FIQSX Commentary – Q4 2020
Thesis
FIQSX is a large floating rate fund that has a strong historical returns and a tenured management team. By investing purely in senior bank loans, FIQSX further increases our potential upside gain, reduces our duration-risk, and decreases our interest rate risk. We like that the fund utilizes a bottom-up investment process through proprietary framework analysis, avoids high-yield corporate bonds, and allocates to relatively higher-rated securities within the floating rate security space.
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Overview
In the fourth quarter of 2020, FIQSX outperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 23bps primarily due to security selection in oil & gas and nonferrous metals/minerals. Contrarily, allocation to cash and selection in business equipment & services and food service detracted from returns. A small allocation to high-yield credit performed in line with the benchmark, and thus had relatively no effect on overall performance.
Q4 2020 Summary
- FIQSX returned 4.04%, while the Leveraged Loan Index returned 3.81%
- Quarter-end effective duration for FIQSX was 0.17 and 0.11 for the Leveraged Loan Index
- Largest contributors
- California Resources – out-of-benchmark position in oil & gas
- Murray Energy – out-of-benchmark position in thermal coal mining
- Largest detractors
- CEC Entertainment – out-of-benchmark position in restaurant industry
- No owning American Airlines
Optimistic Outlook
- We hold this fund due to its relatively high yield and shorter duration, especially as we believe that rates will increase in the coming years
- Expect continued volatility, but for corporate fundamentals and supply-and-demand dynamics to improve
- The team will continue to search for opportunities in the loan space, even as BB and B-rated securities have approached par
- Opportunities for capital appreciation have become limited
- New loans with a LIBOR floor are coming to market
[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