Author: Micah Weinstein

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

 

FIQSX Commentary – Q1 2021

Thesis

FIQSX (currently yielding 3.07%) 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 first quarter of 2021, FIQSX outperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 22bps primarily due to a 2% stake in stocks of loan issuers that occurred because of company restructuring and negotiations. Security selection in oil & gas also contributed to performance. Overall exposure to bank loans, a small allocation to high yield credit, and selection in radio & television detracted from returns.

 

Q1 2021 Summary

• FIQSX returned 2.09%, while the Leveraged Loan Index returned 1.87%
• Quarter-end effective duration for FIQSX was 0.16 and 0.11 for the Leveraged Loan Index
• Largest contributors
• Chesapeake Energy – out-of-benchmark position in oil & gas
• Denbury – out-of-benchmark position in oil & gas
• Largest detractors
• Sinclair Broadcast Group – overweight in TV broadcaster
• Not owning loans from movie theater operator AMC Entertainment

 

 

 

 

 

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
• Positive outlook as vaccinations continue to roll out, yet BB and B rated loans are moving closer to par
• The team will continue to search for opportunities in the loan space, even as BB and B-rated securities have approached par
• Continue to consolidate positions and reduce the number of holdings
• Remain overweight to BBB & above and BB, and underweight in B and CCC rated securities

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

EIBLX Commentary – Q1 2021

Thesis

EIBLX (currently yielding 2.89%) 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 first quarter of 2021, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 38bps primarily due to the fund’s overweight positions in a facilities management company and energy-related holding. Additionally, performance lagged the comparable index due to the fund’s slightly higher-quality, specifically an underweight to the CCC-rated tier and second-lien loans. Overweight allocations to financial intermediaries and cable & satellite television segments detracted from returns, yet the fund’s underweight to utilities contributed to performance. A recent allocation to CLOs and the fund’s positions in media, home furnishings borrowers, and specialty drug maker also helped offset some of the lagging exposures.

 

Q1 2021 Summary

• EIBLX returned 1.40%, while the Leveraged Loan Index returned 1.78%
• Quarter-end effective duration for EIBLX was 0.26 and 0.11 for the Leveraged Loan Index
• Three largest contributors
• Underweight to ION Media Networks Inc, Serta Simmons Bedding LLC, Mallinckrodt International
• Three largest detractors
• Underweight to IAP Worldwide Services Inc, Ameriforge Group Inc, David’s Bridal Inc

 

 

 

 

 

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
• Massive stimulus, an accommodative set of monetary policies, and continued rollout of vaccines provide a positive backdrop for the asset class
• Default rates continue to decline giving a favorable outlook, yet loan valuations look to be fairly and fully priced

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

WATFX Commentary – Q1 2021

Thesis

WATFX (currently yielding 1.80%) 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 first quarter of 2021, WATFX underperformed the benchmark (Barclays U.S. AGG) by 58bps largely due to the fund’s duration and yield-curve positioning. US Treasury yields increased during the quarter which detracted from overall performance as the fund holds longer duration bonds compared to its benchmark. Corporate credit spreads tightened, and high-yield credit outperformed during the quarter. USD-denominated EM debt tightened while EM local rates increased – the USD strengthened compared to developed and emerging market currencies.

 

Q1 2021 Summary

• WATFX returned -3.95%, while the U.S. AGG returned -3.37%
• Quarter-end effective duration for WATFX was 7.17 and 6.40 for the U.S. AGG
• Continued to trim TIPS exposure as breakeven inflation rates exceeded pre-pandemic levels
• Increased allocated to agency MBS, NARMBS, and CMBS based on attractive valuations

 

 

 

 

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
• Positioned to benefit as global recovery continues, but remain diversified due to suspected long-term challenges during the recovery
• Expect spread products to outperform sovereign products as the world economy reopens, yet remain cautious around the length it may take for all markets to fully recover
• The fund expects central banks to continue to be accommodative for the foreseeable future
• 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

 

TCPNX Commentary – Q1 2021

Thesis

TCPNX (currently yielding 1.39%) 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 first quarter of 2021, TCPNX outperformed the benchmark (Barclays U.S. AGG) by 45bps primarily due to the fund’s lower duration, curve neutral strategy, and general tightening in spread products. An overweight to spread sectors contributed to returns, specifically the allocation to Agency Multi-Family and Agency Single-Family MBS securities. U.S. Agencies also benefitted the portfolio, yet a preference for steadier issuers within credit detracted from overall returns. Lower rated and longer credit produced relatively larger returns which was a headwind for the fund this quarter.

 

Q1 2021 Summary

• TCPNX returned -2.92%, while the U.S. AGG returned -3.37%
• Quarter-end effective duration for TCPNX was 5.62 and 6.40 for the U.S. AGG
• Three largest contributors
• Airline EETC, SBA DCPC, Royal Caribbean
• The top detractors
• Long Credit, Treasury STRIPS, Verizon

 

 

 

 

 

 

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
• Rising rates will continue to benefit the portfolio
• Convexity advantage, premium resistance within the portfolio will weaken, tightening spreads
• Continue to maintain a duration neutral portfolio, with a focus on investment grade credit and Agency Single Family MBS debt as they are well priced

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

MWTIX Commentary – Q1 2021

Thesis

MWTIX (currently yielding 1.16%) 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 first quarter of 2021, MWTIX outperformed the benchmark (Barclays U.S. AGG) by 46bps, largely due to the fund’s positioning to have a shorter duration than the index. Issue selection among corporate credit also contributed to performance, yet the underweight to the sector was a drag on performance. Overweights to healthcare and communications, as well as an allocation to high yield corporates also helped boost returns. A Municipal debt overweight contributed due to yield premiums, while securitized products were mixed: agency MBS detracted while non-agency MBS and FFELP student loan ABS contributed to returns.

 

Q1 2021 Summary

• MWTIX returned -2.91%, while the U.S. AGG returned -3.37%
• Quarter-end effective duration for MWTIX was 6.35 and 6.40 for the U.S. AGG
• Strategy has returned to a more defensive and liquid one due to historically tight spreads and continued risks

 

 

 

 

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
• Opportunities
• Securitized – current coupon agency MBS TBAs, legacy non-agency MBS, AA and A-rated CMBS
• EM debt
• CLOs
• 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

 

DBLTX Commentary – Q1 2021

Thesis

DBLTX (currently yielding 3.15%) 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 first quarter of 2021, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 186bps, largely due to shorter duration positioning the fund maintained compared to the index. Securitized credit sectors such as non-Agency MBS and non-Agency CMBS were the largest contributors to overall performance. Agency MBS was the only sector that detracted from returns.

 

Q1 2021 Summary

• DBLTX returned -1.51%, while the U.S. AGG returned -3.37%
• Quarter-end effective duration for DBLTX was 4.92 and 6.40 for the U.S. AGG
• The top two performers were non-Agency MBS and non-Agency CMBS
• Spread tightening and interest income that offset the negative effects of rising interest rates

 

 

 

 

 

Outlook

• We continue to hold this fund due to the approach and strong diversification factor within our core bond holdings – yet we are looking further into the holding as the year-to-date volatility and underperformance has made us reassess the approach
• 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 recently been steepening which is good news for DBLTX
• 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

 

TIAA-CREF Real Estate Fund Commentary – Q4 2020

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 fourth quarter of 2020, TIREX outperformed the benchmark (FTSE Nareit All Equity REITs Index) by 20bps, driven by strong stock selection in the rebounding sectors such as lodging, and underweight to wireless cell tower REITs. These contributors were partially offset by an underweight to hard-hit industries that saw a strong bounce back in the fourth quarter – mainly office and shopping center REITs.

 

Q4 2020 Summary

• TIREX returned 8.35%, while the FTSE Nareit All Equity REITs Index returned 8.15%
• Contributors
• Allocation to AirBnB Inc. was the largest contributor
• This position was shortly sold due to its immense valuation expansion
• Underweight to Crown Castle International Corp.
• Allocation to Simon Property Group, Inc.
• Detractors
• Not owning Medical Properties Trust Inc. was the largest detractor
• Not owning Ryman Hospitality Properties Inc.
• Underweight position to Weyerhaeuser Company

 

 

 

 

 

 

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

 

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

www.crestwoodadvisors.com

 

Applied Finance Select Fund Commentary – Q4 2020

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 fourth quarter of 2020, AFVZX outperformed the benchmark (S&P 500 Index) by 510bps largely due to strong allocation and stock selection in Consumer Discretionary, REITs, Financials, and Healthcare. 10 of the 11 sectors outperformed the index, while Energy was that only sector that underperformed and detracted from returns. The overall favoritism towards large cap stocks during 2020 greatly detracted from returns – the fund has large weights to smaller cap names compared to the index.

 

Q4 2020 Summary

• AFVZX returned 17.25%, while the S&P 500 Index returned 12.15%
• 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
• Top contributors
• Consumer Discretionary – APTV & LKQ
• REIT – HST
• Financials – JPM & BAC
• Health Care – CVS, MCK, SYK
• Top detractors
• Energy – CVX, COP, VLO
• Health Care – TMO & DHR

 

 

 

 

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
• The team believes the market is richly valued and can see improvements in valuations
• Faster than expected growth rate in economy
• Higher than expected margin surprise for stocks
• Weary of market growth and its continued rally with the abundance of stimulus that has been borrowed and rolled out
• The continuation of the virus, vaccine distribution, and the implementation of Biden’s policies – especially on taxes and the “green” movement – could caused prolonged 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