Westwood SmallCap Fund Commentary – Q4 2020
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 fourth quarter of 2020, WHGSX underperformed the benchmark (S&P 500 Index) by 531bps largely due to weak allocation and stock selection, and the success the “quality” factor during the pandemic-induced downturn. Specifically, industrials, consumer staples, consumer discretionary detracted from overall performance. As for the quality factor, this saw less of a rebound due to its resilience throughout 2020. Health Care on the other hand was a contributor to returns for the quarter.
Q4 2020 Summary
- WHGSX returned 25.98%, while the S&P 500 Index returned 31.29%
- Industrials – leading detractor
- Consumer Staples – overweight detractor
- Consumer Discretionary – detractor due to weak stock selection
- Exposure to delivery-oriented restaurants and home building
- Positions initiated
- WIRE, HCSG, SFNC, JACK, DOOR
- Positions sold
- LSCC & PNM
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
- Vaccine distribution will help reopening efforts in the later part of 2021, yet market volatility is expected to continue
- 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