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2 Dec 2019

Market Backdrop

While the Israeli economy remains on a solid footing, momentum has slowed a bit, mostly due to global growth concerns.  The manufacturing slowdown that has gripped most of the developed world appears to have caught up to Israel as well as the most recent Israel Manufacturing PMI index plunged to 44.3 in August from 52.2 the previous month.  The Bank of Israel (BoI) agrees with the slower growth as it reduced its estimate for GDP growth for 2020 from 3.5% to 3% on the back of a global growth slowdown and on expectations the government may take steps to reduce the fiscal deficit which at over 3% remains stubbornly above desired levels.

The Bank of Israel has done an about face after sticking to its aggressive hawkish tone in the early part of the quarter, it now appears has shifted to a dovish tone with some observers even thinking that the BoI may lower rates sooner rather than later.  While the benchmark rate sits at 0.25% there is not much room to lower rates.  The Monetary Committee of the BoI noted in a recent release that “if necessary, the Committee will take additional steps toward making monetary policy even more accommodative…”  Some expect foreign exchange intervention to come back in vogue as the shekel appreciation year to date has dampened exports and led to deflationary pressure.  Inflation now at a low 0.6% over the last twelve months has disappointed and has caught the BoI by surprise making it more likely they will cut rates and provide more monetary accommodation in the near term.

As far as politics, the second national elections this year led to similar results of no party or coalition winning an outright majority.  After days of significant negotiations, president Reuven Rivlin again handed prime minister Netanyahu the challenge to secure a coalition to rule the next Knesset.  There are calls for a broad-based unity government while some think the prime minister may not be able to form a coalition and president Rivlin will then task Blue and White leader Benny Gantz with the goal of forming a ruling coalition.  There is much uncertainty on the makeup of the next government.

Performance and Attribution

The

The Timothy Plan Israel Common Values Fund closely matched the performance of the TA-125 index for the quarter, maintaining its strong lead for the year to date period.  Sector allocation was positive with good allocation in Technology, Health Care, and Energy while Stock selection was challenged from weakness in the Technology sector.  Security and cyber-security plays such as Checkpoint Systems, Verint Systems, and CyberArk Software all took a pause in the quarter.

Outlook

The strong economy continues to support robust corporate earnings growth.  The labor market remains robust providing good visibility towards continued strong consumption. Some of the economic challenges are caused by the high demand in inward investment and new energy revenues that provide a good long term fiscal and trade tailwind.  We remain constructive Israeli equities over the long term as the innovation of Israel corporates and the strong economic growth in the country supports equity prices.

2 Dec 2019

 

Market Commentary:

Looking back, equity markets ended the quarter in positive territory despite continued concerns over the ongoing trade dispute and future economic growth given the deterioration of economic data. The U.S. market outperformed international equities and large caps fared far better than small caps. Investors continue to look for additional clues regarding the health of the economy given the longevity of the business cycle. The Federal Reserve cut rates twice during the quarter, marking the first time for such actions in over a decade. The market remains optimistic regarding additional future rate cuts in order to help bolster the economy. Interest rates fell sharply during the quarter, notably the yield on the 10-year U.S. treasury declined to 1.66%, falling 34 basis points over increasing demand for safe-haven assets amidst the uncertainty. The impact from macroeconomic uncertainty is clearly weighing on business confidence as company fundamentals have so far remained relatively resilient, while supporting the belief that earnings will be up year-over-year in 2019.

Looking forward to the end of the year and into 2020, earnings growth remains a key question for investors as earnings for the upcoming third quarter are once again slated to fall year-over-year. The prior two quarters saw positive surprises, relative to estimates, push growth back into positive territory but looking ahead, the market is still forecasting another year of strong growth into 2020. In contrast, the most recent GDP reading was for 2%, decelerating from the prior quarter, and other indicators such as the ISM’s PMI for manufacturing fell even farther into contractionary territory for the first time in nearly a decade. These, along with the trade disputes, continue to weigh on business confidence and have started to have some modest impact on consumer confidence as well. As the economic cycle continues to progress into its latter stages, the preference for high-quality, stable, and cash generative businesses are likely to increase even more so as markets become increasingly concerned for those companies with more challenged models. These differences, we believe, will cause further dispersion in returns between those companies best able to weather these uncertainties versus those who are not. We remain vigilant in assessing absolute risk in the securities we invest in and striving to protect client capital during these times for potential volatility from the uncertainty.

Timothy Plan Small Cap Value Fund Q3 2019 Commentary

Index Drivers:

During the third quarter, Utilities and Real Estate were the best performing sectors in the Russell 2000 Index while Energy and Health Care were the worst.

Performance Drivers:

The portfolio’s relative performance benefitted from an underweight in Health Care and favorable stock selection in Industrials. J&J Snack Foods posted a strong quarter driven by strength in their frozen beverage portfolio. Easterly Government Properties moved higher on steady performance as the company continued acquiring government investment properties. Lattice Semiconductor rallied as their strong product pipeline and improving gross margins continued to exceed investor expectations. CONMED reported a beat and raise quarter with strong organic growth from their core areas of orthopedics and general surgery, as well as from their recent acquisitions. Federal Signal shares appreciated after the company posted accelerating orders on new product cycles and the potential for accretive acquisitions.

The portfolio’s relative performance was negatively impacted by an overweight in Energy along with less favorable selection. Consumer Discretionary also detracted from performance due to unfavorable selection. ProPetro shares declined as falling commodity prices continued to pressure spending by their core exploration and production customers. Callon Petroleum declined as well as the lower crude oil prices sent investors elsewhere in the market. Children’s Place faced headwinds as the promotional environment for children’s clothing remained high after the bankruptcy of Gymboree. Omnicell shares fell on investor concerns over deterioration in working capital metrics after a negative research report was published. Comfort Systems USA declined after some slowness in nonresidential construction caused sales and margins to fall short of expectations.

Past performance is not indicative of future results. Portfolio returns reflect the reinvestment of dividend and interest income. All information provided is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned. A description of the methodology used to calculate the attribution analysis or a complete list of each holding’s contribution to overall performance during the measurement period may be obtained by contacting info@westwoodgroup.com. Benchmark Data Source:  © 2019 FactSet Research Systems Inc. All Rights Reserved. Russell Investment Group is the owner of the trademarks, service marks, and copyrights related to its indexes, which have been licensed for use by Westwood.

2 Dec 2019

Third Quarter 2019

Market Commentary:

Looking back, equity markets ended the quarter in positive territory despite continued concerns over the ongoing trade dispute and future economic growth given the deterioration of economic data. The U.S. market outperformed international equities and large caps fared far better than small caps. Investors continue to look for additional clues regarding the health of the economy given the longevity of the business cycle. The Federal Reserve cut rates twice during the quarter, marking the first time for such actions in over a decade. The market remains optimistic regarding additional future rate cuts in order to help bolster the economy. Interest rates fell sharply during the quarter, notably the yield on the 10-year U.S. treasury declined to 1.66%, falling 34 basis points over increasing demand for safe-haven assets amidst the uncertainty. The impact from macroeconomic uncertainty is clearly weighing on business confidence as company fundamentals have so far remained relatively resilient, while supporting the belief that earnings will be up year-over-year in 2019.

Looking forward to the end of the year and into 2020, earnings growth remains a key question for investors as earnings for the upcoming third quarter are once again slated to fall year-over-year. The prior two quarters saw positive surprises, relative to estimates, push growth back into positive territory but looking ahead, the market is still forecasting another year of strong growth into 2020. In contrast, the most recent GDP reading was for 2%, decelerating from the prior quarter, and other indicators such as the ISM’s PMI for manufacturing fell even farther into contractionary territory for the first time in nearly a decade. These, along with the trade disputes, continue to weigh on business confidence and have started to have some modest impact on consumer confidence as well. As the economic cycle continues to progress into its latter stages, the preference for high-quality, stable, and cash generative businesses are likely to increase even more so as markets become increasingly concerned for those companies with more challenged models. These differences, we believe, will cause further dispersion in returns between those companies best able to weather these uncertainties versus those who are not. We remain vigilant in assessing absolute risk in the securities we invest in and striving to protect client capital during these times for potential volatility from the uncertainty.

Timothy Plan Large/Mid Cap Value Fund Q3 2019 Commentary

Index Drivers:

Within the S&P 500 Index, Utilities and Real Estate posted the strongest returns during the third quarter while Energy and Health Care both posted declines.

Performance Drivers:

Positive stock selection in Consumer Discretionary and Materials helped relative performance. KLA Corp. hosted a favorable analyst day, pointing to accelerating near-term results as semiconductor capital equipment trends improve while increasing their long-term operating model. Sherwin-Williams beat earnings with strong margin performance in their consumer brands segment as the integration of Valspar continued. Dollar General posted strong results as strong execution and cost containment helped bolster margins and management reiterated their mutli-year growth strategy. CMS Energy rallied as interest rates declined and investors looked towards their upcoming investment plan as a catalyst for future earnings growth. Everest Re Group shares moved higher as industry reports point to large pricing increases for mid-year reinsurance renewals.

Unfavorable selection in Health Care and Energy weighed on relative performance. Crude price fluctuations amidst concerns over excess supply as demand growth wanes impacted several stocks including EOG Resources. Arista Networks fell as decelerating spending on technology in the near-term pressured shares, despite the attractive long-term growth potential. Patterson Companies shares moved down as the company continues to work through headwinds in their dental business though sales and earnings both were up in their latest quarterly report. PerkinElmer declined after sales fell modestly below expectations due to weakness in their industrial sales into China. DENTSPLY SIRONA continued to face broader headwinds in the dental market that pressured shares, as management continued to execute on their plan for growth initiatives and cost containment.

Past performance is not indicative of future results. Portfolio returns reflect the reinvestment of dividend and interest income. All information provided is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned. A description of the methodology used to calculate the attribution analysis or a complete list of each holding’s contribution to overall performance during the measurement period may be obtained by contacting info@westwoodgroup.com. Benchmark Data Source:  © 2019 FactSet Research Systems Inc. All Rights Reserved. Russell Investment Group is the owner of the trademarks, service marks, and copyrights related to its indexes, which have been licensed for use by Westwood.

2 Dec 2019

Market Backdrop

Global equity markets gave up some of their gains during the quarter as concerns over a global economic slowdown and trade disputes remained elevated. The Trump administration announced additional tariffs on a final list of consumer goods early in the quarter as negotiations with the Chinese appeared to stall, only to reverse course a few weeks later on renewed negotiations momentum. U.S.-China trade negotiators are hard at work with important talks in October as tariffs have been delayed until December on certain goods and as China has shown willingness to start buying some agricultural goods from the U.S. once again. The stop-start uncertainty of trade relations with the U.S. is likely to keep markets on edge.

Central banks are beginning to put most of their chips on the table as the global economy slows, and inflation remains under control. With major central banks such as the Federal Reserve and the European Central Bank on a monetary policy easing path, many advanced economy and emerging economy central banks have cut rates or announced further stimulus measures in the past quarter. Central banks easing and interest rate declines are positive for global growth in the next 6-12 months. The added stimulus led to plunging bond yields across the globe with pronounced falls in Europe and the U.S. European yields were led down by German yields which reached a point in the quarter where the whole German yield curve sat at negative yields.  Estimates suggest that 20% of the global economy has negative 10-year bond yields with more than $15 trillion of global bonds trading in negative yield territory while 25% of the world’s central banks have negative policy rates. This led to bonds outgaining equities in the quarter in most regions.

MSCI EAFE large caps underperformed small and mid-caps for the quarter while Growth outperformed Value for the quarter and year-to-date periods. The best performing MSCI EAFE countries for the quarter were Belgium, Japan, and the Netherlands while the worst performing for the quarter were Hong Kong, Singapore, and Sweden. The best performing emerging markets for the quarter were Turkey, Egypt, and Taiwan while the worst for the quarter were Argentina, South Africa, and Poland.

Performance and Attribution

The Timothy Plan International Fund gave up a little of its outperformance versus the benchmark MSCI EAF index during the quarter mainly form stock selection in the Health Care sector.  Poor performance from Fresenius Medical Care on regulatory concerns as well as Ipsen SA on competition concerns.  The Fund had very good stock selection in the Consumer Discretionary and Financials sectors for the quarter.  From a country standpoint, allocation was hampered by an underweight to Japan as Japan outperformed for the quarter and an overweight to Hong Kong where protests in the country led to subdued equity returns there.

Outlook

Uncertainty over the path of global growth, monetary policy, Brexit, and trade disputes is likely to lead to jittery markets in the near term. Sharp rotations in style drifts could also lead to some short-term momentum shifts.  In spite of this, we remain focused on finding sustainable businesses with structural advantages that can compile wealth for shareholders.  Short term volatility can lead to challenges but also opportunities for the Fund.

13 Aug 2019

Market Backdrop

Global equity markets went on a wild ride in the second quarter with equities rising in April, taking a plunge in May and then rebounding strongly in June to end the quarter on a strong footing. Hopes of accommodative central bank action early in the quarter led to equities continuing their first quarter rally but was interrupted abruptly by a falling out of the U.S.-China trade talks. An announcement that the U.S. would be ending talks and increasing tariffs on $200bn sent the markets on a tailspin as the goldilocks market environment was questioned.

Central banks around the world appeared to double down on their commitment for further monetary easing and markets began to price in rate cuts in 2019, a major change versus earlier in the year where rate hike expectations had been delayed but not expectations for rate cuts. The “central bank put” is back with the Federal Reserve, European Central Bank, Swiss Bank, and the Bank of Japan all appearing to sound the same trumpet of “whatever it takes” mentality to support economic growth and confidence over the coming year. Excess central bank liquidity has helped financial assets since the Global Financial Crisis and central banks appear to be turning on the taps once more. Global bond yields plummeted during the quarter hurting the Financials sector but helping support growth equities. Recessionary concerns continued to surface as the 3m-10y U.S. bond yield spread remained in negative territory and the New York Fed Probability of U.S. Recession measure reached over 29%, the highest reading since 2007.

In spite of rising tensions in the Middle East, oil prices fell during the quarter as increasing production from the U.S. Permian Basin combined with higher than expected global inventories and concerns over demand given weakening economic outlook led oil prices lower from their April highs. The U.S. Dollar softened a bit given increasing expectations for rate declines in the U.S. but remained elevated versus most currencies.

Large caps outperformed small and mid-caps for the quarter and year while Growth has significantly outperformed Value for the quarter and year-to-date periods. The best performing MSCI EAFE countries for the quarter were Switzerland, Australia, and Germany while the worst performing MSCI EAFE countries for the quarter were Israel, Finland, and Austria. The best performing emerging markets for the quarter were Argentina, Russia, and Greece while the worst for the quarter were Pakistan, Chile, and Hungary.

Performance and Attribution

The Timothy Plan International Fund continued its strong start of 2019 as it outperformed the MSCI EAFE index for the second quarter in a row.  Sector allocation and stock selection were both additive to alpha this quarter.  In sector allocation, an underweight to Real Estate and an overweight to Technology were positive.  Stock selection was helped by strong selection in Industrials, Financials, and Consumer Staples.  From a country standpoint, the Fund benefitted from strong stock selection in the UK, Japan, and Hong Kong.

Outlook

With subdued inflation across most developed economies, major central banks appear set to begin ultra-loose monetary policy experiment 2.0.  The added monetary stimulus should continue to support financial assets in the near term although economic conditions have worsened in major markets placing doubts about the viability of an extended economic recovery. International equities continue to provide a good investment opportunity at these valuation levels.

13 Aug 2019

Market Backdrop

The Israeli economy remains sound and growing on a sustainable path around 3% per year.  While the Bank of Israel’s research department lowered their GDP growth expectations for 2019 to 3.1% (from 3.4%) and kept 2020 at 3.5% growth, these continue to stand out in a global context of trade wars and economic softness across advanced economies.  Inflation over the last twelve months was at the low end of the Bank of Israel’s 1-3% inflation band, allowing the central bank to continue forecasting a future path of rate increase at a gradual and cautious pace.  Given the year to date rise in the shekel exchange rate and the renewed emphasis by major central banks for more dovish monetary policy, we do not expect that Bank of Israel to continue raising rates in the near term.  The shekel has appreciated over 5% year to date on the back of increasing gas exports (Dutch disease), higher tech service exports, and persistent foreign direct investment inflows.  One area of focus recently has been the increasing fiscal deficit which reached 3.9% of GDP from a year ago level of 1.8%.  While some one-offs drove the difference as compared to the prior year, revenues have been below expectations in spite of low unemployment of 3.8% while expenditures continue to come in above the government ceiling.  We expect an emphasis on the fiscal deficit from the government over the coming year.

Prime Minister Benjamin Netanyahu was unable to form a ruling coalition after the April elections and chose instead to dissolve parliament and call for new elections which will be held on September 17th.  This will be the first time that Israel will hold two national elections in a single year. This is a risk for Netanyahu and his allies. Recent actions have seen left-leaning parties joining forces in the new election poll, placing significant pressure on the chances of a right-wing government coalition.

Performance and Attribution

The Timothy Plan Israel Common Values Fund continued its string of outperformance in the quarter bringing its year to date and last twelve months outperformance versus the TA-125 index to a wider margin. Sector allocation was positive while stock selection was a slight negative for the quarter.  An underweight to the underperforming Health Care sector helped performance while from a stock selection standpoint, good stock selection in Health Care, Financials, and Consumer Discretionary was not enough to offset bad performance in Technology for the quarter.

Outlook

The strong economy continues to support robust corporate earnings growth.  The upcoming election is a risk to markets but the most recent polls suggest a continued split vote that sees little chances of small coalition building and may mean a much broader coalition may have to be built than the right-wing coalitions of the recent past. We remain constructive Israeli equities over the long term as the innovation of Israel corporates and the strong economic growth in the country supports equity prices.

30 Jul 2019

Macroeconomic Update

Trade tariffs and the threats of additional trade tariffs are having meaningful impacts on economic growth globally In the US, the impacts are putting the orakes on Gross Domestic Product (GDP) growth After upward revisions to the first quarter GDP expansion to 3.1%, fueled mainly by inventory building and export pre-buying ahead of the first round of tariffs, growth slowed markedly in the second quarter As of July 3, 2019 the Atlanta Federal Reserve’s GDP Now r n estimates 02 2019 growth at 15%. This growth will most likely be revised upward following a stronger than expected June employment report but will likely remain in the 15-2 0% range

On the supply side, businesses appear to have grown more cautious. Although both the June 2019 ISM Manufacturing and Non-Manufacturing (services) indices registered continuing expansion readings, botn metrics weakened as the quarter progressed The ISM Manufacturing index hit its lowest level since October 2016 and the ISM® Non-Manufacturing (services) index, which represents two-thirds of the domestic economy, fell to its lowest level in nearly two years Of concern, the New Order sub-component of the ISM Manufacturing index registered a reading of 50, which is the tipping point between expansion and contraction. This reading is the lowest level since December 2015. In contrast, on the demand side of the economy the negative impacts of tariffs are a bit more difficult to discern. While the University of Michigan Consumer Sentiment index trended down during the quarter, it remains elevated. Consumers remain on solid ground as employment gains remain at healthy levels overall. The quarterly average monthly employment gain of 170,000 during 02 2019, down from 180,000 during 01 and 233,000 in 04 of 2018, is indicative of slowing growth but wage gains and average hours worked remain generally steady It should be noted that the final round of proposed US tariffs on Chinese goods, which would have directly affected consumer products imports, has been postponed for the time being Future implementation would have a material impact on our outlook for consumer spending

While it appears that central banks in US, Europe, and China are prepared to adopt more accommodative monetary policies to support growth, the factors underlying the current slowdown, in our opinion, are not interest rate sensitive. As such, without a near-term resolution of the various trade disputes, we would expect economic activity to continue to weaken, with downside risk exceeding upside risk.

Q2 2019 Review

The markets continue to favor larger cap stocks over smaller cap names. Growth stocks are still trumping value names across all capitalizations as lower interest rates encourage investors to take another look at growth companies whose primary source of value lies out in the distant future. Financial Services stocks were strong in the mid cap growth space, while Energy names faltered as oil prices declined.

Aggressive Growth fell short of the Russell Mid Cap Growth Index by 085%, returning +4.55% versus the benchmark +54%. Sector allocation was mildly negative; the primary detraction from performance was stock selection in the Financial Services sector. Our best selection came within Health Care – here lnsulet (3 6%)7 returned +25%, Sarepta Therapeutics (1%) rose +27%, and Dentsply Sirona (12%) gained + 17.9%.

Contributors
lnsulet Corp (3 6%; +25 5%) develops, manufactures and markets the Omni Pod, an insulin infusion system for people with type 1 diabetes. There is a continued adoption of pumps and automated insulin delivery systems worldwide, particularly in the US. New patient growth in the US was mid 30% this quarter and the company is benefiting from wider Medicare and Medicaid coverage In the next few quarters, lnsulet will be providing updates on the launch of DASH, the company’s first new product in the past six years DASH offers users a new interface that allows the patient to control all settings through the patient’s smartphone device. This interface is a dramatic improvement over the current bulky controller.

HEICO (18%; +410%) is a well-run aerospace component manufacturer. It specializes in the aftermarket, offering airlines the ability to replace broken aerospace components at a sizable discount to the prices charged by the OEMs. Given that there is significant testing to receive approval by the FAA, there is a significant competitive ‘moat’ for this industry, limiting the number of competitors that HEICO faces.

Detractors

Nutanix (13%; -313%) is a leader in Hyperconverged Infrastructure (HCI), which streamlines the operations of datacenter services by combining and integrating software with hardware servers. This new technology is being rapidly adopted as more computing is being done in the cloud, which HCI is perfectly designed to address. Unfortunately, while Nutanix had a first mover advantage, it is facing intense competition from VMWare and Dell. Given the lower revenue visibility, the position has been sold from the portfolio.

Glu Mobile (13%; -34 3%) is a leading developer and publisher of freemium mobile games We were excited about the prospects of accelerating growth throughout this year, driven by WWE Universe and Disney’s Sorcerers Arena. However, we were very surprised to see that a core game, Design Homes, was facing much greater competition this year, that directly impacted bookings and revenues. And more importantly, game mechanics issues led the company to launch WWE Universe and then quickly pull the game from the market Given the poor execution from the management team, we have much lower confidence that Sorcerers Arena will be a success, and that led us to sell our position in Glu Mobile.

Market Outlook

In the second quarter, most of the “themes” in the market continued to play out in a directionally similar manner to 01 Both sides of the US/China tariff stand-off alternated between taking a hard stance and indicating that they thought a deal can get done. At the G20 meeting on the last weekend of the quarter, Trump and Xi agreed to delay pending tariff increases while negotiations continue. Many believe that it is optimistic to think that a deal will get done well before year-end The economic softness referred to in the “macro” section above has caused bond yields to take another leg down. The 10-year Treasury yield that dipped down to about 2.4% at the end of 01 went slightly below 2 0% in the 2nd quarter and finished at 2 0% on 6/30/19. The members of the Fed, for their part, had already indicated that they would be on hold for some time (sparking last quarter’s rally), but then in the June press conference they went further and hinted at a possible rate cut Chairman Powell said, “we will act as needed, including promptly if that’s appropriate” Market bulls think this return to a “Fed-put” scenario will keep at least a floor on the markets and that an eventual China deal will provide additional upside But with the market near recent highs and valuations above historical averages, arguably at least some of the positives are already discounted.

While we continue to be optimistic in our outlook, we acknowledge that there are several segments of the market that are becoming significantly overvalued. Specifically, within the Saas software universe, there are now several public companies that are trading at 10-20x forward sales, an unheard of valuation. Within the biotech sector, there are countless companies that have come public over the past year with only preclinical data, without any human clinical data to be analyzed All this reflects a market environment that perhaps has become overheated. It might be beneficial to see stocks which have had enormous returns over the past year consolidate those gains We continue to find compelling investment opportunities within the growth space and remain focused on generating alpha and producing the strongest investment results we can for you over the long run. We thank you for your continuing support and investment Please feel free to call or email us with any feedback or questions about the portfolio

The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. The Index returns are provided to show an example of alternate return potential during the relevant time periods; however, indices may possess different investment attributes that may make comparisons difficult such as volatility, liquidity, market capitalization, and security types. The statistical data regarding the indices has been obtained from Bloomberg and the returns are calculated assuming all dividends are reinvested. The indices are not subject to any of the fees or expenses to which the portfolios are subject. This report assumes the reader has sophisticated knowledge of investing and the markets. If you require more information about the information presented, including the portfolio characteristics and risk statistics, please contact us.

Manager views expressed herein were current as of the date indicated above and are subject to change. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this commentary. A copy of the calculation methodology and the full list of recommendations made in the preceding year is available upon request. The performance data quoted represents past performance and does not guarantee future results. Performance returns quoted are gross of fees which were calculated on a time weighted basis and do not give effect to investment advisory fees, which would reduce such returns. Please see Chartwell’s Form ADV, Part II for a complete description of investment advisory fees. The following statement demonstrates the compound effect advisory fees have on investment returns: For example, if a portfolio’s annual rate of return is 15% for 5 years and the annual advisory fee for a client is 100 basis points or 1.00%, the gross cumulative 5 year return would be 101.1% and the five year return net of fees would be 92.5%. Actual fees charged to portfolios may be different due to various conditions including account size, calculation method and frequency, and the presence of a performance or incentive fee. The deduction of performance and incentive based fees will have similar, yet often larger, impacts to performance and account values than standard management fees. To receive a complete list and description of Chartwell Investment Partners’ composites, performance attribution for all securities, and/or a presentation that adheres to the GIPS® standards, please contact Lynette Treible by phone (610)407-4870, email treible@chartwellip.com, or by mail to 1205 Westlakes Drive, Suite 100, Berwyn, PA 19312.

30 Jul 2019

Second Quarter 2019

 

Market Commentary:

Looking back, the markets remained volatile during the quarter, after one of the strongest starts to the year, as investor sentiment oscillated with each passing headline. Growth concerns were temporarily placated with the initial U.S. GDP estimate exceeding forecasts at 3.2 percent for the first quarter of 2019, though that marked the high point for expectations. Corporations reported better than expected earnings, with management teams expressing caution regarding implications from moderating growth and disruptions from the trade dispute. Optimism around a potential trade deal was crushed as negotiations collapsed, with little progress made during the quarter. Hope rested on the G-20 meeting that happened over the last weekend in June, which produced some progress towards a resolution. These headwinds culminated in pressures on interest rates as investors moved into safe-haven assets, which sent the yield on the 10-year treasury to multi-year lows below 2 percent. Inflation has remained relatively tame, further bolstering confidence in the Federal Reserve’s pivot towards easier monetary policy and the likelihood of meaningful cuts to their benchmark rate during 2019.

Looking forward to the second half of 2019, positive corporate earnings growth still remains the most likely outcome for the full year. However, growth for earnings is increasingly dependent on an acceleration into the end of the year, as the upcoming quarterly estimate has fallen and is now flat with the prior year’s earnings. Tight labor markets and a rebound in housing from lower interest rates has continued to underpin the strength in the U.S. consumer despite the market concerns. Investors are likely to be focused on company outlooks for the remainder of the year as these issues begin to show a greater impact on their earnings and cashflows. As the economic cycle continues to progress later and later, the preference for high-quality, cash-generative businesses is likely to increase as markets become increasingly concerned for those companies with more challenged models where leverage is high, or cash generation is lower. These differences, we believe, will cause further dispersion in returns between securities, while avoiding those most exposed to a key driver of investor returns. We remain vigilant in assessing absolute risk in the securities we invest in and striving to protect client capital during these times for potential volatility from the uncertainty.

Index Drivers:

Within the S&P 500 Index, every sector posted positive returns during the second quarter except Energy, which was the lone decliner. Financials, Materials, and Information Technology all rallied the most during the quarter.

Performance Drivers:

The portfolio’s relative performance was aided by strong stock selection in Health Care and Information Technology. Cable One rallied as their shift towards growing high-speed data customers continued to boost margins and drive higher cash flow. DENTSPLY SIRONA moved higher on evidence of firming in the underlying end-market demand for their dental products. STERIS saw strong execution and solid growth across their healthcare product spectrum including capital equipment. Amdocs reported better-than-expected results as investors cheered their drop in unbilled receivables, which had been a concern. Intercontinental Exchange moved higher on solid organic growth within their data segment as earnings beat expectations and sales came in towards the high end of management’s guided range.

Unfavorable stock selection in Consumer Discretionary and Real Estate weighed on relative performance. Mall owners, like Simon Property Group, continued to be pressured by store closures and bankruptcies from mall-centric retail operators. Pentair fell as earnings fell short of expectations due to unfavorable weather and high inventory levels within their aquatic systems division. Energizer Holdings reported mixed results as management pointed to volatility with their recently acquired set of battery businesses as a culprit. Genuine Parts saw strength in their U.S. auto business overwhelmed by weakness in Europe and some moderation in their industrial distribution segment. Advance Auto Parts also saw better results in their U.S. auto parts business but investor concerns over the broader light vehicle cycle and upcoming difficult comparisons weighed on shares.

Past performance is not indicative of future results. Portfolio returns reflect the reinvestment of dividend and interest income. All information provided is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned. A description of the methodology used to calculate the attribution analysis or a complete list of each holding’s contribution to overall performance during the measurement period may be obtained by contacting info@westwoodgroup.com. Benchmark Data Source:  © 2019 FactSet Research Systems Inc. All Rights Reserved. Russell Investment Group is the owner of the trademarks, service marks, and copyrights related to its indexes, which have been licensed for use by Westwood.

30 Jul 2019

Macroeconomic Update

Trade tariff s, threats of additional trade tariff s, and the uncertainty regarding the ultimate resolution of the issues underlying the trade tariff s are having meaningful impacts on economic growth around the world. In the US, in the aggregate, the impacts are putting the brakes on Gross Domestic Product (GDP) growth. After upward revisions to the first quarter GDP expansion to 3.1%, fueled mainly by inventory building and export pre-buying ahead of the first round of tariff imposition, growth slowed markedly in the second quarter. As of July 3, 2019 the Atlanta Federal Reserve’s GDPNowTM (Federal Reserve Bank of Atlanta, Center for Quantitative Research) estimates second quarter 2019 growth at 1.5%. That will most likely be revised upward following a stronger than expected June employment report but will likely remain 2.0% or below following the revision. Interestingly, the tariff s are divulging a dichotomy in tariff response between business and consumer. On the supply side, businesses appear to have grown more cautious. Although both the Institute for Supply Management Manufacturing and Non-Manufacturing (services) indices (June 2019 Manufacturing ISM® Report On Business®, June 2019 Non-Manufacturing ISM® Report On Business®) registered continuing expansion readings, both weakened as the quarter progressed. The ISM Manufacturing index hit its lowest level since October 2016 and the ISM® Non-Manufacturing (services) index, which represents two-thirds of the domestic economy, fell to its lowest level in nearly two years. Of concern, the New Order sub-component of the ISM Manufacturing index registered a reading of 50, which is the tipping point between expansion and contraction. That is the lowest level since December 2015.

In contrast, on the demand side of the economy the negative impacts of tariff s are a bit more difficult to discern. While the University of Michigan Consumer Sentiment index (Survey of Consumers© The University of Michigan, 2019) trended down during the quarter, it remains elevated. Consumers remain on solid ground as employment gains, while softening, remain at healthy levels overall. The quarterly average monthly employment gain of 170,000 during the second quarter of 2019, down from 180,000 during the first quarter and 233,000 in the fourth quarter of 2018, is indicative of slowing growth but wage gains and average hours worked remain generally steady. It should be noted that the final round of proposed US tariff s on Chinese goods, which would have finally directly affected consumer products imports, have been postponed for the time being. Future implementation would have a material impact on our outlook for consumer spending.

Q2 2019 Review

The markets continue to favor larger cap growth stocks over smaller cap names and like last quarter, growth stocks are still trumping value names across all capitalizations. Technology, Consumer Discretionary and Financial Services stocks were strong, while Energy names faltered as oil prices declined. Notable this quarter, the Russell indices rebalanced at the end of June and in the Russell 1000 Growth Index, the Technology weight is now 37%, which is the highest level since the Technology bubble in the early 2000’s.

Large/Mid Growth fell short of the Russell 1000 Growth Index by 0.80%, returning +3.8% versus the benchmark +4.6%. Sector allocation was mildly negative; the primary detraction from performance was stock picks in the Consumer Discretionary sector. Lowe’s (3.4%) 1 and O’Reilly Automotive (2.0%) fell 5-7%, while the benchmark sector was up 6.6%. Our best selection came within Health Care – here Sarepta Therapeutics (0.9%) rose +27%, animal-health company Zoetis (2.3%) was up +13% and Insulet (0.7%) gained +25%.

Contributors

CDW Corp. (2.9%; +15.5%)is a technology solutions provider and reseller of equipment, operating through segments that serve corporate, small business, and public customers. The stock has performed well as the company continues to produce revenue gains greater than that of the underlying U.S. IT spend rates. This has allowed the company to consistently deliver mid to high-single-digit annual revenue growth and double-digit EPS growth. Management has aligned with faster growing emerging products/solutions, like cloud and SaaS (software as a service), and margin expansion has been driven by a higher mix of solutions sales.

Rapid7 Inc. (2.6%; +14.2%) has gained 85% this year as the company’s cloud SAAS security offerings continue to be in high demand. Enterprise customers continue to invest in Rapid7’s core market, Vulnerability Management. Rapid7 has one of the strongest software solutions to provide automated protection against intrusion for these corporate clients.

Detractors

Palo Alto Networks (1.5%; -16.0%) provides network security solutions to enterprises, services providers, and government entities. While the company beat expectations for revenue and earnings in the quarter, a miss on billings weighed on the stock. The billings miss was due to a shortening of a contract duration as well as fewer multi-year deals. This also resulted in a modest downward revision of EPS estimates for the upcoming quarter. We continue to believe that this will be a good longterm investment; network security is one of the most strategic, resilient, and rapidly growing areas of technology.

Lowe’s Companies (3.2%; -7.4%) is a big-box retailer of home-improvement products. The company had a messy quarter to say the least: a 9% EPS shortfall, gross margins down 160 basis points, inventories up 14%, and a 9% annual EPS guidance cut. Management cited cost pressures, merchandising organization transitions, and deficient pricing tools. The only positive in the quarter was a sales comparison of +4.2% in the U.S., ahead of Home Depot’s +3.0%. While we knew the company was in the midst of a turn-around, this is a setback, and we will be closely monitoring its upcoming results.

Market Outlook

In the second quarter, most of the “themes” in the market continued to play out in a directionally similar manner to Q1. Both sides of the US/China tariff stand-off alternated between taking a hard stance and indicating that they thought a deal can get done. At the G20 meeting on the last weekend of the quarter, Trump and Xi agreed to delay pending tariff increases while negotiations continue. Many believe that it is optimistic to think that a deal will get done well before year-end. The economic softness referred to in the “macro” section above has caused bond yields to take another leg down. The 10- year Treasury yield that dipped down to about 2.4% at the end of Q1 went slightly below 2.0% in the 2nd quarter and fi nished at 2.0% on 6/30/19. The members of the Fed, for their part, had already indicated that they would be on hold for some time (sparking last quarter’s rally), but then in the June press conference they went further and hinted at a possible rate cut. Chairman Powell said, “we will act as needed, including promptly if that’s appropriate.” Market bulls think this return to a “Fed-put” scenario will keep at least a floor on the markets and that an eventual China deal will provide additional upside. But with the market near recent highs and valuations above historical averages, arguably at least some of the positives are already discounted.

Portfolio positioning results primarily from bottom-up selection decisions but includes a small influence from our top-down economic outlook and sector prospects. We continue to find compelling investment opportunities within the large cap growth space and remain focused on generating alpha and producing the strongest investment results we can for you over the long run. We thank you for your continuing support and investment.

Please feel free to call or email us with any feedback or questions about the portfolio.

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30 Jul 2019

 

Market Commentary:

Looking back, the markets remained volatile during the quarter, after one of the strongest starts to the year, as investor sentiment oscillated with each passing headline. Growth concerns were temporarily placated with the initial U.S. GDP estimate exceeding forecasts at 3.2 percent for the first quarter of 2019, though that marked the high point for expectations. Corporations reported better than expected earnings, with management teams expressing caution regarding implications from moderating growth and disruptions from the trade dispute. Optimism around a potential trade deal was crushed as negotiations collapsed, with little progress made during the quarter. Hope rested on the G-20 meeting that happened over the last weekend in June, which produced some progress towards a resolution. These headwinds culminated in pressures on interest rates as investors moved into safe-haven assets, which sent the yield on the 10-year treasury to multi-year lows below 2 percent. Inflation has remained relatively tame, further bolstering confidence in the Federal Reserve’s pivot towards easier monetary policy and the likelihood of meaningful cuts to their benchmark rate during 2019.

Looking forward to the second half of 2019, positive corporate earnings growth still remains the most likely outcome for the full year. However, growth for earnings is increasingly dependent on an acceleration into the end of the year, as the upcoming quarterly estimate has fallen and is now flat with the prior year’s earnings. Tight labor markets and a rebound in housing from lower interest rates has continued to underpin the strength in the U.S. consumer despite the market concerns. Investors are likely to be focused on company outlooks for the remainder of the year as these issues begin to show a greater impact on their earnings and cashflows. As the economic cycle continues to progress later and later, the preference for high-quality, cash-generative businesses is likely to increase as markets become increasingly concerned for those companies with more challenged models where leverage is high, or cash generation is lower. These differences, we believe, will cause further dispersion in returns between securities, while avoiding those most exposed to a key driver of investor returns. We remain vigilant in assessing absolute risk in the securities we invest in and striving to protect client capital during these times for potential volatility from the uncertainty.

Timothy Plan Small Cap Value Fund Q2 2019 Commentary

Index Drivers:

During the first quarter, the Russell 2000 Index saw all sectors post positive returns, with Information Technology and Energy gaining the most and Consumer Staples and Financials the least.

Performance Drivers:

The portfolio’s relative performance benefitted from favorable stock selection in Materials and Utilities. ProPetro posted a strong quarter as their relationships in the shale basins, particularly the Permian, helped offset broader industry pressures. Installed Building Products gained after allaying fears regarding pricing power in the insulation installation business with tailwinds from improving housing sentiment. Innospec beat earnings handily driven by better sales and margins in their fuel specialties and oil field segments. Novanta rallied on solid organic growth and better margins as their focus on higher-growth end markets that began several years ago continues to pay dividends. Omnicell beat expectations as issues with a product transition appear to be fully resolved and execution remains good.

The portfolio’s relative performance was negatively impacted by unfavorable stock selection in Financials and an underweight to Information Technology. Penn Virginia declined after their plan to merge with another energy producer was abandoned. Columbia Banking System moved lower after missing expectations as slowing loan growth combined with higher expenses pressured their earnings. Gentherm suffered from weaker automobile volumes, leading to lower near-term guidance but management maintained their long-term guidance. Lattice Semiconductor, a recent purchase, moved modestly lower in sympathy with the market. Continental Building Products posted solid results but saw investor concerns over potential weakening in wallboard prices send shares lower as the quarter came to a close.

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