WATFX Commentary – Q4 2019
Thesis
WATFX 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.
Overview
In the last quarter of 2019, WATFX outperformed the benchmark (Barclays U.S. AGG) by 46bps. The largest contribution came from the narrowing spreads of U.S. dollar-denominated emerging market (EM) sovereign debt. TIPS and investment grade corporates also added to positive returns, but any holdings on the long end of the curve detracted. The fund did make a few changes during the quarter by adding to the front and intermediate portion of the curve and reducing exposure to the far-end of the curve.
Q4 2019 Summary
– WATFX returned 0.64%, while the U.S. AGG returned 0.18%
– Year-end effective duration for WATFX was 6.37 and 5.87 for the U.S. AGG
– Narrowing spreads rewarded the fund
o Investment-grade corporates
o EM sovereign debt and corporates
– Longer duration bonds detracted as U.S. Treasury yields rose for the quarter
Optimistic 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
– Going forward WATFX sees a strong rebound in global growth
o Declining inflation will allow central banks to lower rates and support economic activity in EM
o Steady growth for U.S. GDP in 2020
o Corporate credit fundamentals remain strong which will provide support for high-yield and corporate bonds
[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