Author: Micah Weinstein

JPMorgan Diversified Return International Equity Commentary – Q4 2020

Thesis

JPIN’s focus on risk weighting enabled us to replace a market cap weighted index while still gaining exposure to international developed equity markets without deviating too far from the benchmark. Utilizing a multi-factor approach of value, quality, and momentum, JPIN has generated alpha through strong stock selection over time. Additionally, the fund helps diversify risk by weighting across 40 regional/sector buckets based on rolling risk statistics, which ultimately increases our exposure to active share and our risk-adjusted returns.

 

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Overview

In the last quarter of 2020, JPIN underperformed the benchmark (MSCI EAFE Index) by 220bps largely due to factor exposure to Quality and Momentum. Value’s strong rebound did contribute to returns, though. Overweight to oil & gas benefited returns while and underweight to financials detracted. The fund’s overweight to Asia ex-Japan were also beneficial, yet the overweight to Japan detracted from overall performance.

 

Q4 2020 Summary

• JPIN returned 13.85%, while the MSCI EAFE Index returned 16.05%
• FTSE Developed ex North America Index returned 17.26%
• Contributing sectors included oil & gas as the sector recovered during the quarter, while financials detracted
• South Korea and New Zealand contributed to returns, yet Japan detracted

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s multi-factor approach, consistency in asset allocation, and historically strong stock selection
• Going forward JPIN continues to see Momentum, Value, and Quality all as profitable factors
• Value and Quality appear to be relatively cheap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

HLMEX Commentary – Q4 2020

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 fourth quarter of 2020, HLMEX outperformed the benchmark (MSCI Emerging Markets Index) by 352bps largely due to Financial holdings, specifically banks. Overall strong stock selection within the Consumer Staples and Energy sectors also contributed to returns. An overweight to Information Technology also helped returns, yet weak selection with the sector detracted from returns. Stock selection in India, China, and smaller EM regions along with strong selection in Industrials helped contribute to performance for the quarter.

 

Q4 2020 Summary

• HLMEX returned 23.29%, while the MSCI Emerging Markets Index returned 19.77%
• Contributors
• Samsung Electronics, TSMC, HDFC Corp, Midea Group, Tencent
• Detractors
• Alibaba, CSPC Pharmaceutical Group, CD Projekt, 51Job Inc, Commercial International Bank

 

 

 

 

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
• Avoid falling into the momentum trap and sticking with quality names with low turnover (16% in 2020)
• Made three new investments and sold 3 names during the quarter
• Continue to invest in durable growth – quality focus with attractive valuations

[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

 

REEIX Commentary – Q4 2020

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 fourth quarter of 2020, REEIX underperformed the benchmark (MSCI Emerging Markets Index) by 291bps largely due to weak stock selection in China and Taiwan, although slightly offset by strong selection in Chile. Underweight to China was also beneficial to the fund’s returns. On a sector level, the fund’s selection in Information Technology detracted from returns, while selection within Financials benefitted performance. Allocation effect had no effect during the quarter.

 

Q4 2020 Summary

• REEIX returned 16.86%, while the MSCI Emerging Markets Index returned 19.77 %
• Contributors
• Chile and Financials
• Detractors
• China, Taiwan, and Information Technology

 

 

 

 

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
• See potential for EM securities outperform the U.S. markets as the dollar weakens
• Federal Reserve’s aggressive balance sheet expansion
• Surge in U.S. fiscal deficit
• The majority of EM regions have been relatively more successful than developed countries when it has come to eliminating COVID
• Positive
• India, Mexico, Brazil, Chile, China, Consumer and Financial sectors
• Negative
• Latin America
• 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

 

LISIX Commentary – Q4 2020

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 fourth quarter of 2020, LISIX outperformed the benchmark (MSCI EFEA Index) by 114bps due to both allocation and strong security selection within Industrials. Consumer Staples and Health Care also contributed to performance, while Consumer Discretionary and Financials detracted. Regionally, the UK positively contributed to returns, while Asia ex-Japan had a negative effect on the fund’s performance.

 

Q4 2020 Summary

• LISIX returned 17.19%, while the MSCI EAFE Index returned 16.05%
• International markets as a whole saw a strong rebound upon vaccine news
• Foreign currency strength also helped international stocks outperform dollar denominated stocks
• The “value” factor also saw strong performance during the quarter as it began to rebound and outperform growth

 

 

 

 

 

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
• Europe is attractive given valuations, potential profit recovery, government stimulus, and political calm
• Opportunities may be more balanced with a focus on “stay at home” and recovery stocks
• Potential for value to lead stock returns – similar to 2011-2015
• Encouraged by developments in Europe, yet remain underweight in Japan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

HILIX Commentary – Q4 2020

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 fourth quarter of 2020, HILIX outperformed the benchmark (MSCI EFEA Index) by 485bps due mainly to the fund’s allocation to Energy and Financials. An underweight to Health Care and Consumer Staples also contributed to return, as did strong stock selection within Industrials, Consumer Staples, and Information Technology. Selection in Developed Europe & Middle East ex UK also benefitted overall performance. Yet, exposure to Information Technology, selection within Materials, Communication Services, and Developed Asia Pacific ex Japan detracted from returns.

 

Q4 2020 Summary

• HILIX returned 20.90%, while the MSCI EAFE Index returned 16.05%
• Top issuer contributors
• Dongfeng Motor Group
• Bank of Ireland
• Top issuer detractors
• Barrick Gold
• Not owning Banco Santander

 

 

 

 

 

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
• The fund continues to focus on companies that are not trading at extreme valuations
• New positions include Japan Airlines and BAE Systems – both have strong balance sheets and low valuations
• Trimmed positions include Maersk and JSR – both trading at highs well above their fundamentals
• 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

 

FIQSX Commentary – Q4 2020

Thesis

FIQSX 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 fourth quarter of 2020, FIQSX outperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 23bps primarily due to security selection in oil & gas and nonferrous metals/minerals. Contrarily, allocation to cash and selection in business equipment & services and food service detracted from returns. A small allocation to high-yield credit performed in line with the benchmark, and thus had relatively no effect on overall performance.

 

Q4 2020 Summary

• FIQSX returned 4.04%, while the Leveraged Loan Index returned 3.81%
• Quarter-end effective duration for FIQSX was 0.17 and 0.11 for the Leveraged Loan Index
• Largest contributors
• California Resources – out-of-benchmark position in oil & gas
• Murray Energy – out-of-benchmark position in thermal coal mining
• Largest detractors
• CEC Entertainment – out-of-benchmark position in restaurant industry
• No owning American Airlines

 

 

 

 

 

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
• Expect continued volatility, but for corporate fundamentals and supply-and-demand dynamics to improve
• The team will continue to search for opportunities in the loan space, even as BB and B-rated securities have approached par
• Opportunities for capital appreciation have become limited
• New loans with a LIBOR floor are coming to market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 – Q4 2020

Thesis

EIBLX 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 fourth quarter of 2020, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 13bps primarily due to the fund’s higher-quality security exposure – the fund’s underweight to CCC-rated bonds detracted from overall performance. Small cash allocation and avoidance of airline credit also weighed negatively on returns. Yet, overweight to health care, education technology, specialty pharma, and home furnishing credits contributed to returns, as did the fund’s underweight to the Utility sector and underexposure to CLOs.

 

Q4 2020 Summary

• EIBLX returned 3.68%, while the Leveraged Loan Index returned 3.81%
• Quarter-end effective duration for EIBLX was 0.26 and 0.11 for the Leveraged Loan Index
• Three largest contributors
• Envision Healthcare Hldg, Skillsoft Corporation, Serta Simmons Bedding LLC
• Three largest detractors
• Cash, American Airlines Group, Ameriforge Group 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
• New vaccines provide promise in seeing the economy and businesses reopen
• Loan prices are forecasting for improvement going forward, and while there is potential for higher level of risks, management does not see this as something that will directly affect loans’ attractiveness

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 – Q4 2020

Thesis

TCPNX 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 fourth quarter of 2020, TCPNX underperformed the benchmark (Barclays U.S. AGG) by 9bps primarily due to the headwind caused by the movement in credit spreads, which the fund has minimal exposure to. Allocations to U.S. Agencies and Agency Multi-Family MBS benefitted the fund, though. Additionally, all spread sectors nearly outperformed the equivalent U.S. Treasuries for the quarter. Yet lack of exposure to Industrials and Financials hurt performance, and the fund’s overweight to Utilities lagged compared to the other sectors.

 

Q4 2020 Summary

• TCPNX returned 0.58%, while the U.S. AGG returned 0.67%
• Quarter-end effective duration for TCPNX was 5.80 and 6.22 for the U.S. AGG
• Three largest contributors
• Airline Enhanced Equipment Trust Certificates, High Yield bonds, holdings in Kansas City Southern
• The top detractors
• Allocation to Utilities, U.S. Small Business Administration Development Company Participation Certificates, U.S. Treasury Separate Trading of Registered Interest and Principal of Securities

 

 

 

 

 

 

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
• Agreeing with the Fed in that there is not a big concern for a acceleration in inflation
• Continue to maintain a duration neutral portfolio, with a focus on spread products, SBA, and Agency Multi-Family MBS debt as they are positioned to benefit going forward

[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 – Q4 2020

Thesis

WATFX 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 fourth quarter of 2020, WATFX outperformed the benchmark (Barclays U.S. AGG) by 132bps largely due to corporate credit positions and USD-denominated EM exposure. Lengthened duration, TIPS allocation, investment-grade corporates (and fallen-angels), agency MBS, structured products, and EM exposure all positively impacted performance. Poor yield-curve positioning was the only detractor during the quarter as yields began to steepen.

 

Q4 2020 Summary

• WATFX returned 1.99%, while the U.S. AGG returned 0.67%
• Quarter-end effective duration for WATFX was 6.9 and 6.22 for the U.S. AGG
• Trimmed investment-grade corporate credit exposure as spreads continued to tighten
• Trimmed TIPS exposure as 30-year breakeven inflation rates rose to highs

 

 

 

 

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
• Market have been rallying since the bottom in March – momentum will continue to carry the market forward
• COVID resurgence and slack in the global economy will keep volatility around
• 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

 

DBLTX Commentary – Q4 2020

Thesis

DBLTX 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 fourth quarter of 2020, DBLTX underperformed the benchmark (Barclays U.S. AGG) by 24bps, largely due to asset allocation within the securitized credit sectors – investment grade corporate bonds in the index outperformed. Yet, each sector within the fund generated positive returns, with commercial mortgage-backed securities and asset-backed securities performing best. CLOs and non-Agency RMBS also contributed to returns, yet minimally as they had already spiked back in the summer. Agency MBS was the only sector the detracted from performance due to a steepening curve and an investor focus on credit risk assets.

 

Q4 2020 Summary

• DBLTX returned 0.43%, while the U.S. AGG returned 0.67%
• Quarter-end effective duration for DBLTX was 3.33 and 6.22 for the U.S. AGG
• The top two performers were commercial MBS and non-Agency CMBS
• Both were under substantial pressure due to the pandemic, but spiked once there was positive vaccine news

 

 

 

 

 

 

 

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