Author: Micah Weinstein

Applied Finance Select Fund Commentary – Q3 2021

Thesis

AFVZX serves as our active manager in the large cap “value” U.S. equity markets and follows a concentrated (50 companies) investment strategy that focuses on firm quality and valuation. By utilizing DCF models, bottom-up fundamentals, and holding sector weights that are equivalent to their benchmark (S&P 500 Index), the fund generates alpha over time purely through stock selection. We continue to hold AFVZX because of the team’s ability to compare stocks across all sectors which enables them to generate strong returns over the long run.

 

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Overview

In the third quarter of 2021, AFVZX underperformed the benchmark (S&P 500 Index) by 17bps largely due to selection within Health Care, Industrials, Materials, and Energy. Within Health Care, strong growth numbers and promise around vaccines helped boost returns. M&A within Industrials and Energy had a positive impact on performance. Increased gas prices helped the Materials sector. On the other hand, selection within Consumer Staples and Information Technology detracted from performance. Inflation scares and skepticism around the booster shot hurt Consumer Staples, and poor growth numbers made for underperformance within Information Technology.

 

Q3 2021 Summary

• AFVZX returned 0.41%, while the S&P 500 Index returned 0.58%
• Top contributors
• Health Care – Danaher Corp, Thermo Fisher Scientific, Pfizer Inc
• Industrials – Quanta Services
• Energy – ConocoPhillips
• Materials – CF Industries
• Top detractors
• Consumer Staples – Constellation Brands, Walgreens Boots Alliance
• Information Technology – Intel Corp, HP Inc, International Business Machines Corporation

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s ability to outperform the index over the long run through strong stock selection and maintaining a quality and value investment tilt
• Replaced Unum Group with Metlife Financials in early October
• Continue to invest in companies with attractive valuation, credible management team, and a strong wealth creation track record and strategy
• Believe the fund’s holdings will continue to navigate the market well and positioned to perform strongly as the economy continues to reopen

 

 

[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

 

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

www.crestwoodadvisors.com

 

TIAA-CREF Real Estate Fund Commentary – Q3 2021

Thesis

TIREX utilizes fundamental research to find properties in high barrier markets, with higher occupancy and rent growth. By focusing on quality companies and avoiding unnecessary risks, the fund obtains a strong track record that has outperformed the benchmark and REIT ETF over time. We continue to hold TIREX because of the team’s growth focus with asset concentrations in supply constrained markets. Lastly, TIREX was the lowest cost active manager screened, at 49bps.

 

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Overview

In the third quarter of 2021, TIREX underperformed the benchmark (FTSE Nareit All Equity REITs Index) by 53bps, almost entirely due to a single position: GDS Holding. During the quarter, the fund continued to reduce its lodging and resort sector exposure and reallocate into industries and sectors that are expected to benefit from economic recovery, such as apartment REITs. In general, REITs underperformed the U.S. equity indexes during the quarter. Manufactured homes and single-family home rental performed best, while data centers and infrastructure took a hit.

 

Q3 2021 Summary

• TIREX returned (0.30%), while the FTSE Nareit All Equity REITs Index returned 0.23%
• Contributors
• Underweight to Crown Castle International Corp (wireless infrastructure REIT)
• Not owning Americold Realty Trust (temperature-controlled warehouse operator)
• Owning AvalonBay Communities (apartment REIT)
• Detractors
• Out of benchmark holding of GDS Holdings Ltd. (China-based data center)
• Owning Wynn Resorts Limited and Las Vegas Sands Corp. (resort and casino operators)

 

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s goal to obtain long-term alpha through capital appreciation and current income
• By having a research-oriented investment process that focuses on cash flows and asset values we believe TIREX will continue to outperform its benchmark long-term
• The managers are effective when it comes to understanding and preparing for changes to the REIT landscape and where long-term sustainable growth exists
• The portfolio is remains focused on REITs that will take advantage of the economic rebound

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Eaton Vance Floating-Rate Fund Commentary – Q3 2021

Thesis

EIBLX (currently yielding 3.09%) is a large floating rate fund that has a strong historical returns and a tenured management team. By investing purely in senior bank loans, EIBLX 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, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 21bps. Contributors to performance include an off-benchmark position in consumer goods market company, along with other holdings that added 30bps of performance. Detractors include a defense company, along with 10 other holdings that subtracted 32bps of returns. Allocation by industry and credit quality had little effect on the fund’s performance for the quarter.

 

Q3 2021 Summary

• EIBLX returned 0.93%, while the Leveraged Loan Index returned 1.14%
• Quarter-end effective duration for EIBLX was 0.36 and 0.07 for the Leveraged Loan Index
• Three largest contributors
• CM Acquisition Co., American Consol. Nat. Resources, IPC Corp (tied with Sunrise Oil Gas Prop)
• Three largest detractors
• IAP Worldwide Services Inc., Akorn Inc., Cash

 

 

 

 

 

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
• Expecting a health credit picture along with investors’ search for yield will act as a tailwind for leveraged loans, specifically in the new-issue market
• Anticipate the default rate to continue to be low, which makes tight spreads relative to history a bit more attractive

 

[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

 

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

 

Atlanta Capital Focused Growth Commentary – Q2 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 second quarter of 2021, EILGX outperformed the benchmark (S&P 500 Index) by 234bps due to strong stock selection in Healthcare and Communication Services. Additionally, underweights to Consumer Staples and Consumer Discretionary contributed to performance. Offsetting these results, though, was poor selection within Information Technology, Materials, and Consumer Discretionary. An overweight to Materials and underweight to Information Technology also acted as a drag on returns. In general, U.S. large cap stocks saw a trade between growth and value, with growth providing stronger returns for the quarter compared to value.

 

Q2 2021 Summary

• EILGX returned 10.89%, while the S&P 500 Index returned 8.55%
• Top contributors
• Intuit Inc. – financials software
• Danaher Corp. – medical equipment company
• Gartner – IT services firm
• Alphabet – online search platform
• Lack of exposure to Tesla – electric vehicle maker
• Top detractors
• Fiserv, Inc. – global fintech company
• Ecolab Inc. – chemical company
• Verisk Analytics – data analytics provider
• TJX Companies – off-price retailer
• Lack of exposure to NVIDIA Corp. – semiconductor company

 

 

 

 

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
• Market concentration continues to be a risk
• Information Technology, Consumer Discretionary, and Communication Services make up more than 75% of the Russell 1000 Growth Index
• 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
• Believe the fund’s holdings, which have sustainable earnings growth, will be able to withstand different market environments

 

[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