TCPNX – Q3 2021 Commentary

Touchstone Impact Bond Fund Commentary – Q3 2021

Thesis

TCPNX (currently yielding 1.63%) 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 third quarter of 2021, TCPNX underperformed the benchmark (Barclays U.S. AGG) by 36bps primarily due to the fund’s overweight to spread products. More specifically, the widening of these securities and the swap curve increase over the U.S. Treasury curve acted as two big headwinds. An underweight to Agency Single-Family MBS also detracted from performance. Financials and Energy were the only sectors in credit that produced positive returns during the quarter.

 

Q3 2021 Summary

  • TCPNX returned (0.31%), while the U.S. AGG returned 0.05%
  • Quarter-end effective duration for TCPNX was 6.2 and 6.7 for the U.S. AGG
  • Three largest contributors
    • Exposure to CMBS, investments in long-dated utilities, and owning railroad and airline debt
  • The top detractors
    • Exposure to SBA securities, investment in Freddie Mac Multifamily K Certificates, and investment in taxable municipal bonds

 

 

 

 

 

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
  • Recent widening in high quality spread products such as U.S. Agencies and Agency Multi-Family MBS are demonstrating value opportunities
  • Many areas are “priced to perfection”, which makes it tough to find areas that will generate strong return without over-paying
  • See a strengthening economy and positive trends across macroeconomic data

 

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[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