Author: Micah Weinstein

MWTIX Commentary – Q4 2020

Thesis

MWTIX 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 fourth quarter of 2020, MWTIX outperformed the benchmark (Barclays U.S. AGG) by 53bps, largely due to issue selection across corporate credit – specifically consumer non-cyclical, communications, and energy. Selection in EM, municipal exposure, and allocation to low coupon agency MBS TBAs also positively attributed to returns. A strong annual return of 9.12% can mostly be contributed to Non-agency MBS exposure as the asset class saw strong recovery throughout 2020. CMBS and ABS were trimmed during the year and had minimal impact on the fund’s performance.

 

Q4 2020 Summary

• MWTIX returned 1.20%, while the U.S. AGG returned 0.67%
• Quarter-end effective duration for MWTIX was 5.66 and 6.22 for the U.S. AGG
• Duration was trimmed during the year and was maintained at a range of 0.5-0.6 years short of the benchmark

 

 

 

 

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
• Pass-through pools – TBAs
• Larger spread corporate bonds
• Securitized credit – legacy non-agency MBS, high-rated CMBS
• EM debt
• 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

 

HLMEX Commentary – Q3 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 third quarter of 2020, HLMEX underperformed the benchmark (MSCI Emerging Markets Index) by 39bps largely due to poor allocation to growth-oriented names. An underweight to Consumer Discretionary and overweight to Financials – specifically India – largely detracted from returns. Weak stock selection in Consumer Discretionary also hurt performance. Regionally, overweight allocations to Europe and Latin America, and an underweight to North Asia detracted from performance. On the other hand, the fund saw strong performance in Industrials and Communication Services. Stock selection in China and Taiwan was also strong.

 

Q3 2020 Summary

• HLMEX returned 9.17%, while the MSCI Emerging Markets Index returned 9.56%
• Contributors
• TSMC (Taiwan), WEG (Brazil), YNDX (Russia), Fuyao Glass (China)
• Detractors
• ASII (Indonesia), LKOH (Russia), FEMSA (Mexico)

 

 

 

 

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
• Over past year, portfolio has shifted from being overweight in expensive stocks to underweighting this area – has created a headwind for 2020
• Expensive, COVID “immune” stocks have continued to outperform
• 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 – Q3 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 third quarter of 2020, REEIX underperformed the benchmark (MSCI Emerging Markets Index) by 12bps. Stock selection in South Korea detracted from performance, while stock selection in Chile, China, and India was strong. Overall allocation hurt returns, especially an overweight to Chile, yet lack of exposure to Russia was a benefit. At the sector level, allocation was a positive overall – underexposure to Energy and overweight to Consumer Discretionary. Stock selection at the sector level was mixed as the fund generated strong returns in Health Care and Financials, yet slipped in Consumer Discretionary.

 

Q3 2020 Summary

• REEIX returned 9.44%, while the MSCI Emerging Markets Index returned 9.56%
• Contributors
• China, Taiwan, and South Korea
• Detractors
• Latin America and EMEA
• See North Asia currencies strongly outperforming Latin America and EMEA

 

 

 

 

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
• EM performance continues to ride on the backs of “internet enabled” growth stocks and will continue for the foreseeable future
• Do expect the US dollar to weaken due to the massive stimulus, which would help bolster EM performance
• The team will continue to focus on high quality companies with strong balance sheets and cash flows
• 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

 

[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

 

AFVZX Commentary – Q3 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 third quarter of 2020, AFVZX underperformed the benchmark (S&P 500 Index) by 42bps. 4 of the 11 sectors outperformed the index, while 7 underperformed. The fund’s value and small cap tilt helped deliver comparable returns to the S&P 500. Consumer Discretionary, Health Care, and Industrials were the strongest performing sectors, while Information Technology, Consumer Staples, and Materials detracted from returns.

 

Q3 2020 Summary

• AFVZX returned 8.51%, while the S&P 500 Index returned 8.93%
• Top contributors
• Consumer Discretionary – LOW, DRI, TGT all beat earnings expectations
• Health Care – TMO, DHR, SYK all benefitting from COVID
• Industrials – PWR and CMI
• Top detractors
• Information Technology – INTC and CSCO were worst performing technology stocks in sector for the fund
• Consumer Staples – WBA was the worst performer in the sector for the fund
• Materials – ECL due to institutional business challenges (hotels, restaurants, etc…)

 

 

 

 

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 fund managers believe there is good reason for the market rebound
• U.S. Fed and Government involvement which is helping the economic recovery
• Auto and home purchases have seen a strong rebound
• Hopeful and encouraging vaccine news
• Near term, the fund is fairly optimistic, but is edging on the side of caution as flu season is around the corner and COVID concerns still exist

 

 

[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

 

TIREX Commentary – Q3 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 50bps.

 

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Overview

In the third quarter of 2020, TIREX outperformed the benchmark (FTSE Nareit All Equity REITs Index) by 1.45%, driven by strong stock selection in residential property types and data center REITs. Both stock selection and allocation within industrial and office property sectors also positively added to returns. Underweights to self-storage and timber REITs partially offset these returns, though.

 

 

 

 

 

 

 

 

 

Q3 2020 Summary

• TIREX returned 2.64%, while the FTSE Nareit All Equity REITs Index returned 1.19%
• Contributors
• Overweight to Rexford Industrial Realty, Inc.
• Selection of Megaport Ltd.
• Not owning REIT UDR, Inc.
• Detractors
• Underweight to Weyerhaeuser Company and Public Storage
• Allocation to Regency Centers Corporation

 

 

 

 

 

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

 

HILIX Commentary – Q3 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 third quarter of 2020, HILIX underperformed the benchmark (MSCI EFEA Index) by 1.99% due mainly to the fund’s allocation to Energy and Financials. Heavy overweight to Energy, a sector that had poor performance during the quarter, heavily detracted from HILIX’s overall returns. Financials also underperformed and the fund’s overweight to this sector detracted from returns. Strong stock selection within Materials and Industrials contributed to returns. Additionally, selection in Developed Europe & Middle East ex UK and Japan contributed to performance, yet was offset by weak selection in Pacific Developed ex Japan.

 

Q3 2020 Summary

• HILIX returned 2.81%, while the MSCI EAFE Index returned 4.80%
• Top issuer contributors
• AP Moeller-Maersk
• Shimamura
• Top issuer detractors
• Not owning Siemens
• Not owning NTT DOCOMO

 

 

 

 

Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s value and bottom-up, fundamental approach
• YTD the fund has taken a heavy loss due to poor performance by the Value factor in International Developed markets
• The fund continues to focus on low valued companies that are pro-cyclical
• Energy, Financials – overweight
• Consumer Staples, Healthcare – underweight
• The fund managers believe with such extreme valuations on the growth side there will likely be a bounce-back in value stocks as the world emerges from the recession and a COVID vaccine becomes more attainable
• Central banks and regulators are seeing banks as safer hands to deal with when it comes to transmission of monetary policy to privacy to cyber-crime to digital currencies – could possibility lead to high growth in Banking industry
• Energy selloff has been a bit of an overstatement, as fossil fuels will play a large role for years to come
• Value has been underperforming for some time, yet historically it has proven to outperform
• HILIX remains comfortable that their holdings will be able to withstand this market turbulence

 

[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 – Q3 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 third quarter of 2020, LISIX outperformed the benchmark (MSCI EFEA Index) by 1.91% due to the growth factor’s strong performance. Strong stock selection helped drive outperformance, especially in Continental Europe, the UK, and Japan. Sector-wise, selection in Communication Services, Financials, Industrials, and Information Technology contributed to returns. Selection in Consumer Staples, on the other hand, detracted from returns, as did holding cash.

 

Q3 2020 Summary

• LISIX returned 6.71%, while the MSCI EAFE Index returned 4.80%
• Contributors
• Makita and Nintendo – Japan
• Sampo and ABB – Continental Europe and UK
• Detractors
• Kao, Tesco, and Suncor – Consumer Staples

 

 

 

 

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
• Historically, value has begun to outperform when valuation is this cheap compared growth stocks and the global economy begins to accelerate
• With economies continuing to reopen, a potential COVID vaccine in the horizon, and government policy helping provide liquidity and demand, a long recovery could end up supporting value stocks
• 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

 

TCPNX Commentary – Q3 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 third quarter of 2020, TCPNX outperformed the benchmark (Barclays U.S. AGG) by 54bps. The overweight to spread securities and underweight to U.S. Treasuries positively added to returns. An overweight to U.S. Agencies and Agency Multi-Family MBS, and underweight to Agency Single-Family MBS, helped contribute to performance. Underweight to CMBS and general allocation to higher quality credit and secured debt created a headwind.

 

Q3 2020 Summary

• TCPNX returned 1.16%, while the U.S. AGG returned 0.62%
• Quarter-end effective duration for TCPNX was 6.0 and 6.1 for the U.S. AGG
• Three largest contributors
• Small Business Administration Development Company Participation Certificates, airline Enhanced Equipment Trust Certificates, and High Yield bonds
• The top detractors
• Municipal debt and Title XI 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
• The fund believes the decline in the recovery outlook is largely correlated with the lack of a stimulus deal
• Tight credit spreads and high levels of economic uncertainty will create challenges for the fund to find opportunities
• “Lower for longer” rates stated by the Fed has created opportunities in U.S. Agency debt
• TCPNX is focusing on increasing quality names – recently exited oil and exploration companies

 

[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 – Q3 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 third quarter of 2020, WATFX outperformed the benchmark (Barclays U.S. AGG) by 87bps. Duration positioning adjustments helped generate positive returns for the fund. Exposure to structured products, non-agency RMBS and ABS gave the fund positive relative performance. TIPS and EM exposure were also a positive for returns, but investment grade corporate bond exposure, such as in the banking industry, detracted from overall performance.

 

Q3 2020 Summary

• WATFX returned 1.49%, while the U.S. AGG returned 0.62%
• Quarter-end effective duration for WATFX was 7.0 and 6.1 for the U.S. AGG
• A steepening yield curve created a headwind for returns
• Cut TIPS exposure as breakeven inflation rates rose

 

 

 

 

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
• WATFX is expecting a longer “U-shaped” global economic recovery
• Expecting central banks to continue to roll out stimulus
• 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

 

MWTIX Commentary – Q3 2020

Thesis

MWTIX 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.

 

[more]

 

 

Overview

In the third quarter of 2020, MWTIX outperformed the benchmark (Barclays U.S. AGG) by 64bps, largely due to strong selection within corporate credit and residential MBS. The fund’s overweight to energy and finance companies helped contribute to higher relative performance, as well as a higher average yield. Exposure to non-agency MBS, ABS, and TIPS also added to relative performance. The fund’s duration – which is shorter than the index – had little impact on the returns as Treasury rates had mild changes during the quarter.

 

Q3 2020 Summary

• MWTIX returned 1.26%, while the U.S. AGG returned 0.62%
• Quarter-end effective duration for MWTIX was 5.58 and 6.1 for the U.S. AGG
• The fund has focused on allocating to higher quality products and securities
• Defense sectors make up the allocation in corporate credit and high yield
• Agency MBS have been swapped for TBAs
• A focus from ABS to AAA-rated CLOs and government guaranteed student loan collateral

 

 

 

 

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
• Pandemic data suggests that is will take a considerable amount of time for the economy to get back to its pre-COVID levels
• Behavioral changes and persistent labor market disparities will act as a headwind to a consumer-driven rebound
• Volatility will continue, especially with a delayed and potentially lower stimulus
• 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