First Quarter 2025 Performance & Our Thoughts on the Market Pullback
The market downturn has been tough, but the current geopolitical mess does not change our long-term view of investing in quality…
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Use pullbacks to generate alpha
MS Microcap Quality Index (MSMqi) First quarter 2025 performance
New quantitative partnership expected to reduce risk in the MSMqi, while maintaining alpha.
Spotlight Stock review
As legendary investor Peter Lynch noted, "When I ran Magellan Fund, the market had 9 declines of 10 percent or more in those 13 years. I had a perfect record. All 9 times, my fund went down."
Yet, Lynch produced an average annual return of 29% while he managed the Fund for 13 years (1977 to 1990).
This acknowledgment underscores that even top-performing funds are not immune to market volatility.
You know what else the investing legends have in common? They buy the dips. And to say that the market is dipping right now would not be strong enough description of what is going on. So, this is the perfect time to use our MS Microcap Quality Index (MSMqi) to search for quality companies that are on sale.
Over the past three years, the MSMqi has demonstrated exceptional performance, outperforming major indices and identifying 47 multi-bagger stocks among its 110 constituents. This means 42% of the stocks in the MSMqi at least doubled at some point in time.
This success proves that investing in quality and/or high-probability turnaround/restructuring stories that will soon be viewed as quality works. (We use a 10-point quality checklist)
However, it also proves that investing in these companies when they are entering multibagger growth inflection points adds a ton of extra alpha.
After a fantastic 2024 for quality microcap investing, where the MSMqi produced 77.23% alpha over the iShares Microcap ETF and 41.3% over the S&P 500—the first quarter of 2025 has presented challenges as the broader market has been pulling back sharply.