Author: Micah Weinstein

DBLTX Commentary – Q3 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 third quarter of 2020, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 40bps, largely due to asset allocation within the securitized credit sectors. Non-Agency RMBS was the largest contributor to returns, while non-agency CMBS also helped performance as rent collections stabilized. CLOs and asset-backed securities also contributed positively to returns, yet Agency MBS slightly detracted from the fund’s overall performance.

 

Q3 2020 Summary

• DBLTX returned 1.02%, while the U.S. AGG returned 0.62%
• Quarter-end effective duration for DBLTX was 3.33 and 6.1 for the U.S. AGG
• The top two performers were non-Agency RMBS and non-Agency CMBS
• Agency MBS securities produced negative returns due to high levels of prepayment rates which caused spreads to widen

 

 

 

 

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 are at an all-time low and we expect the yield curve to steepen at some point in the future
• 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

 

AFVZX Commentary – Q2 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 second quarter of 2020, AFVZX underperformed the benchmark (S&P 500 Index) by 41bps. Six of the eleven sectors outperformed the benchmark, while the rest underperformed. Underweighting of the largest market cap names was the main reason for underperformance, as relatively smaller capped stocks lacked in performance. The fund’s value tilt also detracted from returns.

 

Q2 2020 Summary

–          AFVZX returned 20.13%, while the S&P 500 Index returned 20.54%

–          Top contributors

o    Consumer Discretionary – APTV, LOW, DRI were main drivers

o    Financials – AMP and COF were main drivers

o    Industrials – All six holdings beat the XLI sector benchmark

–          Top detractors

o    Information Technology – FISV, HPQ performed worst

o    REITs – HST, the largest lodging REIT in the U.S., has large exposure to business and leisure travel

 

 

 

 

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

o    U.S. Fed and Government involvement

o    Quicker reopening than expected, which has gone well so far

o    Hopeful and encouraging vaccine news

–          The fund managers see the current market as rich in valuation, which could increase negative surprises; yet, equity risk premiums are still high

 

 

[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 – Q2 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 second quarter of 2020, TIREX outperformed the benchmark (FTSE Nareit All Equity REITs Index) by 11bps, driven by strong stock selection in single-family home, office, and data center REITs. Allocation to the lodging property sector also contributed to positive returns. Underweights to retail and infrastructure REITs partially offset these gains, though. In general, REITs closely related to a “stay-at-home” economy benefited most.

 

 

 

 

 

 

 

 

 

Q2 2020 Summary

–          TIREX returned 13.36%, while the FTSE Nareit All Equity REITs Index returned 13.25%

–          Contributors

o    Overweight to Invitation Homes, Inc. – single-family rental REIT

o    Underweight to Digital Reality Trust – data center REIT

o    Underweight to Public Storage – self-storage REIT

–          Detractors

o    Overweight to Rexford Industrial Realty – industrial properties

o    Overweight to Hudson Pacific Properties, Inc – office REIT

o    Underweight to Simon Property Group – regional mall 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

 

REEIX Commentary – Q2 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 second quarter of 2020, REEIX outperformed the benchmark (MSCI Emerging Markets Index) by 22bps. China and Taiwan helped provide a boost to returns, while Brazil and India significantly underperformed. Strong stock selection within South Africa and India contributed to returns, yet a lack of exposure to China detracted from positive performance.

 

Q2 2020 Summary

–          REEIX returned 18.30%, while the MSCI Emerging Markets Index returned 18.08%

–          Contributors

o    Largest contributor was NCSoft, a South Korean gaming company

–          Detractors

o    No exposure to Alibaba, a Chinese internet-service company

–          Market volatility has allowed the fund managers to find relatively attractive stocks to allocate to

 

 

 

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

–          In the medium to long-term, REEIX expects four factors to play a key role in EM equities

o    US dollar

o    Economic growth differentials between EM and International Developed Markets

o    Earnings growth

o    Valuations

–          The team will continue to focus on high quality companies with strong balance sheets and cash flows

–          5 focused themes

o    Domestic consumption

o    Health and wellness

o    Digitalization

o    Financialization

o    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

 

LISIX Commentary – Q2 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 second quarter of 2020, LISIX outperformed the benchmark (MSCI EFEA Index) by 116bps. Quality factor tilt and stock selection in Financials and Utilities sectors contributed most to performance. While cheaper stocks continued to underperform, the fund sought out companies with strong financial productivity and inexpensive valuations. As valuation spreads between value and growth widen, the fund took advantage of cheaper stocks that helped provide balance to the portfolio, resulting in an overall relatively cheaper portfolio.

 

Q2 2020 Summary

–          LISIX returned 16.04%, while the MSCI EAFE Index returned 14.88%

–          Contributors

o    Strong stock selection and underweight to Japan

o    Volkswagen – German car company

o    SAP – German enterprise application software firm

o    ABB – industrial conglomerate situated in Switzerland

–          Detractors

o    Kao – manufacturer of consumer staples products in Japan

o    Medtronic – medical devices located in Ireland

o    Compass Group – high-quality catering and support services company in the UK

o    Cash – largest detractor

 

 

 

 

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 their valuation is this cheap compared growth stocks and the global economy begins to accelerate

o    With economies continuing to reopen and government policy helping provide liquidity and demand, a long recovery could end up supporting value stocks

–          Looking for buying opportunities going forward in relatively inelastic industries, strong franchises, and cyclicals

 

[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 – Q2 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 second quarter of 2020, HLMEX underperformed the benchmark (MSCI Emerging Markets Index) by 58bps largely due to an underweight allocation to China and Hong Kong. Stock selection in Information Technology, Health Care, and Consumer Discretionary also detracted from returns. Industrials and strong selection in Financials did help offset these losses, though. Regionally, India, Peru, and Thailand detracted from performance, while China contributed to returns.

 

Q2 2020 Summary

–          HLMEX returned 17.50%, while the MSCI Emerging Markets Index returned 18.08%

–          Underweight to China and Taiwan – 35% cap which was established in 2016

–          Contributors

o    Techtronic Industries (Industrials), GF Banorte (Financials), & Sberbank (Financials)

–          Detractors

o    CSPC Pharmaceutical Group (Health Care) & Sands China (Consumer Discretionary)

–          One purchase this quarter – AirTAC (Taiwanese manufacturer of pneumatic equipment)

–          One sale this quarter – Hankook Tire (South Korean company in Consumer Discretionary)

 

 

 

 

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

–          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

 

TCPNX Commentary – Q2 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 second quarter of 2020, TCPNX outperformed the benchmark (Barclays U.S. AGG) by 61bps. The overweight to spread sectors were the largest contributor to performance. Allocation to other asset classes such as securitized credit also helped performance, while a neutral weight to credit relative to the index did not help relative performance much. Overall, the fund tends to invest in higher quality assets which were a headwind for this quarter, while low-rated, highly volatile bonds were stronger performers.

 

 

 

 

 

 

 

Q2 2020 Summary

–          TCPNX returned 3.51%, while the U.S. AGG returned 2.90%

–          Quarter-end effective duration for TCPNX was 5.80 and 6.04 for the U.S. AGG

–          Three largest contributors

o    U.S. Small Business Administration DCPC, Structure Settlements, and High Yield bonds

–          The top detractors

o    Airline Enhanced Equipment Trust Certificates, U.S. Treasury STRIPS, and long duration Multi-Family CMOs

 

 

 

 

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 that Fed involvement will keep the economy and market afloat and positive, yet if this support fades then the future could be very volatile

–          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 – Q2 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.

 

[more]

 

Overview

In the second quarter of 2020, WATFX outperformed the benchmark (Barclays U.S. AGG) by 275bps. The allocation to investment grade corporate bonds contributed most to overall performance. EM debt, non-Agency RMBS, ABS, and TIPS also helped contribute to returns. Lastly, the fund’s duration, which is longer than the benchmark, also helped add to performance. The overall narrowing of spreads through numerous fixed income asset classes helped WATFX outperform the benchmark.

 

 

 

 

 

 

 

 

 

Q2 2020 Summary

–          WATFX returned 5.65%, while the U.S. AGG returned 2.90%

–          Quarter-end effective duration for WATFX was 6.8 and 6.04 for the U.S. AGG

–          Lengthening of duration

–          Reduction to the MBS space due to tightening spreads from Fed action

–          Increasing allocation to investment-grade corporate bonds

 

 

 

 

 

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

o    The near-term shortfall will fade as policymakers continue to push for economic activity through stimulus packages

–          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 – Q2 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 second quarter of 2020, MWTIX outperformed the benchmark (Barclays U.S. AGG) by 117bps. This outperformance was largely due to strong sector positioning and opportunistic repositioning. The relatively suppressed Treasury rates had little impact on performance, while an overweight to long-duration corporate credit carried returns through the second quarter. The small allocation to high-yield and EM debt also contributed to performance. Weights to securitized debt and TIPS also helped the fund outperform its benchmark for the quarter.

 

Q2 2020 Summary

–          MWTIX returned 4.07%, while the U.S. AGG returned 2.90%

–          Quarter-end effective duration for MWTIX was 5.4 and 6.04 for the U.S. AGG

–          With much uncertainty in the future the fund will continue to seek attractive entry points to add exposures to high quality sectors that are resilient and can benefit from Fed action

o    Decrease to corporate credit – long-dated high-quality focus

o    Limited exposure to high yield – swelling of downgrades

o    Trimming MBS

 

 

 

 

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

–          Going forward MWTIX is uncertain of what may come

o    Increased debt and industry disruptions will prevent a quick economic recovery

o    Stimulus and re-opening trends may help increase economic growth

–          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 – Q2 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.

 

[more]

 

 

Overview

In the second quarter of 2020, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 51bps, largely due to asset allocation – the fund maintained a large exposure to credit assets. After the sharp drop in March, securitized credit sectors continued to recover. Price declines and selling pressure in this sector during the first quarter resulted in wider spreads, which led to an attractively priced vehicle for investors to rally behind during the second quarter. Improvements in liquidity and investor sentiment also helped bolster non-Agency RMBS performance. Lastly, the Fed’s stimulus packages helped performance through the second quarter.

 

Q2 2020 Summary

–          DBLTX returned 3.41%, while the U.S. AGG returned 2.90%

–          Quarter-end effective duration for DBLTX was 3.18 and 6.04 for the U.S. AGG

–          The top two performers were non-Agency RMBS and Agency RMBS assets

o    All sectors allocated positively to the fund’s return – CLOs and ABS made the smallest contribution due to their low weighting within the fund

 

 

 

 

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 are at an all time low and have a high possibility of steepening

–          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