in place.

Greg Dowling (06:13): All right. Well, we've asked you to become the poster child for small cap, the defender, and so I thought it'd be helpful to kind of walk through some of the major criticisms that are thrown at small cap investing. And one of them is that, gosh, these are some low-quality companies, some just really crappy, crappy companies, so let's start there.

Sean Kammann (06:33): Obviously an index is a group of a lot of different companies. And I think one thing that is true, and this is why you want to be active in small caps, is that there are a lot of money-losing businesses. Over the last 20 years, the number of money-losing businesses in the stock market in general has grown. But those money-losing companies in large cap grew from 5 percent of the world to 15 percent. In small caps, it grew from 20 percent to 40 percent. So there's a lot of money-losing businesses. Let's take that bottom quintile out of it and look at the top quintile. We really would rather buy good businesses rather than bad businesses. And in that top quintile, the average free cash flow margin of that top quintile is about 23 percent versus 28 percent in large caps. And if we look at those large caps, the Mag 7 are the hyperscalers. They are heavily invested in CapEx now, so their free cash flow margins are coming down. So we actually see quite-high-quality businesses in small cap. And going back to that earlier question about the small-cap premium, if you look at small caps versus large caps in that top quintile, you would see that the relative valuation over time has ranged from about 0.7 up to 1.7. So at its highest, the small caps have sold at 1.7 times the large caps for the equivalent top quintile of quality. Today -- Over time, it's averaged about 1.2. Today, it's closer to that 0.7, so it's at the low end of the range. So you are getting these great-quality businesses and at the lower end of their range relative to the large cap.

Greg Dowling (08:01): All right. So if you throw out the bottom, there's a lot of quality there. That's one criticism. The other one that I hear a lot about is just that the private equity world has taken over, and there's just a dearth of capital out there which allows companies to stay private longer. And when they stay private longer, they get bigger. And when they finally IPO, they are large-cap stocks and mega-cap stocks, and there's just no fresh blood into the small-cap universe. Can you maybe talk a little bit about that?

Sean Kammann (08:32): Let's just address for starters the IPOs over the last 5 years, for example. The IPOs over the last 5 years, I think all but a third of them in the last 12 months have dipped back into small cap. So even if they might come out as large cap, it doesn't guarantee they're going to stay there because ultimately they're driven by the fundamentals and the valuation that's going to be put on that. What we've seen is actually, of those IPOs, plenty of opportunity in small caps. It is true that if you look at the investment world in the public sense, we've seen slow growth over the last 20 years. If you look at the private equity world, you've seen extraordinarily rapid growth. And I think companies over $1 billion of assets, there's about 1,200 of them. We call them unicorns. And that's up substantially over the 5 last years and over the last 20 years. And so that is a staggering number, but it doesn't say anything about what they should be valued at. It just says what they are valued at. But it also says there is investor interest there, and so clearly capital has been going there. But it doesn't mean that ultimately they are going to want to come to the public markets. You've seen this steep increase. Eventually they are going to want to have a way to get liquidity, and ultimately the easiest way to do that is for an IPO. And we've seen an expansion in the number of IPOs already this year.

Greg Dowling (09:47): Just to add to that, the term unicorn is -- this is for listeners out there -- was a term used for any venture-backed IPO that was over $1 billion. And the reason they called them unicorns is that unicorns don't exist, until more recently when there's been hundreds of these unicorns. So it's been almost the exception to the rule, and we'll see if it stays that way. But it's funny when you say there's lots of unicorns. The other kind of going through the list of why people hate small caps or say you shouldn't invest in them is really about --

Sean Kammann (10:19): Let's knock them out.

Greg Dowling (10:19): We're going through them. I appreciate your willingness to volunteer for this. Is there sensitivity to interest rates? It seems like that they just -- People are like, "Hey, just a bet on rates."

Sean Kammann (10:28): Yeah.

Greg Dowling (10:30): Is that true?

Sean Kammann (10:31): I would say what's actually more true, is there a bet on the nominal growth of the economy? So if you look back -- From 1963 through 2024, I think, is the recent data I saw. If you look at the sensitivity to nominal GDP, 1 percent of nominal GDP equals 2 percent of EPS growth in large caps. In small caps, that's 4 percent of EPS growth. So if you believe in a growing economy, which generally over time is what happens, you would find more growth in small caps than you would in large caps. It is true, though, there is more short-term debt in small caps. There is more variable debt, so I think a third of the debt is variable versus 20 percent in large caps. And so recently, in 2022, we started raising rates. And also during that time period, we saw a steep increase in spreads. You also have more high-yield companies in small cap. The impact of that was that you felt more of that in small caps in an immediate sense. It's not to say it's not coming in large caps, but it was felt more immediately. Now, though, we are looking at the Fed yesterday reduced rates, and those spreads are as tight as they've been in a long time. So we actually have an environment where we'll see declining interest rates for a lot of those small caps. Whereas we look forward for large caps, we'll be seeing increasing rates. Who knows where the direction is going to go at the next moment? But if we were to snap a picture today, forward growth from interest rates will be positive in small caps and negative in large caps.

Greg Dowling (11:50): Is it also somewhat due to the sector makeup of the index? It seems like there are -- not maybe the universe you completely fish in, but there are a lot of smaller banks and a lot of biotech companies --

Sean Kammann (12:03): Absolutely.

Greg Dowling (12:03): -- and that sort of kind of drives it a little bit.

Sean Kammann (12:05): There is certainly that. You do have a definite mix. You have -- The big weight to tech is in large cap, much less interest sensitivity. And in small caps we do have more financials, more banks. There's a lot of small-cap banks, which is interesting because it gives you a lot of selection, but certainly there are a lot of them.

Greg Dowling (12:19): Maybe there are more -- I may be curious to see which ones you've had to answer before. The other one is, maybe it's a newer one or maybe not newer, but just a little bit more topical, given tariffs, is just pricing power of small cap. If you're a supplier to Walmart, Walmart is going to keep their prices low. That supplier is going to get crammed down. Is that true? Is there a lot less pricing power, and are smaller companies more susceptible to tariffs?

Sean Kammann (12:45): I always love to take things to the end state, right? So if that was true, it would mean that any time we had inflation, all the small-cap companies would go out of business. And the large caps would just, I don't know, keep selling nothing because they didn't have anything to sell because all the small caps went out of business. Obviously it's an ecosystem that needs to continue to exist. But I think more on a micro level, if you look at it, how does this actually function? As tariffs started coming through in March, the first impact is higher cost, so that impacts the P&L of a small-cap company. But obviously their whole cost curve goes up, so they start reaching for price. So they say they go to those big large-cap mega-retailers. Those big large-cap mega-retailers would have a 6-month contract. And so they're buying out of inventory of those small caps that has the lower cost and then ultimately coming through, as that inventory turns, with those higher prices that we'll need to see through. So if you look at what's happened here, the small caps have started to get that price coming through. The large caps have started to push that through. And so, if you look at the components of CPI, you can see -- I think there are 140 components of CPI. And those components above 3 percent inflation got to around 70 percent in the peak of the inflation in 2021. That declined to 35 percent and is back to 60 percent. So you can see that that's starting to feed through as you would expect.

Greg Dowling (14:07): Is innovation mostly in the large-cap space? I used to think of small-cap companies being very nimble, doing all these amazing things. And it seems that a lot of this great innovation, especially in the AI age, is happening at the biggest companies. So is there still innovation in small cap?

Sean Kammann (14:21): What's interesting is, if you look at those hyperscalers, I don't know if they're innovating. They're taking someone else's idea, and they're spending an incredible amount of CapEx, and I'm sure they're innovating along the way, too. That's not fair. But if you look at them, most of them were not around 30 years ago. And I think if you listened to what they say, they would admit freely that most likely the winners of the AI world will not be companies that we know today. There is always innovation happening, and it is happening at the smallest levels. And if you look out throughout history -- Again, we don't know the future, but we do know the history. And we can say that if you look back, all of these companies that take over the top of the indexes over time, almost always are they not the same companies, as you look forward 10, 20, 30 years? And so it's highly unlikely, since we know that history has shown us this innovation happens at the small level and grows and that none of these mega-caps tend to be able to persist. It's just really hard. An interesting stat for you: The Magnificent 7 equate to $2 trillion of revenue. It's a staggering number. $2 trillion of revenue is about 2.5 percent of global GDP. Those companies are projected to grow at about 15 percent a year for the foreseeable future. Let's just do an exercise. So, again, 30 years ago most of them didn't exist. Let's go forward 30 years and say that they are going to continue to grow at 15 percent a year, and the general economy grows at, say, 2 percent a year. If you were to take that math forward, that would say that, in 30 years, they are 80 percent of global GDP. I'm going to take the under on that one.

Greg Dowling (15:51): All right. Well, I appreciate that. Did I miss any? Did I miss any of the other major criticisms that people throw your way?

Sean Kammann (15:58): Ah, we did hit a lot of them. I don't want to add any more.

Greg Dowling (16:04): You're like, "I know there's a couple, but I don't want to say them." All right. Well, maybe we can kind of switch gears a little bit and talk about you and your approach. So how does your approach kind of leverage some of the things that we're talking about, that process?

Sean Kammann (16:17): I go back to those daily goals. So, for me, I believe that where there's a structural advantage is in the top half of companies that exist in this top half of valuation, capital returns and quality. So I spend a lot of my time up front really just focused on, where do those companies exist, identifying those and only researching them owning companies that exist there. We haven't touched at all about Wellington, but if you'd like to there, I think that's another key advantage we leverage, which is that we're always trying to accelerate and understand. Why are we getting this opportunity? We're getting this great business. Good capital returns really cheap, why would that exist? We start with asking ourselves why, and then that's where we're reaching out into what we believe is our research advantage. Because we sit here in Wellington, in this $1 trillion asset manager that is also a private partnership, and to be successful there, you want to support everyone else so that they'll support you when it comes time in your career to become a partner of the firm. And so it creates this culture of collaboration. And so I think being a private partnership is really important from taking a long-term perspective, but also important for creating that culture of collaboration. And so we, as the small-cap managers, sit within this $1 trillion asset manager, which I think is really quite unique in this industry and creates quite a competitive research advantage.

Greg Dowling (17:32): I've had the great opportunity to come to one of your Monday morning research meetings, and they're pretty impressive, what you guys bring to bear.

Sean Kammann (17:40): Yeah, we have global industry analysts that cover the world. They cover basically every industry out there throughout the world. About half of our assets are fixed income, so we have municipal bond analysts. We have investment-grade analysts. We have high-yield analysts, and they are all looking at different businesses across the capital spread, and they bring to bear different perspectives. We talk about what's going on in the economy. Do we have great macro analysts? As we started to think about what was the implications of COVID, we had one of the world's best health care investment teams, and we can listen to them and try to understand the implications of what was going on and what the world would look like over the next year as we started to try to bring out all of these vaccines and all that. So any time that we've dealt with that -- Look at the bank crisis that happened a couple of years ago. We have one of the longest-tenured group of investors in banks and small-cap banks even specifically that we can leverage, knowing the management teams, knowing their level of risk-taking. It's just a huge advantage that we're really privileged to be able to take advantage of.

Greg Dowling (18:41): When you're a small piece of a large firm, everybody always talks about advantages of that. And I often don't see them because they're very, very siloed, and maybe there's some you get a macro-economist that shows up every once in a while. But it seems very different at Wellington. Maybe an example because you're not even the only group that focuses on small cap.

Sean Kammann (19:00): Yeah, no, we're not. We also have -- In addition to that morning meeting, we have a SMid cap meeting that we do. We meet a little less frequently because we're slower in small caps. But we meet every other week, and we just talk about small-cap companies that we think are interesting. It's a very ranging discussion, less macro because we're leveraging the morning meeting for that. But there we really get into the details of, here are some companies we saw that we thought are interesting. Who knows something about them? Who knows this management team? That is another angle that we use to just get drilled in on that group of companies and really start that conversation.

Greg Dowling (19:32): All right. So let's talk about your strategy. What is your process to small cap?

Sean Kammann (19:36): There's really these three legs. One is this process-oriented front end, and that's really to orient us into that structural advantage we know that exists in that top half of valuation, capital returns and quality. The second pillar of the strategy is, we're always asking, okay, we've got this great company, great capital returns, attractive valuation. What do we see that's different? So we're going out and to our researchers, asking why and leveraging that research advantage. And then once we've actively selected within there, then we're putting the stocks into a portfolio. And when we think about portfolio construction and risk control, we're very focused on the repeatability of those results. So we want our shareholders to have a predictable level of tracking error that we think is tolerable. We also want to make sure that the alpha is coming from those idiosyncratic opportunities, and so we equal-active weight those positions, which I think is quite different than you'll see in a lot of other managers. All of us love to believe that we can pick the best stocks. And so why wouldn't you conviction-weigh? What you actually see in the research is that by creating this portfolio of equal-active-weighted positions, what you see is that it's the idiosyncratic drivers that actually drive the portfolio rather than the idiosyncratic risks that you create with a conviction-weighted portfolio.

Greg Dowling (20:46): Maybe we can spend another minute there because I think that is pretty unique. Most people research and pick their stocks, but then they overweight their favorites, their higher conviction names and maybe underweight those that lower conviction. And you're not doing that.

Sean Kammann (20:59): No, it hurts the ego a bit because we all believe it. I have a process that ranks every single company out there, and I can tell you quantitatively the one that is the best fit from a valuation, capital returns and quality level. And then I go ahead and just equal-active weight it. It's pretty amazing. There's a reason we all run diversified portfolios. We run diversified portfolios because there's always those unknown risks. Plus you might be wrong, and we're wrong an unfortunate level in the world of investing. We're trying to play the statistics, and we're always trying to increase our odds of success. And when you go conviction weighting, you actually decrease your odds of success.

Greg Dowling (21:33): We started talking about your experience in rowing and just that, as you're trying to get better, you also fail a lot and then have to improve the process, add some rigor to it. Has there been any changes in your process over the years?

Sean Kammann (21:47): I started my world in investing and covering as an analyst some of the more cyclical sectors and lived through the financial crisis, lived through the volatility of that. And one thing I learned from that was you really want to wait on the balance sheet until that repair has happened, if that's a key issue. That's one sort of handcuff I put on myself, is to wait for that moment before jumping in. There's a lot of danger before then, and it's not worth it. Another thing I've done is, my process points me towards trying to find these most attractive companies. But in times of uncertainty, you have a high level of the numbers of them that are out there, and then you also have some that are deteriorating at a very quick rate. And so we've put some learnings from our quantitative investors in there, where we will exclude companies that are sort of in the worst quintile or decile of negative revisions and negative stock price. We say, "You're better off waiting." We also try to use investment science to really help us identify which companies are inflecting. So if we've given a group of companies of 20, and they all look really interesting, where do you focus? Well, let's focus on where the fundamentals are actually helping you, that are a tailwind. They're inflecting positively. So we're using more data to help us select where to focus.

Greg Dowling (22:59): So we spent some time talking about some of the criticisms of small cap, and they've underperformed their large-cap brethren here for years.

Sean Kammann (23:07): Only on a stock price basis, not on a fundamental.

Greg Dowling (23:11): On a stock price basis, I think that's what most investors care about is stock price. It's sort of like when your team played well, but they still lost.

Sean Kammann (23:17): Yeah.

Greg Dowling (23:17): Your record is what your record is.

Sean Kammann (23:20): It's what pays the bills.

Greg Dowling (23:21): That's what pays the bills. But, boy, you're starting to see a sign of life. It's been now weeks and weeks of Russell to strong returns. Are we entering a better environment for small caps?

Sean Kammann (23:31): Go back to when President Trump was elected. You saw a lot excitement, and the reason we had that excitement was, one, we knew he would be deregulatory-focused, which is positive for economic growth, and we know economic growth is positive for small caps. The other thing we knew is that we probably have more M&A, also positive for small caps, and then came tariffs. We all knew they were coming, but, boy, did we not know how big they were going to be. That had a more negative impact in an environment where the Fed raised rates. As we look today, the Fed is cutting rates, and there's clearly pressure to cut rates further, and there's a lot of economic stimulus coming from the One Big Beautiful Bill. And so if we think forward as we move into 2026, we have an environment where rates are coming down. We can all have discussion about if this is the right move. But what is happening is, rates are coming down, and stimulus is coming in. That is very positive for economic growth, and small caps are higher beta to that economic growth.

Greg Dowling (24:29): Well, then let's go a step below that. So where are you seeing areas of interest in certain sectors, if you go by sector?

Sean Kammann (24:37): That's actually not how I invest. I invest purely on a idiosyncratic basis. So we're using our process to point us out to, where are these idiosyncratic opportunities arising? And so if you look back over the last 12 months, we've purchased five companies in financials. We've purchased an energy company, a health care company, a consumer staples company, two technology companies.

Greg Dowling (24:59): But in a way, and I know your process, even looking at idiosyncratic characteristics, you're going to have certain sectors bubble up. And I thought you were going to say financials.

Sean Kammann (25:08): Yeah. So certainly when we get concerns in financials, but I think the other thing that's interesting within financials -- First of all, financials is not all banks. Banks are a piece of financials, but you also have non-interest-rate-levered companies that are in financials as well. But certainly there was more concern, particularly if you look backwards towards 2023, when we had Silicon Valley. That sort of started some uncertainty in financials, so they sold at a cheaper valuation. But as you look at an economy that's doing well -- So less credit risk, that's good for financials. And also, as you start to have more economic growth, banks, they're going to be lenders to that economic growth. And they're also 100 percent US businesses, so the threat of tariffs is extremely low.

Greg Dowling (25:50): Being levered to the economy, when you do have a small cap turn, you often see managers that have a quality orientation initially struggle because it's usually the highest beta, the crappiest companies that rip first. Are we seeing that again?

Sean Kammann (26:06): Yeah, it's interesting. So if you look at the recent history, take this quarter. This quarter has seen what's close to a two-standard-deviation event for the outperformance of that bottom quintile of quality. So you have certainly seen, over a three-month period and really on the trailing 12 now, as a result of such -- the strong performance, you've seen an event you really should see very rarely in your career. And you see only, hopefully, a few economic cycles in your career, although I've already seen that. But, yeah, so this is a rare event of where you're seeing, coming out of the bottom, this low-quality rally. I think what you'll tend to see next, though, is now you start to select within there. You start to say, okay, well, these are the companies that are the least liquid, so they've rebounded heavier. You've seen the companies that people think are the greatest economic sensitivity. So if the risk goes away, it normalizes. But now we start to think forward, and we start to think of it longer term.

Greg Dowling (26:59): So we're talking about small cap, and maybe now is the time. Let's flip that and talk about, how could you be wrong? What has to happen to -- Is it just the economy slowing down? If all grinds to a halt, and we don't get this recovery that I think you expect, I expect as well --

Sean Kammann (27:15): Yeah.

Greg Dowling (27:15): -- what stops that?

Sean Kammann (27:16): Well, I think, one, near-term we are still dealing with the risk that unemployment -- and this is the reason the Fed cut -- is that unemployment creeps higher, and these are more economically sensitive businesses. And so, in the near term, the risk is certainly that, what if things got a little out of control? The impacts of these tariffs feed through, and the economy takes a hit, and maybe we go into recession. That would be a negative. There's also a longer term negative risk, too, that I'm keeping my eye on. I mentioned earlier we are cutting rates as we stimulate the economy. While that is very good for the economy, it's also sort of reminiscent of some things we've done in the past. And fear is, is that this is a 1970s-type event where we really start to unleash inflation, and then we've got to raise rates to an extraordinary level, and that would be very painful. What we would love to see is a yield curve that looks attractive to lending, so we would love to see an upward-sloping yield curve. Depending on what happens here, if there's control over that curve and it becomes unfavorable, it could cause some unintended consequences.

Greg Dowling (28:19): If you had to handicap that, are these lower risks? Are we -- Is your base case that we are accelerating, and the economy should continue to move forward as we have deregulation? We have a ton of stimulus. We have an AI and energy boom with -- What is that risk of anything could happen? Is it one in a million, just in terms of your handicapping?

Sean Kammann (28:39): Don't forget onshoring as well.

Greg Dowling (28:41): Yeah.

Sean Kammann (28:41): In terms of handicapping, I guess one thing I would share with you is that one thing I know I cannot do is time the economy perfectly. That's one of the beauties of equal-active-weighting a portfolio is that you're going to get stocks that are more cyclical, and the economy comes and hits you and surprises you. And then you're forced to say, okay, well, maybe this is still a good position to still hold. And then you're bringing it back up to an average position. And so that adding and trimming, based on what the economy happens to bring you, is a gift because it's forcing you to buy low and sell high. That said, what do I believe? I believe that everything is leading towards, in the near term, more economic growth. What I worry about in the medium term is that we're adding too much fuel to the fire, and that that's going to reaccelerate inflation. And if I think about it, what I see is structurally tighter supply. And so I think we have some great economists that I've learned a lot from at Wellington, and one of the things that is clear is that the impact of that is that we will have shorter and more frequent economic cycles. As we start to grow, we will push on inflation, and that will decelerate the economy. So, over the long term, the economy I still expect to grow. Over the long term, I still expect small caps to be more levered to that growth. But we will certainly have economic cycles, and I will not time them perfectly.

Greg Dowling (29:56): We started out with your fun fact is that you're this competitive rower. Do you have any other fun facts outside of just being in rowing that we should know about you?

Sean Kammann (30:04): Well, I'm also a girl dad, two daughters. As a result or maybe not as a result, maybe a lucky result, I'm also a super-big Taylor Swift fan, apparently, because I've listen to more hours --

Greg Dowling (30:14): And you're probably broke from taking them to Taylor Swift concerts.

Sean Kammann (30:20): Yeah, there is no shortage of enthusiasm for Taylor Swift in my household. I've listened to a lot of songs, and I've got to say overall I think there's some messages that I'm pretty excited about. I think my favorite song is, "thanK you aIMee." One, it's a bit cheeky, which I like, but also it talks about perseverance and really an inward focus, which really resonates with me and how I want my girls to grow up.

Greg Dowling (30:40): Sean, thanks so much for being here defending small cap. We really appreciate it.

Sean Kammann (30:44): I appreciate the opportunity. It's fun to be out here in beautiful Cincinnati, and small caps are an exciting place to be. Hopefully people will hear this and want to learn more.

Greg Dowling (30:53): Small can be beautiful.

Sean Kammann (30:55): It is.

Greg Dowling (30:56): If you are interested in more information on FEG, check out our website at www.feg.com, and don't forget to subscribe to our communication so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within th unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.