WATFX Commentary – Q3 2020
Thesis
WATFX is an actively managed fund that finds overlooked areas of the market that can go against consensus views and add value. Through internal macro, credit, and fundamental research WATFX identifies undervalued securities and takes on more credit exposure to generate alpha over time. Through a diversified approach to interest rate duration, yield curve, sector allocation, and security selection, the fund dampens exposure to volatility.
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Overview
In the third quarter of 2020, WATFX outperformed the benchmark (Barclays U.S. AGG) by 87bps. Duration positioning adjustments helped generate positive returns for the fund. Exposure to structured products, non-agency RMBS and ABS gave the fund positive relative performance. TIPS and EM exposure were also a positive for returns, but investment grade corporate bond exposure, such as in the banking industry, detracted from overall performance.
Q3 2020 Summary
- WATFX returned 1.49%, while the U.S. AGG returned 0.62%
- Quarter-end effective duration for WATFX was 7.0 and 6.1 for the U.S. AGG
- A steepening yield curve created a headwind for returns
- Cut TIPS exposure as breakeven inflation rates rose
Outlook
- We continue to hold this fund and believe in our thesis due to the fund’s diverse approach and strong top down-bottom up fundamental value investing over the long-term
- WATFX is expecting a longer “U-shaped” global economic recovery
- Expecting central banks to continue to roll out stimulus
- The fund is excited to seek out opportunities as spreads widen and the Fed continues to support corporate credit markets
[Category Mutual Fund Commentary]
Micah Weinstein
Research Analyst
Direct: 617.226.0032
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109