FRED KATAYAMA: The S&P 500 and NASDAQ hit new highs Friday before shedding all those gains. The Russell 2000 down about 1%, but small cap stocks have been on a tear over the last quarter. Let's explore that more with Chris Retzler. He is portfolio manager of the Needham Small Cap Growth Fund. Welcome, Chris, and happy new year.
CHRIS RETZLER: Yes, happy new year to you as well, and thank you for having me.
FRED KATAYAMA: Thank you. And by the way, I should tell our viewers that, yeah, your fund had returns of 37% over the last quarter to 72% over the last year. Now, starting with headlines, the economy lost 140,000 jobs last month, contrary to economists' expectations, for a gain. And we saw investors initially shrug that off, but now the sentiment has turned south. Why the change in sentiment, investor sentiment?
CHRIS RETZLER: Well, I think it comes in to where stimulus might be and I think the expectation that there would be very substantial stimulus here in February. And if that's at some question, you know, that could be some pullback.
I specifically was not as surprised about a weaker employment number because what we began to see in November and December was more closing down different states around the country, and globally for that matter, which gives us a little bit more concern going into what we would see in the first quarterly estimates coming up in February. So while we're out of the gate strong with the markets, I think there's some areas we need to be paying attention to over the next few weeks.
FRED KATAYAMA: And Chris, a lot of strategists on Wall Street over the last few weeks, last few months, have been starting to say, hey, value stocks will come into play, the reflation trade. Along with that, small cap stocks. And we certainly have seen the small caps stocks bounce back after their underperformance last year, for the greater part, against large caps. So, what specific sectors within small caps do you think will do well this year that you favor?
CHRIS RETZLER: So, I think technology will continue to do well. Technology has higher growth. A lot of the dollars last year and over the past few years has flowed to a very small group of names. And I think as that broadens out with an economic cycle that I think should accelerate by the second half of this year, what it does is it really drives top line revenue growth for smaller companies, which then can have margin leverage, and ultimately, dropping profits to the bottom line.
There's also a lot of fiscal stimulus that we think is coming. There's monetary stimulus that's out there, with the Fed basically telling us that interest rates on the short end will remain 0 for a long time. So that's all really an amazing cocktail for small cap companies, we think, that should continue to do well, as it broadens out, the market participation broadens out.
FRED KATAYAMA: As it broadens out, some people are saying that it will go more towards value at the expense of growth. You don't see that. And if so, within tech, for example, growth, where do you see the growth?
CHRIS RETZLER: So I do think that value should recover some. And a lot of the value names are more in the energy and financial companies. That's where you find them in the Russell 2000. Our expertise, though, for investing is more in the growthy names-- technology, healthcare. And we still, again, see good growth patterns there, good secular trends that we think investors are going to continue to reward those companies that can succeed.
You know, semiconductor, semi cap equipment are still have great tailwinds to those stories. 5G is a real big theme that's going to continue to roll out, both on an infrastructure basis and on a device basis. The automotive sector is doing a lot better. And it's been improving since the fall. We think that continues through. You know, a new car these days is more like a computer with four wheels. And there's so much technology that goes in there.
Also, electric vehicle technology we think will continue to move forward. There's a lot of supply chain opportunities there that we look at that make that successful.
FRED KATAYAMA: And lastly, Chris, we asked you before we began this broadcast, though, what stocks do you like that have not, for example, appreciated so much that investors can still get into at this time? And you mentioned WWE, Worldwide Wrestling Entertainment, another one, Limelight. Tell me about those.
CHRIS RETZLER: Yeah. So World Wrestling Entertainment is really a recovery play, as we can get back to stadiums hopefully some point in the second half of this year. They've, I think, done a fantastic job in innovating and modifying their product that they produce all week long. But when you get people back into the stadiums, we think that that's a recovery play. And again, it's also significantly owned by the founder, the McMahon family. So you are very aligned with management and the large shareholders.
Now, Limelight is a name that we've owned for a while. It did well for a portion of last year during the work from anywhere phase. But then it had some correction. So, again, if you look at value, I think that's value in technology. They are a provider of content delivery.
So, when we get back to live entertainment, they're going to be a beneficiary of that, as well as just moving more content and media around. So you look at things like Peacock. You see Discovery Plus and other over the top opportunities. So, there's been some management changes there. And we think that 2021 should be a good place and, quite frankly, a value place.
FRED KATAYAMA: All right, a value play in a growth fund. Thanks a lot, Chris. Appreciate it.
CHRIS RETZLER: Thank you very much.
FRED KATAYAMA: Our thanks to Chris Retzler of Needham. I'm Fred Katayama in New York. This is Reuters. And have a wonderful weekend.