Research Blog – INTERNAL USE ONLY

Harding Loevner Emerging Market Fund Commentary – Q3 2021

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 2021, HLMEX outperformed the benchmark (MSCI Emerging Markets Index) by 94bps. Allocation effect had the greatest positive impact on performance. An overweight to Financials and underweight to Consumer Discretionary contributed most to returns. Strong selection within Consumer Discretionary and strong performance by Information Technology also helped the fund’s returns. Zero exposure to Materials and poor selection in Consumer Staples and Utilities detracted from performance for the quarter. Regionally, overweight to Russia and Mexico, and an underweight to China benefitted the fund, while underweights to small cap and India offset these positive returns.

 

Q3 2021 Summary

• HLMEX returned (7.15%), while the MSCI Emerging Markets Index returned (8.09%)
• Contributors
• Sector: Overweight to Financials, underweight to Consumer Discretionary, exposure to Information Technology
• Region: Overweight to Russia and Mexico, underweight to China
• Stocks: Siam Commercial Bank and Bancolombia (Thailand), Komercni Bank (Czech Republic), Kotak Mahindra Bank and HDFC Corp (India)
• Detractors
• Sector: No exposure to Materials, poor selection in Consumer Staples and Utilities
• Region: Underweight to smaller EMs and India
• Stocks: Sands China and ENN Energy (China), Largan Precision (Taiwan)
• Fund’s expense ratio dropped from 1.17% to 1.10%

 

 

 

 

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
• Concern around China being able to sustain high GDP growth and the country’s high level of debt
• The portfolio has shifted to now have Industrials as the largest overweight instead of Financials
• 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

 

Hartford International Value Fund Commentary – Q3 2021

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 2021, HILIX outperformed the benchmark (MSCI EFEA Index) by 186bps due to strong security selection, specifically in Financials, Materials, and Energy. One the other hand, poor selection in Industrials and Information Technology detracted from returns. Allocation effect contributed to returns as well, particularly from underweights to Utilities and Health Care, and an overweight to Energy. This was slightly offset by an overweight to Consumer Discretionary and an underweight to Financials. Regionally, strong selection in North America, developed European Union and Middle East ex UK, and United Kingdom helped returns, while Japan took away from performance. Overall, Energy and Financials significantly drove performance for the International Developed markets, while Materials and Utilities detracted for the quarter.

 

Q3 2021 Summary

• HILIX returned 1.41%, while the MSCI EAFE Index returned (0.45%)
• Top issuer contributors
• Not owning Novartis
• Out-of-benchmark position in Gazprom
• Top issuer detractors
• Overweight to Adecco and Holcim

 

 

 

 

 

 

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 has seen a strong rebound after large losses in 2020
• This fund is on our watch list as we are researching the “quality” of the underlying holdings and discussing whether a “deep” value strategy pairs well with our other funds in the asset class
• During the quarter the fund added positions in Asia Pacific, and sold/decreased positions in Europe and Asia Pacific
• Sumitomo Electric – added
• Maersk, Pacific Basin Shipping, Salzgitter – sold or reduced exposure
• The fund continues to have largest overweights to Energy and Communication Services, and most notable underweights in Health Care and Consumer Staples
• Regionally, the fund holds an overweight to EM and an underweight to Europe and Asia Pacific Ex 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

 

Lazard International Strategic Equity Fund Commentary – Q3 2021

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 2021, LISIX underperformed the benchmark (MSCI EFEA Index) by 14bps due in large part to EM allocation and selection. The fund also held an underweight to the UK and Japan, which outperformed during the quarter. Stock selection on a sector and regional basis contributed to returns, though. In general, the fund managers believe selection will be more important for outperformance compared to the previous quarters, which heavily relied on allocation.

 

Q3 2021 Summary

• LISIX returned (0.59%), while the MSCI EAFE Index returned (0.45%)
• Positives
• Shimano – a dominant, global bicycle gear manufacturer in Japan
• Aon – global insurance broker in Ireland
• Makita – a leading global supplier of power tools in Japan
• RELX – a UK-based professional publisher
• China Longyuan – an energy and utility company focused around wind farms in China
• Negatives
• Sands China – casino and resort owner/developer in Macau
• Alibaba – the largest e-commerce company in China
• Nexon – a Japanese video game producer
• Enel – Italian utility company
• Banco Bradesco – a bank located in Brazil

 

 

 

 

 

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
• Believe that COVID fears are baked into prices, but concerns around labor shortages, supply chain disruptions, inflation, U.S. tapering, and politics will continue to make a volatile and uncertain market
• See strong growth potential in Europe, especially as vaccines continue to rollout through the region
• Fundamental-driven decision making will come back into favor across investors, causing sharp, emotion-based swings to halt

[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 – Q3 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 third quarter of 2021, WHGSX underperformed the benchmark (S&P 600 Index) by 48bps largely due to challenges within cyclical sectors outside of Energy and Financials. Industrials and Consumer Discretionary detracted from performance, mostly due to poor selection. Energy, on the other hand, was the strongest contributor for the quarter. Exposure to Communication Services and an underweight to Health Care also contributed to performance.

 

Q3 2021 Summary

• WHGSX returned (3.33%), while the S&P 600 Index returned (2.85%)
• Industrials – leading detractor due to concerns around slowing global growth
• Company-specific challenges and slowing foreign sales played a role in this slowdown
• Communication Services – largest contributor due to strong selection and an underweight to a “meme” stock
• Hope around 5G helped boost returns
• Health Care – underweight and positive selection within the sector helped aid fund performance
• Biotechnology saw a lot of pressure and other industries saw increases in their outlooks
• Buys: Sunstone Hotel, Triumph Bancorp, Whiting Petroleum, ADTRAN, Avanos Medical
• Sells: Healthcare Services Group, Oxford Industries, WW International, Internal Bancshares, Kaman, Summit Hotel

 

 

 

 

 

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
• Mixed markets during this quarter due to strong economic data and rising virus cases
• “Value” small cap stocks fell on margin, while more defensive and secular growth names rose
• Rising concerns around potential economic slowing, supply chain issues, modest employment gains, and “stagflation” may cause for a volatile market in the foreseeable future
• 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 – Q3 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 third quarter of 2021, AFVZX underperformed the benchmark (S&P 500 Index) by 17bps largely due to selection within Health Care, Industrials, Materials, and Energy. Within Health Care, strong growth numbers and promise around vaccines helped boost returns. M&A within Industrials and Energy had a positive impact on performance. Increased gas prices helped the Materials sector. On the other hand, selection within Consumer Staples and Information Technology detracted from performance. Inflation scares and skepticism around the booster shot hurt Consumer Staples, and poor growth numbers made for underperformance within Information Technology.

 

Q3 2021 Summary

• AFVZX returned 0.41%, while the S&P 500 Index returned 0.58%
• Top contributors
• Health Care – Danaher Corp, Thermo Fisher Scientific, Pfizer Inc
• Industrials – Quanta Services
• Energy – ConocoPhillips
• Materials – CF Industries
• Top detractors
• Consumer Staples – Constellation Brands, Walgreens Boots Alliance
• Information Technology – Intel Corp, HP Inc, International Business Machines Corporation

 

 

 

 

 

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
• Replaced Unum Group with Metlife Financials in early October
• Continue to invest in companies with attractive valuation, credible management team, and a strong wealth creation track record and strategy
• Believe the fund’s holdings will continue to navigate the market well and positioned to perform strongly as the economy continues to reopen

 

 

[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 – Q3 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 third quarter of 2021, EILGX outperformed the benchmark (S&P 500 Index) by 361bps primarily due to strong stock selection, particularly within the Health Care and Industrials sectors. Overweights to Health Care and Financials also contributed to performance, while selection in Financials and an overweight to Materials detracted from returns. In general, the U.S. equity market did not have as robust returns as preceding quarters. Political debates around infrastructure spending, supply chain issues, labor constraints, and growing inflation concerns made for a somewhat tough quarter for the market.

 

Q3 2021 Summary

• EILGX returned 4.19%, while the S&P 500 Index returned 0.58%
• Top contributors
• Stock selection in Health Care, Industrials, Technology, and Materials
• Selection in IT services, life sciences tools & services, and health care equipment groups
• Overweight to Health Care
• Top five contributors include Danaher Corp., Thermo Fisher Scientific Inc., Gartner, Inc., Verisk Analytics, Inc., and not owning Amazon.com, Inc.
• Top detractors
• Stock selection in Financials and Consumer Discretionary
• Selection in capital markets and specialty retail
• Overweight to Industrials and Materials
• Top five detractors include Tesla, Inc., Apple, Inc., Alphabet Inc., Moderna, Inc., and Visa Inc.

 

 

 

 

 

Optimistic Outlook

• We continue to hold this fund and believe in our thesis due to the fund’s ability to outperform the index through full market cycles while maintaining a strong quality strategy and growth tilt
• Expecting continue market volatility, especially if earnings growth slows and financial policies tighten
• Sticking with companies that have demonstrated a track record of consistent growth and earnings stability may provide a “margin of safety” that becomes increasingly valuable during times of rising uncertainty
• At quarter-end, the fund held 23 stocks and was allocated to 8 of the 11 sectors
• Overweight: Health Care, Materials, Financials, Industrials, Real Estate
• Underweight: Information Technology, Consumer discretionary, Communication Services
• No exposure: Energy, Utilities, Consumer Staples

 

[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 – Q3 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 third quarter of 2021, TIREX underperformed the benchmark (FTSE Nareit All Equity REITs Index) by 53bps, almost entirely due to a single position: GDS Holding. During the quarter, the fund continued to reduce its lodging and resort sector exposure and reallocate into industries and sectors that are expected to benefit from economic recovery, such as apartment REITs. In general, REITs underperformed the U.S. equity indexes during the quarter. Manufactured homes and single-family home rental performed best, while data centers and infrastructure took a hit.

 

Q3 2021 Summary

• TIREX returned (0.30%), while the FTSE Nareit All Equity REITs Index returned 0.23%
• Contributors
• Underweight to Crown Castle International Corp (wireless infrastructure REIT)
• Not owning Americold Realty Trust (temperature-controlled warehouse operator)
• Owning AvalonBay Communities (apartment REIT)
• Detractors
• Out of benchmark holding of GDS Holdings Ltd. (China-based data center)
• Owning Wynn Resorts Limited and Las Vegas Sands Corp. (resort and casino operators)

 

 

 

 

 

 

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
• The portfolio is remains focused on REITs that will take advantage of the economic rebound

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 – Q3 2021

Thesis

EIBLX (currently yielding 3.09%) 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 third quarter of 2021, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 21bps. Contributors to performance include an off-benchmark position in consumer goods market company, along with other holdings that added 30bps of performance. Detractors include a defense company, along with 10 other holdings that subtracted 32bps of returns. Allocation by industry and credit quality had little effect on the fund’s performance for the quarter.

 

Q3 2021 Summary

• EIBLX returned 0.93%, while the Leveraged Loan Index returned 1.14%
• Quarter-end effective duration for EIBLX was 0.36 and 0.07 for the Leveraged Loan Index
• Three largest contributors
• CM Acquisition Co., American Consol. Nat. Resources, IPC Corp (tied with Sunrise Oil Gas Prop)
• Three largest detractors
• IAP Worldwide Services Inc., Akorn Inc., Cash

 

 

 

 

 

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
• Expecting a health credit picture along with investors’ search for yield will act as a tailwind for leveraged loans, specifically in the new-issue market
• Anticipate the default rate to continue to be low, which makes tight spreads relative to history a bit more attractive

 

[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 – Q3 2021

Thesis

FIQSX (currently yielding 2.98%) 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 third quarter of 2021, FIQSX performed roughly in line with the benchmark (S&P/LSTA Leveraged Loan Index). The fund’s core bank loan portfolio performed roughly in line with the benchmark. Security selection in oil & gas contributed most to returns. In general, loans outpaced high-yield corporate bonds, investment-grade corporate credit, and broad investment-grade fixed income securities. Almost all industries contributed to returns, along with CLOs which continued to be a substantial source of loan demand.

 

Q3 2021 Summary

• FIQSX returned 1.10%, while the Leveraged Loan Index returned 1.14%
• Quarter-end effective duration for FIQSX was 0.08 and 0.07 for the Leveraged Loan Index
• Largest contributors
• California Resources and Chesapeake Energy (oil & gas equity), Murray Energy (coal mining equity)
• Largest detractors
• Denbury (energy E&P equity), Envision Health (loan business)

 

 

 

 

 

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
• Improvement in leverage loan default rate (down to 0.89%)
• Finding attractive opportunities in new-issue market
• Large overweight in lodging & casinos, retailers, and oil & gas
• Large underweight in health care, electronics/electrical, and automotive
• Continue to hold an overweight to BBB & above and BB rated loans, and underweight to B and CC & below rated loans
• Expecting to see continued GDP, corporate cash flow, and earnings growth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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 – Q3 2021

Thesis

TCPNX (currently yielding 1.63%) 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 2021, TCPNX underperformed the benchmark (Barclays U.S. AGG) by 36bps primarily due to the fund’s overweight to spread products. More specifically, the widening of these securities and the swap curve increase over the U.S. Treasury curve acted as two big headwinds. An underweight to Agency Single-Family MBS also detracted from performance. Financials and Energy were the only sectors in credit that produced positive returns during the quarter.

 

Q3 2021 Summary

• TCPNX returned (0.31%), while the U.S. AGG returned 0.05%
• Quarter-end effective duration for TCPNX was 6.2 and 6.7 for the U.S. AGG
• Three largest contributors
• Exposure to CMBS, investments in long-dated utilities, and owning railroad and airline debt
• The top detractors
• Exposure to SBA securities, investment in Freddie Mac Multifamily K Certificates, and investment in taxable municipal 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
• Recent widening in high quality spread products such as U.S. Agencies and Agency Multi-Family MBS are demonstrating value opportunities
• Many areas are “priced to perfection”, which makes it tough to find areas that will generate strong return without over-paying
• See a strengthening economy and positive trends across macroeconomic data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[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