Small Cap Focus - Performance Perspective

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Market Update

In Q3 2023, the Russell 2000 Index experienced a downturn, dropping by 5.13% during this period. This performance reflects the general trend observed in the small-cap sector during Q3 2023. Despite this downturn, it’s important to remember that market performances can fluctuate and should be viewed in the context of long-term investment strategies.

The downturn of Small Cap Stocks can be attributed to several factors, including interest rate conditions. Small-cap companies can be more sensitive to a higher rate environment and the Russell 2000 has a higher sector weight in financials, making it more leveraged toward interest rate conditions. Secondly, lending difficulties make it more often challenging for small-cap companies compared to larger-cap companies to negotiate lower lending rates.  Thirdly, the economic changes that small-cap stocks endure relative to large-cap stocks since small-cap stocks tend to be smaller, younger companies that are more likely to be impacted by changes in the economy.  Lastly, the Fed’s actions tend to have a higher impact on small-cap stocks relative to large-cap stocks.  Therefore, the market backstop the Fed has previously provided and their reluctance to allow the economy to enter a natural pullback created an environment that did not promote a small-cap comeback the way large-cap stocks were able to.

Portfolio Review

  • The Third quarter of 2023 can only be described as a typical soft 3rd quarter, exacerbated by an overbought situation going into the quarter.  Both the Yorktown Small Cap Fund and the small-cap market segment, as measured by the Russell 2000 Growth and the Russell 2000, suffered during the quarter.

  • The Yorktown Small Cap Fund (YOVIX) gave up (3.76%) versus a much larger loss of (7.32%) for the Russell 2000 Growth Index and a significant loss of (5.13%) for the Russell 2000 Index. 

  • The three sectors that aided relative portfolio performance the most during the quarter included energy, minerals, financials, and health technology.  Industrial services, electronic technology, and communications were the three sectors that hindered relative performance the most during the quarter. 

  • Both stock selection and sector allocation contributed positively to relative performance for the quarter with sector allocation accounting for 86% of the outperformance.

  • From a holdings perspective, Alpha Metallurgical Resources Inc. 58.35%, Permian Resources Corporation 28.40%, and Northern Oil and Gas, Inc. 18.31% were the three stocks that helped absolute performance the most, while Novanta Inc. (22.09%), Rambus Inc. (13.06%), and Mueller Industries (13.55%) detracted the most during the quarter. 

  • At the end of the quarter, electronic technology, energy, minerals, and finance sectors were the largest weighted sectors, while utilities, process industries, and distribution services were the least weighted sectors represented in the portfolio.


Positioning & Outlook

Despite the recent performance, the long-term growth potential of small-cap stocks remains. Investors willing to accept slightly more risk in exchange for higher potential gains may still find value in including small-cap stocks in their portfolios. Investing in small-cap companies, those with a market capitalization between $20 million and $13.5 billion, as measured by the current market capitalization range of the Russell 2000 Index, may offer significant benefits. Here are some possible key advantages:

  1. Growth Potential: Small-cap stocks often have higher growth potential compared to larger companies. Many successful large-cap companies, such as Microsoft, Amazon, or Netflix, started as small-caps. Investing in these companies at an early stage could lead to substantial returns.

  2. Undervalued Opportunities: The share price of small-cap stocks is often lower, making the initial investment easier. Moreover, many institutional investors and mutual funds have rules restricting them from buying small-cap stocks, which can lead to these stocks being undervalued.

  3. Merger & Acquisition Activity: Small-cap companies are often targets for mergers and acquisitions, providing another opportunity for investors.

Although 2023 has proven difficult for small-cap investors, as of September 30, 2023, the Yorktown Small Cap Fund Institutional Share Class (YOVIX) is in the top 25% of its asset class1 for the YTD timeframe, based on risk-adjusted returns, as ranked by Morningstar Inc.





Learn more about the Yorktown Small Cap Fund:


Overview Performance Literature



Definition of Terms

Basis Points (bps) - refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. 

Curvature - A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. 

Mortgage-Backed Security (MBS) - A mortgage-backed security is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. 

Collateralized Loan Obligation (CLO) - A collateralized loan obligation is a single security backed by a pool of debt. 

Commercial Real Estate Loan (CRE) - A mortgage secured by a lien on commercial property as opposed to residential property. 

CRE CLO - The underlying assets of a CRE CLO are short-term floating rate loans collateralized by transitional properties. 

Asset-Backed Security (ABS) - An asset-backed security is an investment security—a bond or note—which is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables. 

Option-Adjusted Spread (OAS) - The measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option. 

Enhanced Equipment Trust Certificate (EETC) - One form of equipment trust certificate that is issued and managed through special purpose vehicles known as pass-through trusts. These special purpose vehicles (SPEs) allow borrowers to aggregate multiple equipment purchases into one debt security 

Real Estate Investment Trust (REIT) - A company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. 

London InterBank Offered Rate (LIBOR) - a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. 

Secured Overnight Financing Rate (SOFR) - a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London interbank offered rate (LIBOR). 

Delta - the ratio that compares the change in the price of an asset, usually marketable securities, to the corresponding change in the price of its derivative. 

Commercial Mortgage-Backed Security (CMBS) - fixed-income investment products that are backed by mortgages on commercial properties rather than residential real estate. 

Floating-Rate Note (FRN) - a bond with a variable interest rate that allows investors to benefit from rising interest rates. 

Consumer Price Index (CPI) - a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. 

Net Asset Value (NAV) - represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. 

S&P 500 - The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States. 

German DAX - The DAX—also known as the Deutscher Aktien Index or the GER40—is a stock index that represents 40 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. 

NASDAQ - The Nasdaq Stock Market (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. 

MSCI EM Index - The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries. With 1,382 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. 

Nikkei - The Nikkei is short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. 

Shanghai Composite - is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. 

MOVE Index - The ICE BofA MOVE Index (MOVE) measures Treasury rate volatility through options pricing. 

VIX Index - The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). 

Dow Jones Industrial Average - The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. 

Hang Seng - The Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. 

STOXX Europe 600 - The STOXX Europe 600, also called STOXX 600, SXXP, is a stock index of European stocks designed by STOXX Ltd. This index has a fixed number of 600 components representing large, mid and small capitalization companies among 17 European countries, covering approximately 90% of the free-float market capitalization of the European stock market (not limited to the Eurozone). 

Euro STOXX 50 - The EURO STOXX 50 Index is a market capitalization weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. 

CAC (France) - is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant stocks among the 100 largest market caps on the Euronext Paris (formerly the Paris Bourse). 

Duration Risk - the name economists give to the risk associated with the sensitivity of a bond's price to a one percent change in interest rates. 

Federal Open Market Committee (FOMC) - the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy specifically by directing open market operations (OMO). 

United States Treasury (UST) - the national treasury of the federal government of the United States where it serves as an executive department. The Treasury manages all of the money coming into the government and paid out by it. 

High Yield (HY) - high-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investment-grade bonds to compensate investors. 

Investment Grade (IG) - an investment grade is a rating that signifies that a municipal or corporate bond presents a relatively low risk of default. 

Exchange Traded Fund (ETF) - an exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. 

Federal Family Education Loan Program (FFELP) - a program that worked with private lenders to provide education loans guaranteed by the federal government. 

Business Development Program (BDC) - an organization that invests in small- and medium-sized companies as well as distressed companies.




Morningstar Category/Morningstar Category % Rank Investments are placed into Morningstar categories based on their compositions and portfolio statistics so that investors can make meaningful comparisons. Morningstar Category % Rank is a fund's total-return percentile rank relative to all funds in the same category. The highest (or most favorable) percentile rank is one and the lowest (or least favorable) percentile rank is 100. The Category % Rank complements the Morningstar Rating, especially for funds in smaller categories because these funds may have received a 3-star rating but could be in the top half of their category performance.

As of 9/30/2023, the Morningstar Percentile Rankings for the Yorktown Small Cap Fund Institutional Share Class (YOVIX) was: YTD, 25%; 1-Year, 89%; 3-Year, 83%; 5-Year, 30%; 10-Year, not ranked. The number of funds for each time frame was as follows: YTD, 619 funds; 1-Year, 613 funds; 3-Year, 595 funds; 5-Year, 556 funds; 10-Year, not ranked.

You should carefully consider the investment objectives, potential risks, management fees, charges and expenses of the fund before investing.  

The fund's prospectus contains this and other information about the fund and should be read carefully before investing. You may obtain a current copy of the fund's prospectus by calling 800-544-6060.

Ultimus Fund Distributors and Yorktown Funds are not affiliated.

The performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment in the Fund 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 data current to the most recent month end may be obtained by calling 1-800-544-6060.  

Russell 2000 Index is an index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Annual Operating Expenses: Per the most recent prospectus, (1) Fund total operating expense ratios are: Class A, 1.90%; Class L, 2.65%; Institutional Class, 1.65% and (2) Fund net annual operating expense ratios are: Class A, 1.54%, Class L, 2.29%, Institutional Class, 1.29%. The net annual expense ratio takes into account contractual management fee waivers that are in effect until May 31, 2024.

Investing involves risk, including loss of principal. There is no guarantee that this, or any investment strategy, will succeed. Small and mid-cap investing involves greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity, and increased competitive threat.


Control #: 17528211-UFD-10/26/2023

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