TCPNX Commentary – Q1 2021
Thesis
TCPNX (currently yielding 1.39%) is a smaller fund that does not have as many assets under management compared to our other core mangers, enabling them to make more nimble and tactical decisions. By making small allocations to undervalued “riskier” asset classes (high-yield and non-dollar denominated debt), TCPNX diversifies our fixed income portfolio and generates superior returns to the benchmark (Barclays U.S. AGG). We like that the fund utilizes a bottom-up investment process through proprietary framework analysis, fundamental security review, and portfolio risk management.
[more]
Overview
In the first quarter of 2021, TCPNX outperformed the benchmark (Barclays U.S. AGG) by 45bps primarily due to the fund’s lower duration, curve neutral strategy, and general tightening in spread products. An overweight to spread sectors contributed to returns, specifically the allocation to Agency Multi-Family and Agency Single-Family MBS securities. U.S. Agencies also benefitted the portfolio, yet a preference for steadier issuers within credit detracted from overall returns. Lower rated and longer credit produced relatively larger returns which was a headwind for the fund this quarter.
Q1 2021 Summary
- TCPNX returned -2.92%, while the U.S. AGG returned -3.37%
- Quarter-end effective duration for TCPNX was 5.62 and 6.40 for the U.S. AGG
- Three largest contributors
- Airline EETC, SBA DCPC, Royal Caribbean
- The top detractors
- Long Credit, Treasury STRIPS, Verizon
Optimistic Outlook
- We continue to hold this fund and believe in our thesis due to the fund’s consistent and defensive approach that we expect to generate alpha through times of low volatility
- Rising rates will continue to benefit the portfolio
- Convexity advantage, premium resistance within the portfolio will weaken, tightening spreads
- Continue to maintain a duration neutral portfolio, with a focus on investment grade credit and Agency Single Family MBS debt as they are well priced
[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