Author: Micah Weinstein

Western Asset Core Bond Fund Commentary – Q2 2021

Thesis

WATFX (currently yielding 1.55%) 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 second quarter of 2021, WATFX outperformed the benchmark (Barclays U.S. AGG) by 36bps largely due to the fund’s duration and yield-curve positioning, as well as its investment-grade credit exposure. Spreads tightened in corporate credit and structured products which contributed to overall performance. In general, risk assets performed well for the quarter as inflation data came in surprisingly strong and the FOMC meeting in June resulted in rate hikes being pulled forward.

 

Q2 2021 Summary

• WATFX returned 2.19%, while the U.S. AGG returned 1.83%
• Quarter-end effective duration for WATFX was 7.10 and 6.58 for the U.S. AGG
• Trimmed duration, agency MBS, and investment-grade and “plain-vanilla” high yield debt
• Increased allocation to EM debt (US dollar-denominated corporate and sovereign bonds), reopening high-yield sectors, residential and commercial structured products, and banks loans

 

 

 

 

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 global GDP growth to be strong, with higher inflation as the world economy continues to open
• Spread products should benefit most from reopening
• The fund is excited to seek out opportunities as spreads widen and the Fed continues to support corporate credit markets

 

 

[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 – Q2 2021

Thesis

MWTIX (currently yielding 1.01%) 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 second quarter of 2021, MWTIX was roughly in line with the benchmark (Barclays U.S. AGG). The fund’s decision to shorten duration compared to the index modestly weighed on returns in the second quarter. Additionally, an underweight to corporate credit and overweight to residential agency MBS detracted from performance. However, strong issue selection within corporate credit helped offset some of the drag, specifically in non-cyclicals and communications. A small allocation to high yield debt and non-agency MBS contributed to returns. ABS and CMBS has little to no impact on overall performance.

 

Q2 2021 Summary

• MWTIX returned 1.80%, while the U.S. AGG returned 1.83%
• Quarter-end effective duration for MWTIX was 6.04 and 6.58 for the U.S. AGG
• Strategy has returned to a more defensive and liquid one due to continued risks and uncertainty around COVID
• Credit: moving to higher quality products, reducing tight commodity-exposed names/sectors, and swapping into shorter maturities

 

 

 

 

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 and wider spreads
• Securitized – agency MBS TBAs, legacy non-agency MBS, AAA-rated SASB (CMBS space)
• Opportunities in AA- and A-rated SASB with good LTV (loan-to-value) ratios are becoming attractive
• CLOs (attractive yields) and EM debt (cheaper entry point)
• MWTIX has positioned itself to take advantage of relatively attractive prices during times of high volatility to generate strong returns

 

[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 – Q2 2021

Thesis

DBLTX (currently yielding 3.13%) 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 second quarter of 2021, DBLTX underperformed the benchmark (Barclays U.S. AGG) by 24bps, largely due to two factors: duration positioning and asset allocation. The fund’s lower duration than the index, especially in the corporate bonds and U.S. Treasury space detracted from returns. All sectors in the fund generated positive returns, with non-agency CMBS contributing most to overall performance. Agency residential MBS also contributed to performance.

 

Q2 2021 Summary

• DBLTX returned 1.59%, while the U.S. AGG returned 1.83%
• Quarter-end effective duration for DBLTX was 4.22 and 6.58 for the U.S. AGG
• The top two performers were non-Agency CMBS and Agency residential MBS
• Increase in travel and leisure activity in the U.S. as well as duration-related price increases

 

 

 

 

 

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, increased during Q1 2021, but dropped again in Q2 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

 

RBC Emerging Market Equity Fund Commentary – Q1 2021

Thesis

REEIX is driven through both top-down and bottom-up fundamental research that provides diversification within our full EM allocation. The fund looks for high quality companies across all market caps that have strong ESG scores. We like REEIX because of the consistent and repeatable process that allows the team to take advantage of companies with sustainable growth across all the Emerging Market (EM) landscape.

 

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Overview

In the first quarter of 2021, REEIX outperformed the benchmark (MSCI Emerging Markets Index) by 75bps largely due to strong stock selection and regional allocation. Exposure to Chile, Saudi Arabia, and the UAE contributed, as did the fund’s relative underweight to China. Stock selection overall contributed to returns, especially in Consumer Discretionary and Information Technology. General sector allocation delivered mixed results and exposure to Turkey, Colombia, and the Philippines detracted from returns. Stock selection within Financials also detracted from overall performance.

 

Q1 2021 Summary

• REEIX returned 3.04%, while the MSCI Emerging Markets Index returned 2.29%
• Contributors
• Region: Chile, Saudi Arabia, UAE, South Africa, China (underweight)
• Sector: Consumer Discretionary, Information Technology
• Detractors
• Region: Turkey, Colombia, Philippines
• Sector: Financials

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s historically strong returns and understanding of Emerging Markets on both a macro and micro level
• Possible reversal in the strength of the U.S. dollar due to aggressive balance sheet expansion by Fed, surge in US fiscal deficit, and a rally in cheaper valued asset classes
• Promising earnings and economic growth expected in the EM region
• 5 focused themes
• Domestic consumption
• Health and wellness – long term beneficiaries due to COVID
• Digitalization – will get a boost from increased online migration and connectivity
• Financialization
• Infrastructure – added “Green Infrastructure” as climate change has become a larger conversation across firms

 

[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

 

Harding Loevner Emerging Market Fund Commentary – Q1 2021

Thesis

HLMEX utilizes fundamental research to find companies with strong quality and growth metrics that can be compared across the global landscape. By focusing on investments with competitive advantages, long-term growth potential, quality management, and corporate strength, HLMEX offers diversity to our EM allocation while generating alpha over the long run. We continue to hold the fund because of the team’s conviction in high quality companies and managed risk through diversification and evaluation.

 

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Overview

In the first quarter of 2021, HLMEX underperformed the benchmark (MSCI Emerging Markets Index) by 57bps largely due to allocation to Financials, specifically across Latin America. Selection in Communication Services and lack of exposure to Utilities also detracted from overall performance. Energy and Information Technology on the other hand contributed to returns. Poor stock selection in India, overweight to Brazil, and lack of exposure to Saudi Arabia hurt returns. Underexposure to China and strong selection in Russia, though, helped returns.

 

Q1 2021 Summary

• HLMEX returned 1.72%, while the MSCI Emerging Markets Index returned 2.29%
• Contributors
• Novatek, Techtronic Industries, Hon Hai Precision, EPAM, and Lukoil
• Detractors
• Midea Group, New Oriental, Localiza, LG Household & Health Care, and CD Projekt

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s focus on quality by emphasizing earnings growth and strong cash flow to gain attractive returns over the long run
• Global determination to improve climate, especially through electric vehicles
• The fund has increased its upper limit for China and Hong Kong to the higher of China’s weight in the MSCI EM Index or 35%
• Continue to invest in durable growth – quality focus with attractive valuations
• Only purchase this quarter was CGS (Country Garden Services), a property management company

 

[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

 

Lazard International Strategic Equity Fund Commentary – Q1 2021

Thesis

LISIX is a bottom-up, growth-based fund that completes the core satellite strategy within global equity. The fund is unique in that it focuses on individual stocks rather than markets and looks for reasonably priced companies with strong growth potential. We like LISIX because of the managers’ expertise in various market caps, geographies, and sectors which helps keep the fund diversified while providing strong upside and downside capture over time.

 

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Overview

In the first quarter of 2021, LISIX underperformed the benchmark (MSCI EFEA Index) by 69bps due to the continued rebound of industries hit hardest by COVID: Energy and Financials. Communication Services and Information Technology lagged compared to these rebounding sectors, as they did not take as much of a hit during COVID’s peak in 2020. The fund continues to prefer stocks that are relatively well valued – avoiding over-valued and cheap stocks which are seeing the most return in the most recent quarter. A bias towards “quality” acted as a headwind during the quarter.

 

Q1 2021 Summary

• LISIX returned 2.79%, while the MSCI EAFE Index returned 3.48%
• Positives
• Volkswagen – predicting that the company will sell more EVs than Tesla
• Bankinter SA – continued revenue and overall business growth
• Suncor – recovery in oil prices and low breakeven prices
• ABB – new management focusing on ROIC and value creation
• Negatives
• Nintendo – shift away from “stay-at-home” to more traditional cyclical stocks
• Alstom – weak, but recovering margins
• Engie – transition into renewable energy
• Makita – fear of reversal for “stay-at-home” industries
• Siemens Gamesa – seasonally a weak quarter for the wind-power company

 

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s strong stock selection, ability to find well valued companies, and expertise in various market caps, geographies, and sectors
• Management believes the broad international universe will continue to improve as COVID-19 continues to be controlled
• Both International Developed and EM will outperform the U.S. markets due to relatively lower valuations and bottoming earnings estimates
• Less opportunity in Japan, as the country held up better throughout the heart of the pandemic
• Belief that by fall, many countries will be reopening in a significant way

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Hartford International Value Fund Commentary – Q1 2021

Thesis

Serving as a satellite holding, HILIX is a value style fund that takes advantage names that have underperformed recently and are cheaply priced. The team generates alpha by finding companies with strong fundamentals that are overlooked during times of low consensus expectations. We like that HILIX takes advantage of extremes and gains exposure to less efficient market caps by having more holdings and moderate active bets.

 

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Overview

In the first quarter of 2021, HILIX outperformed the benchmark (MSCI EFEA Index) by 832bps due mainly to strong security selection in Financials, Industrials, and Information Technology. This was slightly offset by selection in Materials. An underweight to Consumer Staples, Utilities, and Healthcare contributed to returns while an underweight to Financials detracted. Stock selection within Developed Europe and Middle East ex-UK and Japan were strong contributors to overall performers as well.

 

Q1 2021 Summary

• HILIX returned 11.80%, while the MSCI EAFE Index returned 3.48%
• Top issuer contributors
• Novartis – not owning
• Unilever – not owning
• Top issuer detractors
• Volkswagen – not owning
• Dongfeng Motor Group – general allocation

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s value and bottom-up, fundamental approach
• The fund saw heavy underperformance during most of 2020, but has since began to rally back in Q4 2020 and Q1 2021 as the “value” style continues to rebound
• High excess savings and household net worth, along with higher expected inflation and corporate profits are all catalysts to support value stocks
• Seeing opportunity in defensive areas: Healthcare and Telecoms
• Continue to have largest overweight to Energy, Industrials, and Communication Services and underweight to Consumer Staples and Utilities
• Overweight to EM and underweight to Europe and Asia Pacific ex-Japan
• Value has been underperforming for some time, yet historically it has proven to outperform through full market cycles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Westwood SmallCap Fund Commentary – Q1 2021

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 first quarter of 2021, WHGSX underperformed the benchmark (S&P 600 Index) by 131bps largely due to overall allocation and selection in more cyclical areas of the market. Businesses with higher-quality fundamentals, which held through the worst of the pandemic much better, underperformed in the most recent quarter. Selecting weighting in Consumer Discretionary and Industrials were the largest detractors, while favorable stock selection in Financials and Utilities contributed to returns.

 

Q1 2021 Summary

• WHGSX returned 16.93%, while the S&P 600 Index returned 18.24%
• Financials – leading contributor
• Utilities – strong stock selection
• Consumer Discretionary & Industrials – leading detractors
• Consumer Discretionary saw strong rebound in industries hit hardest by pandemic: department stores and specialty retail establishments
• Industrials saw a cyclical recovery, especially business with large operating and financial leverage
• Real Estate – detracted due to unfavorable stock selection
• Hotels and retail properties saw a strong rebound

 

 

 

 

 

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
• Companies with strong financial positions and solid fundamentals are well positioned to take advantage of the recovering economy and market
• Corporate profits will be a key watch item
• Higher taxes could be temporary headwind
• 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

www.crestwoodadvisors.com

 

TIAA-CREF Real Estate Fund Commentary – Q1 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 51bps.

 

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Overview

In the first quarter of 2021, TIREX underperformed the benchmark (FTSE Nareit All Equity REITs Index) by 49bps, driven by a few holdings that did not benefit as much from the U.S. economy reopening. Yet, the fund did outperform broad-market U.S. equity indexes due to strong gains in retail, lodging/resorts, and apartments. “Shelter-at-home” sectors such as industrials, timber, and data centers acted as headwinds during the quarter. Going forward, the fund is looking to allocate more to apartments and regional malls, while reducing exposure to data centers and industrial property types.

 

Q1 2021 Summary

• TIREX returned 7.83%, while the FTSE Nareit All Equity REITs Index returned 8.32%
• Contributors
• Simon Property Group Inc. – country’s largest regional mall REIT
• SITE Centers Corp – shopping center REIT
• Equity Residential – apartment REIT
• Detractors
• GDS Holdings Ltd – China-based data center
• Megaport Ltd. – Australia-based network-software interconnection services company
• Sun Communities, Inc. – housing REIT

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Applied Finance Select Fund Commentary – Q1 2021

Thesis

AFVZX is our only active manager in the large cap U.S. equity markets and applies a quality and value tilt to their investment strategy, holding roughly 50 companies. 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 first quarter of 2021, AFVZX outperformed the benchmark (S&P 500 Index) by 602bps largely due to strong stock selection across 7 of the 11 sectors. Top contributors included Consumer Discretionary, Consumer Staples, Technology, and REITs. The fund’s consistent focus on “small and value” contributed to returns, while “large and growth” was out of favor. Communication Services and Healthcare underperformed by a 100bps.

 

Q1 2021 Summary

• AFVZX returned 12.19%, while the S&P 500 Index returned 6.17%
• No changes to the fund during the quarter – ALXN has agreed to acquire AZN in December 2021 and management plans to replace this name prior to the acquisition in Q3 2021
• Top contributors
• Consumer Discretionary – DRI and LKQ
• Consumer Staples – WBA and TSN
• Information Technology – HPQ, INTC, and KLAC
• REIT – HST
• Top detractors
• Communication Services – VZ and DIS
• Healthcare – PFE and MRK

 

 

 

 

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
• Value is seeing a strong rebound relatively to growth after is became “statistically” undervalued compared to growth
• Vaccine rollouts and the $6T deficit financed spending will turbocharge economy in coming years, but may result in high inflation, asset bubbles, and possibly fiscal crisis
• Increases in corporate and personal taxes may also create some hurdles due to an increase in difficulty of opening up a business and investors’ perception of a need for a higher rate of return
• 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