Research Blog – INTERNAL USE ONLY

Westwood SmallCap Fund Commentary – Q4 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 fourth quarter of 2021, WHGSX outperformed the benchmark (S&P 600 Index) by 240bps. Optimism over Fed policy to tamp down inflation helped create enough of a tailwind to overcome inflation fears and Washington dysfunction. As for the fund, strong security selection across numerous sectors helped drive performance. The fund saw strength across cyclical, secular, defensive, and quality areas. Industrials and Health Care were the top contributors, while Information Technology and Consumer Discretionary were the top detractors.

 

Q4 2021 Summary

• WHGSX returned 8.04%, while the S&P 600 Index returned 5.64%
• The fund also made a few changes to positioning
• Bought Astec Industries – producer of equipment and components used in road building and materials processing
• Bought Duckhorn Portfolio – largest pure-play luxury wine company in the U.S.
• Bought Methode Electronics – a tier-1 automotive supplier focused on electrical components and power distribution
• Bought Rambus – provider of intellectual property to the semiconductor and memory industry
• Sold
• Avient, Great Western Bacorp, James River Group, National Storage Affiliates Trust

 

 

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

[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 2021

Thesis

AFVZX serves as our active manager in the large cap “value” U.S. equity markets and follows a concentrated (50 companies) investment strategy that focuses on firm quality and valuation. 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 2021, AFVZX underperformed the benchmark (S&P 500 Index) by 155bps. U.S. large-cap equities saw strong performance for quarter, especially in October and early November when news of an antiviral Covid pill was shared. Additionally, strong personal income growth and manufacturing data which pointed to a recovering economy helped drive equity markets. Supply chain bottlenecks and labor shortages still acted as a headwind, though. Inflation also disrupted optimistic sentiment and caused continued volatility in equity markets.

 

Q4 2021 Summary

• AFVZX returned 9.48%, while the S&P 500 Index returned 11.03%
• Top contributors
• Health Care: Pfizer, McKesson
• Communication Services: Alphabet
• Energy: Chevron
• Materials: CF Industries
• Top detractors
• REITs: Host Hotel & Resorts
• Consumer Discretionary: Target, Darden Restaurant
• Information Technology: Intel Corp, International Business Machines Corp, Fiserv, MasterCard
• Financials: Capital One Financial Corp, The Allstate Corp

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Atlanta Capital Focused Growth Commentary – Q4 2021

Thesis

EILGX serves as our active manager in the large cap “growth” U.S. equity markets and follows a concentrated (20-30 companies) investment strategy with a heavy quality tilt emphasizing companies with high ROIC, strong cash flow multiples, and long-term moats. By utilizing DCF models and bottom-up fundamentals, the fund finds stocks with secular tailwinds, sustainable financials, and relatively low downside capture to generate alpha over the S&P 500 Index over time. We continue to hold EILGX because of the team’s ability to build a concentrated portfolio that gives our U.S. large-cap allocation a strong quality tilt, while giving clients strong risk-adjusted returns.

 

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Overview

In the fourth quarter of 2021, EILGX underperformed the benchmark (S&P 500 Index) by 72bps. Even though inflation and Covid-19 threatened to disrupt returns, U.S. large-cap markets still saw strong returns. This is largely due to positive anticipation for an ongoing recovery and Fed action to mitigate inflation impacts. Specifically related to the fund, underperformance was mainly driven by negative sector allocation in Health Care and Information Technology. Stock selection also detracted from total return.

 

Q4 2021 Summary

• EILGX returned 10.35%, while the S&P 500 Index returned 11.07%
• Top contributors
• Stock selection within Health Care, Financials, Communication Services, and Consumer Discretionary
• Overweight to Materials
• Top 5 stocks: Zoetis Inc., Thermo Fisher Scientific, Inc., Amphenol, lack of exposure to Amazon.com, Inc., and Paypal Holdings
• Top detractors
• Stock selection within Information Technology, Real Estate, Materials, and Industrials
• Underweight to semiconductor and technology hardware
• Overweight to Health Care and underweight to Information Technology
• Worst 5 stocks: lack of exposure to Tesla, Apple, Inc., NVIDIA, Inc., Visa, Inc., and Fiserv

 

 

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 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 49bps.

 

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Overview

In the fourth quarter of 2021, TIREX underperformed the benchmark (FTSE Nareit All Equity REITs Index) by 62bps, almost entirely due to a single position: GDS Holding. During the quarter, the fund reduced the number of holdings as valuations became extremely elevated around Covid-sensitive property types and regions (ie. lodging and resorts). Inflation-sensitive properties like health care were also reduced. Most of these sells were reallocated towards industries that are expected to strongly rebound in a post-pandemic world, such as manufactured homes and shopping centers.

 

Q4 2021 Summary

• TIREX returned 15.55%, while the FTSE Nareit All Equity REITs Index returned 16.17%
• Contributors
• Industrial REITs Rexford Industrials Realty, Inc. and Terreno Realty Corp.
• Regional mall REIT Simon Property Group, Inc.
• Detractors
• China-based data center GDS Holdings Ltd.
• Not owning industrials REIT Duke Realty
• Australian-based industrial housing REIT Ingenia Communities Group

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Eaton Vance Floating-Rate Fund Commentary – Q4 2021

Thesis

EIBLX (yielding 3.15%) is a large floating rate fund that has 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 2021, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 26bps. Loan markets in general saw prices ease on October and November, but a strong and quick rally in December as Omicron fears started to fade and interest rate hike talks made headlines. Q4 2021 was also a record quarter for supply and demand which helped drive strong performance – CLOs specifically broke records. Credit also remained healthy with the default rate ending the year near a record low.

 

Q4 2021 Summary

• EIBLX returned 0.51%, while the Leveraged Loan Index returned 0.77%
• Quarter-end effective duration for EIBLX was 0.36 and 0.12 for the Leveraged Loan Index
• Largest contributors
• Overweight to a specialty chemicals company and out-of-benchmark holding in a recovering metals/mining issuer
• Largest detractors
• Overweight holding in an energy company and overweight to a radio & television credit

 

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Fidelity Advisor Floating Rate Fund Commentary – Q4 2021

Thesis

FIQSX (yielding 3.26%) is a large, floating rate fund that has 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 2021, FIQSX performed roughly in line with the benchmark (S&P/LSTA Leveraged Loan Index). In general, loans saw stronger performance than high-yield corporate bonds, IG corporate credit, and other broad-based IG markets. Issuance reached an all-time high in October which was matched by high demand from CLOs and retail funds. November then saw a slight drop, but a strong rebound in December largely due to Omicron concerns. Headlines around rising interest rates also sparked demand for floating rate securities which helped drive performance.

 

Q4 2021 Summary

• FIQSX returned 0.79%, while the Leveraged Loan Index returned 0.77%
• Quarter-end effective duration for FIQSX was 0.16 and 0.12 for the Leveraged Loan Index
• Largest contributors
• Murray Energy (coal mining), Rivian Automotive (EV manufacturer), not owning Envision Healthcare (health-care service provider)
• Largest detractors
• Out-of-benchmark holding in TNT Crane & Rigging (crane service provider), Sinclair Broadcast Group (TV station operator), Rodan & Fields (skin case company)

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 – Q4 2021

Thesis

DBLTX (yielding 3.24%) 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 2021, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 19bps, largely due to the fund’s shorter duration – Fed monetary policy expectations caused the curve to begin to flatten: 2-year rates began to rise, and 30-year rates slightly dropped. A strong housing market and floating-rate coupons contributed to performance, though.

 

Q4 2021 Summary

• DBLTX returned (0.18%), while the U.S. AGG returned 0.01%
• Quarter-end effective duration for DBLTX was 4.82 and 6.60 for the U.S. AGG
• Top performing sectors included non-Agency residential mortgage-backed securities and CLOs
• Worst performing sectors included non-Agency commercial mortgage-backed securities, asset-backed securities, and Agency MBS

 

 

 

 

 

 

 

 

 

2021 Performance Comparison

 

[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 – Q4 2021

Thesis

MWTIX (yielding 1.34%) 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 2021, MWTIX slightly underperformed the benchmark (Barclays U.S. AGG) by 8bps which was mainly caused by poor selection in corporate credit. Duration positioning (underweight to the long end of the curve) also acted as a headwind. Yet, the fund did see some positive performance due to its underweight to corporate credit and strong selection in the RMBS (including agency MBS TBAs and legacy non-agency MBS) space.

 

Q4 2021 Summary

• MWTIX returned (0.09%), while the U.S. AGG returned 0.01%
• Quarter-end effective duration for MWTIX was 6.32 and 6.6 for the U.S. AGG
• Top performing sectors included Industrials, Health Care, midstream companies, finance and life insurance names, and RMBS holdings
• Top detractors included RMBS and agency MBS holdings

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Touchstone Impact Bond Fund Commentary – Q4 2021

Thesis

TCPNX (yielding 1.79%) 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 2021, TCPNX underperformed the benchmark (Barclays U.S. AGG) by 10bps primarily due to the overweight in spread products, which saw widening during the quarter. An underweight to Treasuries, which saw strong performance, also detracted from returns. As for duration, the fund continues to have a neutral approach which had minimal to no effect on performance.

 

Q4 2021 Summary

• TCPNX returned (0.11%), while the U.S. AGG returned 0.01%
• Quarter-end effective duration for TCPNX was 6.3 and 6.6 for the U.S. AGG
• Three largest contributors
• Build America Bonds, U.S. Treasuries, and U.S. Small Business Administration (SBA) securities
• Three largest detractors
• Exposure to banks, insurance companies, and Ginnie Mae Project Loans (ie. CMBS)

 

 

 

 

 

 

 

2021 Performance Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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

 

Western Asset Core Bond Fund Commentary – Q4 2021

Thesis

WATFX (yielding 1.72%) 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 2021, WATFX underperformed the benchmark (Barclays U.S. AGG) by 17bps largely due to the fund’s longer duration and exposure to EM debt. The news of the Omicron variant caused risk assets to weaken at first, but they soon rebounded upon news that this variant would cause less sever symptoms compared to past variants. Inflation continued to increase which caused the FOMC to consider increasing the pace and amount of tapering needed to combat a possible longer than expected increase in prices. The fund continues to position itself to benefit from a global recovery but may see volatile times for now.

 

Q4 2021 Summary

• WATFX returned (0.16%), while the U.S. AGG returned 0.01%
• Quarter-end effective duration for WATFX was 7.5 and 6.6 for the U.S. AGG
• Added exposure to short-term yields and trimmed intermediate to long-term yields
• Sold out of remaining TIPS exposure
• Increased allocation to investment-grade credit
• Continued to trim agency MBS exposure, furthering its underweight relative to the benchmark

 

 

 

 

 

 

 

2021 Return Comparison

 

 

[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