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Large Mid Cap Value

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.

31 Mar 2019
Q1019

First Quarter 2019

 

Market Commentary:

Looking back, the S&P 500 reversed course from the end of the year and rallied for one of the best first quarters to start the year in two decades. The major worries of the market that pressured shares turned into tailwinds. Fears over growth were placated for the majority of companies when they reported earnings. While some areas remain challenged, most companies continue to ascribe to the view that the U.S. economic backdrop is supportive for another year of positive growth. This optimism drove small cap stocks to outpace large caps and growth stocks to rally over value stocks. The next headwind-turned-tailwind was the major pivot by the Federal Reserve, as their dot plot forecast removed any further interest rate hikes in 2019. Investors shifted their expectations to now believe the likely next action is a rate cut, with an increasing probability of that occurring into 2020, rather than a rate hike. Optimism also rose for a potential trade deal with China, as some progress appears to have been made which helped bolster both domestic and global markets during the quarter.

Looking forward to 2019, corporate earnings growth remains the most likely outcome for the full-year, though the next quarterly set of reports could be more challenged on difficult comparisions from 2018. While some companies may report slight declines in year-over-year earnings as a result, the majority of companies are expected to remain positive. Consumer strength remains a driver for continued economic growth as labor markets remain tight even amidst these macroeconomic uncertainties. Corporate investments continue to face headwinds from the global uncertainty, and investors remain keenly focused on the behavior of companies regarding their uses of cashflow, whether for long-term capital expenditures, returning it to shareholders, or reducing their leverage. These issues we believe will further separate those businesses with pricing power and higher- quality models as those decisions are key to creating long-term shareholder value. 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 Q1 2019 Commentary

Index Drivers:

Within the S&P 500 Index, every sector posted positive returns during the first quarter, with Information Technology and Real Estate rallying the most while Health Care and Financials rose the least.

Performance Drivers:

The portfolio’s relative performance was aided by strong stock selection in Health Care and Materials. KLA-Tencor rallied on strong results as management indicated results should trough in the next quarter for their semiconductor business. Union Pacific saw their first quarter with precision scheduled railroading help drive productivity improvements with pricing also strong. J.M. Smucker saw positive organic growth as they continue to look for their investment spend and new products to boost topline growth in the coming years. Eagle Materials moved higher after reporting earnings as optimism for the spring construction season increased and an activist investor became involved in shares. PerkinElmer posted strong results ahead of expectations led by their diagnostics segment where topline growth exceeded 10 percent.

Unfavorable stock selection in Information Technology and Financials weighed on relative performance. Given the sharp rally in the markets, only two securities detracted from performance for the quarter. Amdocs declined despite an inline quarter on a negative research report that pressured shares. Everest Re also detracted modestly from performance due to missing estimates from elevated catastrophic losses and the ongoing remixing of their business.

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.

12 Nov 2018

 

Market Commentary:

Looking back, equity markets marched higher during the quarter, extending their gains as most indices have now risen over 10 percent through the first three quarters. Growth outpaced value and large caps rose over small caps. Global markets also fared well though Asian markets continued to feel pressure from potential trade impacts. Headline risk remains regarding potential tariffs and responses with China. Despite the constant rhetoric on trade, progress was made with Canada and an agreement to replace NAFTA appears likely between the U.S., Mexico and Canada. However, economic strength remains a tailwind domestically as investors continue to look for signs of cracks from the earlier trade actions. The Federal Reserve agreed that the economy is well-supported, choosing to raise the Federal Funds Rate during the quarter, and interest rates rose broadly. Volatility remained muted again during the quarter, though market participants remained cognizant for potential speedbumps that might appear.

 

Looking forward, earnings continue to be an important measure for the strength of the underlying economy, particularly here in the U.S. Concerns over when the next recession will happen remain  given the duration of the current business cycle, while the most recent series of fiscal policies regarding trade and tariffs have further added to market worries. Equities have continued to look through the headline noise having rallied year-to-date, though mid-term elections could be a potential source of disruption. Interest rates have moved higher recently, with the Federal Reserve having hiked rates again at their most recent meeting. Another worry for the markets remains centered on the potential for the Fed to make a policy error and tighten conditions too much.  Despite these fears, the strength in topline growth and cash flows have made valuations much more appealing than they were over the last few years. Continued focus by investors on companies’ ability to offset inflationary pressures and deploy their capital in high-returning areas will be a key differentiator for higher-quality companies. Similarly, volatility has remained stubbornly low and we remain vigiliant in assessing absolute risk and strive to protect client capital during increased periods of volatility.

 

Timothy Plan Large/Mid Cap Value Fund Q3 2018 Commentary

 

Index Drivers:

Within the S&P 500 Index, the Health Care, Industrials, and Information Technology sectors outperformed in the third quarter while the Materials, Energy, and Real Estate sectors underperformed.

 

Performance Drivers:

The portfolio’s relative performance was aided by strong security selection in the Industrials and Energy sectors. PerkinElmer gained after posting strong double-digit organic revenue growth as a result of management’s strategy to reshape the portfolio towards higher growth areas. Hubbell gained on strong earnings as price increases began to offset expense pressures seen earlier in the year from higher input costs. FLIR Systems moved higher as the new CEO delivered on higher gross margins and earnings beat expectations. Union Pacific benefitted from solid underlying economic conditions and announced new longer-term operational improvements based on precision railroading.  Cable One’s integration of NewWave provided some tailwinds and their strong growth in high speed data continued to move their revenue per user higher.

 

Unfavorable stock selection in Information Technology and an underweight in Health Care weighed on relative performance. Eagle Materials saw wet weather and more aggressive competition weigh on the results of their cement division. Mohawk Industries faced stiff cost headwinds which pressured margins, though management has implemented price increases to help offset. Public Storage moved lower on continued fears over incremental capacity coming online in the self-storage market in excess of current demand. Dentsply Sirona posted inline results but lowered guidance as inventory destocking for dental distributors is again a headwind. Lam Research shares fell on market concerns over the duration of the semiconductor cycle.

 

30 Jun 2018
Q2-18

MARKET COMMENTARY:
Looking back, equity markets recovered quickly during the second quarter with strong gains, particularly in the small cap arena, as concerns over currency impacts and international exposure weighed on some parts of the market. Volatility, which had surfaced earlier in the year, moderated throughout the quarter though remained elevated relative to recent historically low levels. The market grappled with continued headlines regarding the potential for trade wars with our international partners on several different fronts. The Federal Reserve (Fed) raised rates again in June, fully expected by the market, as the economy remained strong. While the global growth narrative may have softened, the Fed and the European Central Bank (ECB) appear committed toward the normalization of monetary policy, so long as the data supports it. The ECB has laid out their plan to slowly reduce their purchases of bonds, before pausing, then beginning to hike rates starting later in 2019.

Looking forward, the upcoming earnings season will be an important barometer for the strength of the underlying business conditions. Concerns over inflationary pressures from rising wages and input costs will be very topical; at the same time, investors will be keen to hear if the various tariffs, retaliations and headlines on the topic of trade have impacted actual profits for companies as the market expectation remains for another quarter of strong growth. While the markets have largely looked through the potential disruptive trade policies so far, further volatility on that front could be a potential headwind. Additionally, the continued focus on capital allocation for their increased cashflow as a result of the tax cuts, particularly toward capital investment versus share repurchases, will be a key differentiator as higher quality companies are able to redeploy into higher returning areas. Through our focus on high-quality companies, we continue to remain vigilant in assessing absolute risk in our portfolios and striving to protect client capital during volatile periods like we saw to start the year.