Geneva Capital tells pension trustees recent market rally favored speculative, low-quality stocks; high-quality small-cap firms regained earnings

Geneva Capital portfolio manager Matthew Pastoreo presented the firm’s small-cap growth performance to the General Employees Pension Plan Board on Sept. 25, telling trustees the strategy’s history of downside protection has resulted in relative underperformance during a recent speculative rally.

Pastoreo said Geneva, which he described as a Milwaukee-based boutique with about $6.4 billion in assets under management, emphasizes “high-quality small-cap growth businesses” — companies with conservative balance sheets, profitability and consistent revenue and earnings growth. He told trustees the strategy focuses on profitable companies that can grow revenue about 10%–15% and earnings 15%–20% on average.

Pastoreo said the strategy has historically outperformed during bear markets and protected capital in sell-offs. “The quality of the businesses we own continues to be very, very strong. The fundamentals continue to be strong. It’s just that we’re not being rewarded for it,” he said. He described a market rotation after April 9 that strongly favored high-beta, unprofitable or early-stage businesses — including AI- and data-center–related stocks — and said those names drove benchmark gains while penalizing Geneva’s quality-biased holdings.

Trustees asked follow-up questions about attribution and sector performance. A trustee noted small-cap materials and consumer staples detracted in the second quarter; Pastoreo said his attribution work using Barra factor modeling showed most of the quarter’s underperformance (about 96% by the model) was driven by factor exposures (overweight quality, underweight beta) rather than individual stock selection.

Pastoreo pointed to several statistics in the firm's deck: since an April market bottom he described, unprofitable technology companies rose roughly 100%, AI‑related data‑center stocks rose roughly 117%, and certain alternative power names rose about 110% — sectors Geneva largely avoided because of profitability and quality screens. He told trustees he expects quality to come back into favor over time and reiterated the firm’s long-term record of protecting on the downside.

The presentation concluded without a formal vote. Trustees asked the firm to provide clarifications about small discrepancies they’d noticed between manager and custodial returns reported in different packets; Pastoreo said small short-term differences are common but he would investigate if discrepancies persist.