FIQSX Commentary – Q1 2021
Thesis
FIQSX (currently yielding 3.07%) 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 first quarter of 2021, FIQSX outperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 22bps primarily due to a 2% stake in stocks of loan issuers that occurred because of company restructuring and negotiations. Security selection in oil & gas also contributed to performance. Overall exposure to bank loans, a small allocation to high yield credit, and selection in radio & television detracted from returns.
Q1 2021 Summary
- FIQSX returned 2.09%, while the Leveraged Loan Index returned 1.87%
- Quarter-end effective duration for FIQSX was 0.16 and 0.11 for the Leveraged Loan Index
- Largest contributors
- Chesapeake Energy – out-of-benchmark position in oil & gas
- Denbury – out-of-benchmark position in oil & gas
- Largest detractors
- Sinclair Broadcast Group – overweight in TV broadcaster
- Not owning loans from movie theater operator AMC Entertainment
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
- Positive outlook as vaccinations continue to roll out, yet BB and B rated loans are moving closer to par
- The team will continue to search for opportunities in the loan space, even as BB and B-rated securities have approached par
- Continue to consolidate positions and reduce the number of holdings
- Remain overweight to BBB & above and BB, and underweight in B and CCC rated securities
[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