Atlanta Capital Focused Growth Commentary – Q3 2021
Thesis
EILGX serves as our active manager in the large cap “growth” U.S. equity markets and follows a concentrated (20-30 companies) investment strategy with a heavy quality tilt emphasizing companies with high ROIC, strong cash flow multiples, and long-term moats. By utilizing DCF models and bottom-up fundamentals, the fund finds stocks with secular tailwinds, sustainable financials, and relatively low downside capture to generate alpha over the S&P 500 Index over time. We continue to hold EILGX because of the team’s ability to build a concentrated portfolio that gives our U.S. large-cap allocation a strong quality tilt, while giving clients strong risk-adjusted returns.
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Overview
In the third quarter of 2021, EILGX outperformed the benchmark (S&P 500 Index) by 361bps primarily due to strong stock selection, particularly within the Health Care and Industrials sectors. Overweights to Health Care and Financials also contributed to performance, while selection in Financials and an overweight to Materials detracted from returns. In general, the U.S. equity market did not have as robust returns as preceding quarters. Political debates around infrastructure spending, supply chain issues, labor constraints, and growing inflation concerns made for a somewhat tough quarter for the market.
Q3 2021 Summary
- EILGX returned 4.19%, while the S&P 500 Index returned 0.58%
- Top contributors
- Stock selection in Health Care, Industrials, Technology, and Materials
- Selection in IT services, life sciences tools & services, and health care equipment groups
- Overweight to Health Care
- Top five contributors include Danaher Corp., Thermo Fisher Scientific Inc., Gartner, Inc., Verisk Analytics, Inc., and not owning Amazon.com, Inc.
- Top detractors
- Stock selection in Financials and Consumer Discretionary
- Selection in capital markets and specialty retail
- Overweight to Industrials and Materials
- Top five detractors include Tesla, Inc., Apple, Inc., Alphabet Inc., Moderna, Inc., and Visa Inc.
Optimistic Outlook
- We continue to hold this fund and believe in our thesis due to the fund’s ability to outperform the index through full market cycles while maintaining a strong quality strategy and growth tilt
- Expecting continue market volatility, especially if earnings growth slows and financial policies tighten
- Sticking with companies that have demonstrated a track record of consistent growth and earnings stability may provide a “margin of safety” that becomes increasingly valuable during times of rising uncertainty
- At quarter-end, the fund held 23 stocks and was allocated to 8 of the 11 sectors
- Overweight: Health Care, Materials, Financials, Industrials, Real Estate
- Underweight: Information Technology, Consumer discretionary, Communication Services
- No exposure: Energy, Utilities, Consumer Staples
[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