TCPNX – Q2 2021 Commentary

Touchstone Impact Bond Fund Commentary – Q2 2021

Thesis

TCPNX (currently yielding 1.29%) 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.

 

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Overview

In the second quarter of 2021, TCPNX outperformed the benchmark (Barclays U.S. AGG) by 67bps primarily due to strong sector selection and allocation. The fund’s overweight to spread products, multi-family MBS, and U.S. agencies contributed to returns. A slight overweigh to credit also brought positive returns for the fund. The fund’s large underweight to U.S. Treasuries underperformed spread products, as did agency single-family MBS products, both greatly contributing to overall performance. Exposure to credit was mixed for the quarter. Higher-quality names acted as a headwind, yet historically volatile issuers in the credit space were a tailwind.

 

Q2 2021 Summary

  • TCPNX returned 2.50%, while the U.S. AGG returned 1.83%
  • Quarter-end effective duration for TCPNX was 6.40 and 6.58 for the U.S. AGG
  • Three largest contributors
    • Small Business Administration (SBA) Development Company Participation Certificates (DCPC), the transportation industry, and agency single-family MBS
  • The top detractors
    • Long BBB-rated credit. Oil Field Services companies, and CMBS

 

 

 

 

 

 

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
  • Continue to maintain a duration neutral portfolio, with a focus on investment grade credit and Agency Single Family MBS debt as they are well pricedChart, line chartDescription automatically generated

 

[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