Month: December 2021

Fidelity Advisor Floating Rate Fund Commentary – Q3 2021

Thesis

FIQSX (currently yielding 2.98%) 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 third quarter of 2021, FIQSX performed roughly in line with the benchmark (S&P/LSTA Leveraged Loan Index). The fund’s core bank loan portfolio performed roughly in line with the benchmark. Security selection in oil & gas contributed most to returns. In general, loans outpaced high-yield corporate bonds, investment-grade corporate credit, and broad investment-grade fixed income securities. Almost all industries contributed to returns, along with CLOs which continued to be a substantial source of loan demand.

 

Q3 2021 Summary

• FIQSX returned 1.10%, while the Leveraged Loan Index returned 1.14%
• Quarter-end effective duration for FIQSX was 0.08 and 0.07 for the Leveraged Loan Index
• Largest contributors
• California Resources and Chesapeake Energy (oil & gas equity), Murray Energy (coal mining equity)
• Largest detractors
• Denbury (energy E&P equity), Envision Health (loan business)

 

 

 

 

 

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
• Improvement in leverage loan default rate (down to 0.89%)
• Finding attractive opportunities in new-issue market
• Large overweight in lodging & casinos, retailers, and oil & gas
• Large underweight in health care, electronics/electrical, and automotive
• Continue to hold an overweight to BBB & above and BB rated loans, and underweight to B and CC & below rated loans
• Expecting to see continued GDP, corporate cash flow, and earnings growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Western Asset Core Bond Fund Commentary – Q3 2021

Thesis

WATFX (currently yielding 1.69%) is an actively managed fund that finds overlooked areas of the market that can go against consensus views and add value. Through internal macro, credit, and fundamental research WATFX identifies undervalued securities and takes on more credit exposure to generate alpha over time. Through a diversified approach to interest rate duration, yield curve, sector allocation, and security selection, the fund dampens exposure to volatility.

 

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Overview

In the third quarter of 2021, WATFX outperformed the benchmark (Barclays U.S. AGG) by 11bps largely due to the fund’s longer duration and yield-curve positioning. Overall exposure to spread products have been a tailwind, while Treasury-based products acted as a headwind during the quarter.

 

Q3 2021 Summary

• WATFX returned 0.16%, while the U.S. AGG returned 0.05%
• Quarter-end effective duration for WATFX was 7.10 and 6.71 for the U.S. AGG
• Extended duration, primarily in the intermediate part of the yield curve
• Continued to trim TIPS exposure and began trimming agency MBS exposure
• Reducing exposure to investment-grade and “plain vanilla” high-yield securities
• Increasing exposure to high-yield sectors, residential and commercial structured products, bank loans, and EM debt

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s diverse approach and strong top down-bottom up fundamental value investing over the long-term
• Expecting continued strengthening in global GDP and higher inflation
• Fed tightening could take longer than anticipated due to enormous economic slack, labor market scarring, and headwinds around debt and demographics
• Expect central banks to remain extremely accommodative in the near future, and focusing on diversification will be paramount to strong performance

 

[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

 

MetWest Total Return Bond Fund Commentary – Q3 2021

Thesis

MWTIX (currently yielding 1.07%) is an actively managed fund that provides a sector-based strategy while still maintaining fundamental research driven through issue selection. When compared to the benchmark (Barclays U.S. AGG), the holdings have similar duration and exposure, yet selection is focused around areas where other managers are not looking. Through sector rotation and active weighting, we expect MWTIX to generate alpha over time.

 

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Overview

In the third quarter of 2021, MWTIX slightly outperformed the benchmark (Barclays U.S. AGG) by 7bps. Performance was largely driven by relatively beneficial positioning in corporate credit with a focus on higher yielding opportunities. An underweight to corporate credit, specifically Industrials, and an overweight to Financials contributed to overall performance. Securitized sectors were mostly flat, though non-agency MBS did provide a small tailwind to performance. Exposure to lower coupon securities and the fund’s duration positioning were the only headwinds for the quarter.

 

Q3 2021 Summary

• MWTIX returned 0.13%, while the U.S. AGG returned 0.05%
• Quarter-end effective duration for MWTIX was 6.29 and 6.71 for the U.S. AGG
• The team has taken action to de-risk the portfolio by moving up the quality spectrum, reducing tight commodity-exposed names/sectors, swapping into shorter-dated issues, and enhancing liquidity

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s defensive approach and minimal exposure to more vulnerable issuers and industries
• Focus remains on sectors that offer stability during volatile markets and wider spreads
• EM debt – possible opportunity based on cheaper entry points
• Securitized – preference for MBS TBAs due to better yield
• Legacy non-agency MBS – attractive from a collateral perspective
• CMBS – opportunities in AA- and A-rated starting to present itself (similar to CLOs)
• MWTIX has positioned itself defensively by maintaining a duration shorter than the index
• Risks going forward: continued volatility, higher inflation, slowing growth, elevated leverage, change in course of COVID à spread decompression, tight valuations, increased volatility

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

DoubleLine Total Return Bond Fund Commentary – Q3 2021

Thesis

DBLTX (currently yielding 3.19%) utilizes a top down-bottom up process that focuses on MBS and Agency bonds. When compared to the benchmark (Barclays U.S. AGG), the holdings have lower duration and exposure to corporate bonds, reducing their sensitivity to interest rate movements and credit spreads. We expect attractive risk-adjusted return characteristics over the long term from DBLTX, especially during periods when corporate bonds’ spread increase and the yield curve steepens.

 

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Overview

In the third quarter of 2021, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 32bps, largely due to an overweight to credit. Exposure to non-Agency residential MBS and non-Agency CMBS also contributed to returns for the quarter. In general, every sector in the Fund acted as a tailwind to performance.

 

Q3 2021 Summary

• DBLTX returned 0.37%, while the U.S. AGG returned 0.05%
• Quarter-end effective duration for DBLTX was 4.05 and 6.71 for the U.S. AGG
• The top two performers were non-Agency residential MBS and non-Agency CMBS
• Agency MBS only slightly contributed to overall returns

 

 

 

 

 

Outlook

• We continue to hold this fund due to the approach and strong diversification factor within our core bond holdings
• DBLTX is a good position to hold due to its low duration which outperforms during periods of rising rates – Treasury yields were at all-time lows in 2020, but have flip-flopped in 2021
• Historically, DBLTX has displayed stronger returns and lower volatility than the index
• DBLTX has had consistent strategy, allocation focus, and sector distribution

 

[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