Month: August 2021

Atlanta Capital Focused Growth Commentary – Q2 2021

Thesis

EILGX serves as our active manager in the large cap “growth” U.S. equity markets and follows a concentrated (20-30 companies) investment strategy with a heavy quality tilt emphasizing companies with high ROIC, strong cash flow multiples, and long-term moats. By utilizing DCF models and bottom-up fundamentals, the fund finds stocks with secular tailwinds, sustainable financials, and relatively low downside capture to generate alpha over the S&P 500 Index over time. We continue to hold EILGX because of the team’s ability to build a concentrated portfolio that gives our U.S. large-cap allocation a strong quality tilt, while giving clients strong risk-adjusted returns.

 

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Overview

In the second quarter of 2021, EILGX outperformed the benchmark (S&P 500 Index) by 234bps due to strong stock selection in Healthcare and Communication Services. Additionally, underweights to Consumer Staples and Consumer Discretionary contributed to performance. Offsetting these results, though, was poor selection within Information Technology, Materials, and Consumer Discretionary. An overweight to Materials and underweight to Information Technology also acted as a drag on returns. In general, U.S. large cap stocks saw a trade between growth and value, with growth providing stronger returns for the quarter compared to value.

 

Q2 2021 Summary

• EILGX returned 10.89%, while the S&P 500 Index returned 8.55%
• Top contributors
• Intuit Inc. – financials software
• Danaher Corp. – medical equipment company
• Gartner – IT services firm
• Alphabet – online search platform
• Lack of exposure to Tesla – electric vehicle maker
• Top detractors
• Fiserv, Inc. – global fintech company
• Ecolab Inc. – chemical company
• Verisk Analytics – data analytics provider
• TJX Companies – off-price retailer
• Lack of exposure to NVIDIA Corp. – semiconductor company

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s ability to outperform the index through full market cycles while maintaining a strong quality strategy and growth tilt
• Market concentration continues to be a risk
• Information Technology, Consumer Discretionary, and Communication Services make up more than 75% of the Russell 1000 Growth Index
• Sticking with companies that have demonstrated a track record of consistent growth and earnings stability may provide a “margin of safety” that becomes increasingly valuable during times of rising uncertainty
• Believe the fund’s holdings, which have sustainable earnings growth, will be able to withstand different market environments

 

[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

www.crestwoodadvisors.com

 

Applied Finance Select Fund Commentary – Q2 2021

Thesis

AFVZX serves as our active manager in the large cap “value” U.S. equity markets and follows a concentrated (50 companies) investment strategy that focuses on firm quality and valuation. By utilizing DCF models, bottom-up fundamentals, and holding sector weights that are equivalent to their benchmark (S&P 500 Index), the fund generates alpha over time purely through stock selection. We continue to hold AFVZX because of the team’s ability to compare stocks across all sectors which enables them to generate strong returns over the long run.

 

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Overview

In the second quarter of 2021, AFVZX underperformed the benchmark (S&P 500 Index) by 335bps largely due to selection in Information Technology, Communication Services, and REITs. Within Information Technology, the mega-cap growth stocks started to take over which was a reversal compared to the more value-based Information Technology that performed well in Q1 2021. Offsetting these poor performing sectors were Consumer Discretionary and Healthcare, which contributed to performance.

 

Q2 2021 Summary

• AFVZX returned 5.20%, while the S&P 500 Index returned 8.55%
• Top contributors
• Consumer Discretionary – TGT, LKQ, and APTV
• Healthcare – DHR and ALXN
• Top detractors
• Information Technology– INTC, FISV, HPQ, and KLAC
• Communication Services – DIS and VZ
• Industrials – ALK and CMI
• REITs – HST
• The fund replaced ALXN with REGN on 06.21.21
• ALXN has agreed to be acquired by AZN

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s ability to outperform the index over the long run through strong stock selection and maintaining a quality and value investment tilt
• See inflation spilling over to future years, allowing higher level to be a bit more sustainable
• Continue to invest in companies with attractive valuation, credible management team, and a strong wealth creation track record and strategy
• Believe the fund’s holdings will continue to navigate the market well and positioned to perform strongly as the economy continues to reopen

 

 

[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

www.crestwoodadvisors.com

 

Hartford International Value Fund Commentary – Q2 2021

Thesis

Serving as a satellite holding, HILIX is a value style fund that takes advantage names that have underperformed recently and are cheaply priced. The team generates alpha by finding companies with strong fundamentals that are overlooked during times of low consensus expectations. We like that HILIX takes advantage of extremes and gains exposure to less efficient market caps by having more holdings and moderate active bets.

 

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Overview

In the second quarter of 2021, HILIX underperformed the benchmark (MSCI EFEA Index) by 13bps due to poor selection in Materials, Financials, and Information Technology. Overall sector allocation also detracted from returns, specifically an underweight in Consumer Staples and Healthcare, and an overweight to Communication Services. These negative returns were offset by strong selection in Energy, Industrials, and Communication Services. Positive allocation effect through an overweight in Information Technology and an underweight Utilities also contributed to performance. In general, Information Technology and Consumer Staples saw strong performance, while Utilities and Communication Services lagged relatively to the other sectors in the asset class. Regionally, stock selection was strong in Developed Europe & Middle East ex UK, UK, and Developed Asia Pacific ex Japan.

 

Q2 2021 Summary

• HILIX returned 5.04 %, while the MSCI EAFE Index returned 5.17%
• Top issuer contributors
• Pacific Basin Shipping – out-of-benchmark allocation
• Nokia – overweight
• Top issuer detractors
• JGC Holdings – out-of-benchmark allocation
• Toyota Motor – not owning

 

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s value and bottom-up, fundamental approach
• The fund saw heavy underperformance during most of 2020, a strong rally in the first quarter of 2021, but has begun to underperform once again
• This fund is on our watch list as we are researching the “quality” of the underlying holdings and discussing whether a “deep” value strategy pairs well with our other funds in the asset class
• The fund continues to have its largest overweights in Energy and Communication Services, with underweights in Healthcare and Utilities
• Emerging Markets is also an overweight
• Europe and Asia pacific ex Japan is underweight
• Value tends to be overweight to cyclicals causing it to have times of strong underperformance and outperformance; historically it has proven to outperform through full market cycles

[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

www.crestwoodadvisors.com

 

Lazard International Strategic Equity Fund Commentary – Q2 2021

Thesis

LISIX is a bottom-up, growth-based fund that completes the core satellite strategy within global equity. The fund is unique in that it focuses on individual stocks rather than markets and looks for reasonably priced companies with strong growth potential. We like LISIX because of the managers’ expertise in various market caps, geographies, and sectors which helps keep the fund diversified while providing strong upside and downside capture over time.

 

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Overview

In the second quarter of 2021, LISIX underperformed the benchmark (MSCI EFEA Index) by 60bps due to the high returns of low-quality stocks that the fund does not have exposure to. More specifically, the allocation effect, lack of exposure to expensive stocks, and short-term performance challenges related to stock selection negatively weighed on returns. The fund also saw a handful of buys including Adidas AG, Asics, Daikin Industries, Industria de Diseno Textil S.A., MTU Aero Engines AG, and Shimano. It also sold out of BHP, Canadian National Railway, EDP Portugal, Flughafen Zurich, Hexagon, Nintendo, Ping An Insurance, Safran, and Z Holdings. Focusing on fundamentals and valuation the fund is expecting investors to do the same, thus seeing strong a move away from emotion driven investment decisions.

 

Q2 2021 Summary

• LISIX returned 4.57%, while the MSCI EAFE Index returned 5.17%
• Positives
• ABB – beneficiary of secular trends in electrification and automation, and reopening economies around the world
• Carlsberg – a compounder with strong capital allocation framework
• Negatives
• Vestas – high-quality company that acted as a headwind due to a rotation our of secular energy companies and into cyclical energy companies
• Nexon – a video game producer that lagged due to a cyclical rally and a weak outlook during earnings

 

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s strong stock selection, ability to find well valued companies, and expertise in various market caps, geographies, and sectors
• Preference for expensive growth stocks is short-term and is expected to fade going forward
• Inflation will act as a headwind for these types of stocks
• Europe’s recovery will be delayed, but will follow the U.S. once vaccinations pick up in a similar manner to the U.S.
• Same for Japan
• Low-quality value rally will come to an end as massive stimulus programs stop
• Fundamental-driven decision making will come back into favor across investors, causing sharp, emotion-based swings to halt

[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

www.crestwoodadvisors.com

 

Westwood SmallCap Fund Commentary – Q2 2021

Thesis

WHGSX is our only active manager in the small cap U.S. equity markets and applies a quality and value tilt to their investment strategy, holding between 60 and 80 companies. By utilizing bottom-up fundamentals and focusing on companies with strong balance sheets, high ROIC, and consistently high FCF yield, the fund generates alpha especially during market downturns. We continue to hold WHGSX because of the team’s ability to find cheap valued stocks in the small cap space enabling them to generate strong returns over the long run.

 

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Overview

In the second quarter of 2021, WHGSX outperformed the benchmark (S&P 600 Index) by 25bps largely due to strong security selection. Cyclicals greatly contributed to performance, with Industrials and Financials leading the way. Stock selection in these sectors specifically helped the fund outperform the index. Communication Services and Materials detracted from returns. In general, high valuation companies that saw strong returns in 2020 and the previous quarter were a headwind for the asset class.

 

Q2 2021 Summary

• WHGSX returned 4.75%, while the S&P 600 Index returned 4.50%
• Industrials – leading contributor due to favorable selection
• Office furniture manufacturing agreed to be acquired at a significant premium
• Businesses focused on motion control and suppliers of residential and commercial wire
• Financials – strong activity levels in capital markets helped boost performance
• Investment banks seeing record advisory revenues and increasing interest in growing deal making business
• Regional banks with unique exposures (ie. Mortgage lending and agricultural loan portfolios)
• Communication Services – leading detractor due to lack of meme stock exposure
• Now owning a movie theatre chain that saw extremely high returns for the quarter

 

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the value and quality tilt strategy that has a bottom-up, fundamental focus around ROIC, FCF yields, balance sheet metrics, and companies trading at a discount
• Extremely high valuation companies that acted as a headwind will moderate and the importance of fundamental data starts to dominate investors’ decision making
• Return to offices and a need to raise more capital will continue to be a tailwind for the fund
• The fund will continue to focus on quality companies that are trading at a relatively attractive valuation – strong return and cash generation

 

 

[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

www.crestwoodadvisors.com

 

RBC Emerging Market Equity Fund Commentary – Q2 2021

Thesis

REEIX is driven through both top-down and bottom-up fundamental research that provides diversification within our full EM allocation. The fund looks for high quality companies across all market caps that have strong ESG scores. We like REEIX because of the consistent and repeatable process that allows the team to take advantage of companies with sustainable growth across all the Emerging Market (EM) landscape.

 

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Overview

In the second quarter of 2021, REEIX outperformed the benchmark (MSCI Emerging Markets Index) by 625bps largely due to weak stock selection within the Financials sector. Selection effect in India and South Africa also weighed on returns for the quarter. Selection in Information Technology and Consumer Discretionary on the other hand helped offset some of these negative returns, as did an underweight allocation and strong stock selection in China. In general, riskier companies with lower valuations outperformed, and political disrupt in Latin America and other EM regions caused the asset class to display overall weak performance. China’s large-cap technology companies also took a hit during the quarter which greatly impact the asset class.

 

Q2 2021 Summary

• REEIX returned -1.20%, while the MSCI Emerging Markets Index returned 5.05%
• Contributors
• Taiwan Semiconductor Manufacturing, Sunny Optical, MediaTek, Tata Consultancy, and Yum China
• Detractors
• Ping An Insurance, Credicorp, NCSoft, Discovery, and B3 SA

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s historically strong returns and understanding of Emerging Markets on both a macro and micro level
• Fund continues to invest in high-quality companies
• Strong competitive positions, talented management teams, healthy balance sheets, and consistent cash flows
• Looking to take advantage of expanding areas in the economy
• Health and wellness, digitalization, “green” infrastructure, increase access to banking services

 

[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

www.crestwoodadvisors.com

 

Harding Loevner Emerging Market Fund Commentary – Q2 2021

Thesis

HLMEX utilizes fundamental research to find companies with strong quality and growth metrics that can be compared across the global landscape. By focusing on investments with competitive advantages, long-term growth potential, quality management, and corporate strength, HLMEX offers diversity to our EM allocation while generating alpha over the long run. We continue to hold the fund because of the team’s conviction in high quality companies and managed risk through diversification and evaluation.

 

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Overview

In the second quarter of 2021, HLMEX performed roughly in line with the benchmark (MSCI Emerging Markets Index). The fund saw strong stock selection Information Technology and Consumer Staples, which contributed greatly to overall performance. Beneficial stock selection in Energy and Health Care also helped, yet no exposure to Materials and an allocation to Financials detracted from returns. Regionally, an overweight to Russia and strong selection in China and Hong Kong contributed to returns. Poor selection within the smaller EM countries, such as India and Brazil, were the largest detractors.

 

Q2 2021 Summary

• HLMEX returned 5.10%, while the MSCI Emerging Markets Index returned 5.05%
• Contributors
• Sector: Information Technology, Consumer Staples, Utilities, Industrials
• Region: Russia, Taiwan
• Stocks: EPAM, Eclat Textile, Sunny Optical, Silergy, Naspers
• Detractors
• Sector: Financials, Consumer Discretionary
• Region: India, Chile, Peru, Colombia
• Stocks: New Oriental, Sands China, Midea Group, Vale, Kakao
• Fund’s expense ratio dropped from 1.17% to 1.10%

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s focus on quality by emphasizing earnings growth and strong cash flow to gain attractive returns over the long run
• The fund is open but is close to its capacity limit
• Continue to invest in durable growth – quality focus with attractive valuations
• Five purchases this quarter: Meyer, NCSOFT, Sangfor, Sanhua, WuXi Biologics

[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

www.crestwoodadvisors.com

 

TIAA-CREF Real Estate Fund Commentary – Q2 2021

Thesis

TIREX utilizes fundamental research to find properties in high barrier markets, with higher occupancy and rent growth. By focusing on quality companies and avoiding unnecessary risks, the fund obtains a strong track record that has outperformed the benchmark and REIT ETF over time. We continue to hold TIREX because of the team’s growth focus with asset concentrations in supply constrained markets. Lastly, TIREX was the lowest cost active manager screened, at 49bps.

 

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Overview

In the second quarter of 2021, TIREX outperformed the benchmark (FTSE Nareit All Equity REITs Index) by 19bps, due in large part vy strong stock selection within regional malls, health care, and office industries. The fund maintained a large allocation in commercial real estate, which they saw would continue to recover and rebound. The profits achieved in this sector were then used to increase exposure in single-family home rentals and data centers. In general, returns were positive for the most part across sectors, and a recovery in apartments and retail continued to contribute to performance. Lodging and timber were the only industries with negative returns for the quarter.

 

Q2 2021 Summary

• TIREX returned 12.22%, while the FTSE Nareit All Equity REITs Index returned 12.03%
• Contributors
• Megaport Ltd. – out-of-benchmark position in an Australian data center
• Medical Properties Trust – not owning the medical facility operator
• Macerich Company – allocation to a regional mall REIT
• Detractors
• GDS Holdings Ltd – out-of-benchmark position in China-based data center
• Las Vegas Sands Corp. – out-of-benchmark position in a resort and casino operator
• Marriot International, Inc. – out-of-benchmark position in resort operator

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s goal to obtain long-term alpha through capital appreciation and current income
• By having a research-oriented investment process that focuses on cash flows and asset values we believe TIREX will continue to outperform its benchmark long-term
• The managers are effective when it comes to understanding and preparing for changes to the REIT landscape and where long-term sustainable growth exists

 

 

 

[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

www.crestwoodadvisors.com

 

Fidelity Advisor Floating Rate Fund Commentary – Q2 2021

Thesis

FIQSX (currently yielding 3.24%) 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 second quarter of 2021, FIQSX performed roughly in line with the benchmark (S&P/LSTA Leveraged Loan Index). The fund’s core bank loan portfolio slightly lagged the benchmark, however exposure to stocks of loan issuers (this is due to restructurings and negotiations) helped keep the fund in line with the index. Security selection in oil & gas was the largest contributor to returns. In general, the asset class trailed high-yield bonds and investment-grade credit. There was a rally in April, though, due to favorable sentiment towards risk assets. The month of May also saw positive returns compared to its peers as vaccination campaigning advanced, while June saw positive (but lagged its peers) returns due to inflation concerns and heavy capital market activity.

 

Q2 2021 Summary

• FIQSX returned 1.52%, while the Leveraged Loan Index returned 1.54%
• Quarter-end effective duration for FIQSX was 0.14 and 0.11 for the Leveraged Loan Index
• Largest contributors were all oil & gas exploration & production companies (equity stake)
• Denbury, California Resources, Chesapeake Energy
• Largest detractors
• Limetree Bay Terminals – out-of-benchmark exposure to oil storage terminal
• Sinclair Broadcast Group – overweight in TV broadcaster

 

 

 

 

 

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, government stimulus continues, and the U.S. economy recovers
• New developments around COVID, commodity volatility, and policy missteps by global central banks all pose risks
• The team will continue to search for opportunities in the loan space, even as BB and B-rated securities have approached par
• Finding opportunities in new issue over the secondary market
• Default expectations (now at 1.43%) have greatly improved (down 1.72% from a year ago)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

www.crestwoodadvisors.com

 

Eaton Vance Floating-Rate Fund Commentary – Q2 2021

Thesis

EIBLX (currently yielding 3.15%) is a large floating rate fund that has a strong historical returns and a tenured management team. By investing purely in senior bank loans, EIBLX 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 second quarter of 2021, EIBLX performed roughly in line with the benchmark (S&P/LSTA Leveraged Loan Index). The fund’s credit positions in radio and television companies and glassware maker contributed to return. An underweight to the utilities sector benefited performance, as did a modest allocation to CLOs. On the other hand, an allocation to cash and oil and gas holdings detracted from overall performance. The fund’s bias towards higher-quality also acted as a headwind as CCC-rate and second-lien loans performed well during the quarter – two areas that the fund is underweight.

 

Q2 2021 Summary

• EIBLX returned 1.41%, while the Leveraged Loan Index returned 1.47%
• Quarter-end effective duration for EIBLX was 0.34 and 0.11 for the Leveraged Loan Index
• Three largest contributors
• Overweight to iHeartCommunications, Inc., Alliance Healthcare Svcs, and Cumulus Media New Holdings Inc.
• Three largest detractors
• Overweight to Samson Investment Co, Cash, and Ameriforge Group Inc

 

 

 

 

 

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
• Massive stimulus, an accommodative set of monetary policies, and continued rollout of vaccines provide a positive backdrop for the asset class
• Default rates continue to decline giving a favorable outlook, yet loan valuations look to be fairly and fully priced
• Assuming no defaults in July, the default rate could drop to 0.58% (lowest rate since April 2012)

 

[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

www.crestwoodadvisors.com