You have probably noticed some changes in your portfolio recently. The TenBridge team spent a day in July digging deep into our investment philosophy. We’d like to share an update on our investment mix across the sectors.
One of our objectives in the investment mix is to maintain balance in your portfolio while also meeting the goals outlined in your financial plan. As part of our review, we conduct a thorough search of each of the sectors (think fixed income, domestic equity) and put our current holdings to the test. Most of the time we keep our holdings, but sometimes we adjust when we find something that fits our parameters better.
Fixed income was one sector where we made some changes. We take a barbell approach, on one end, incorporating short duration fixed income which is providing strong yields with the rise in interest rates. On the other end of the barbell, we have implemented flexible bond managers. These managers can make tactical changes to their fixed income holdings to take advantage of opportunities in the fixed income sector. In our traditional models we are using the JP Morgan Ultra-Short Income ETF and the Janus Henderson Flexible Bond Fund. In our ESG models, we moved into the Calvert Short Duration and Calvert Flexible Bond Fund.
We also made some changes in the mid cap space, previously held by the New Alternatives Fund. In the time we’ve held this fund, it has performed ahead of the international and global small/mid stock indices, though we have noticed recent underperformance. It is also a niche fund, only focusing on renewable energy. Niche funds or thematic funds can supply unique diversification, but they are also much more sensitive to volatility in the market. We made a decision to eliminate exposure to thematic holdings in our portfolio. With this in mind, we conducted a methodical review of mid-cap funds and decided to switch to the Eaton Vance Atlanta Capital SMID Cap fund. As part of our analysis, we had a call with one of the portfolio experts on the fund team. There are 4 members who manage this fund, all of them with 20 plus years of experience at Atlanta Capital. They keep roughly 50 holdings in the fund at any given time. Due to the size of the fund and the size of the companies they invest in, they are a top 10 shareholder in nearly every company they are invested in. This gives them easy access to the management teams in these companies.
Our large cap equity holdings have been very strong holdings for us, such as Jensen, Buffalo, and Parnassus. There were no changes we felt were necessary in this sector.
As for an update on the small cap space, in 2022, we added the Davenport Small Cap Focus fund to many of the portfolios. Their team is based in Richmond, Virgina and this is the only fund the company manages. In May 2023, Barron’s came out with an article “2 Small-Cap Funds That Could Ride the Market’s Next Big Move”, in which the Davenport Small Cap Focus fund was one of the funds referenced. Barron’s went on to say the fund has outperformed 99% of its category peers over the past 5 years. Part of Davenport’s investment strategy is not only the companies they own, but the companies that they avoid. In the small cap space, according to co-manager Chris Pearson, “We have a strict discipline around high-quality businesses that generate substantial amounts of free cash flow and have capable management teams that can reinvest that cash at higher rates of return.” Davenport is continuing to be a solid holding in our portfolios, and we did not make a change in this sector.
In sum, we are consistently reviewing our holdings and their competitors to make sure our portfolios are in alignment with our objectives and helping you reach your goals. If you want to discuss the changes in more detail or have additional questions, please reach out. We are happy to be of service.
Works Cited
2 Small-Cap Funds That Could Ride the Market’s Next Big Move. (2023, May 12), from https://webreprints.djreprints.com/2393762.html
From the Desk of Scott Thurman, Operations Manager and Chief Compliance Officer
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