Archives

Small Cap Value

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.

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

 

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.

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

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 comparisons 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 Small Cap Value Fund Q1 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.

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
Q2-18

Third Quarter 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 Small Cap Value Fund Q3 2018 Commentary

 

Index Drivers:

During the third quarter, the Russell 2000 Index saw strength in the Telecommunication Services, Health Care, and Information Technology sectors while the Energy, Consumer Staples, and Real Estate sectors underperformed.

 

Performance Drivers:

The portfolio’s relative performance benefitted from favorable stock selection in Industrials and Energy. Omnicell rose after posting strong results, as their XT rollout continued, and bookings grew into the mid-teens. Albany International moved higher after posting strong top- and bottom-line results in both their machine clothing and engineered composites segments. Comfort Systems benefitted from continued strength in non-residential construction, pushing backlog up meaningfully and supporting future growth potential. Sonic Corp. rose after agreeing to be acquired by Inspire Brands at a significant premium. Continental Building Products gained on strong volumes and positive price-cost for their wallboard operations during the quarter.

 

The portfolio’s relative performance was negatively impacted by unfavorable stock selection in Consumer Discretionary and Materials. Summit Materials faced weather-related pressures on their volumes and negatively impacted their realized pricing.  Installed Building Products faced rising input costs, which pinched margins, as price increases are being enacted to match the inputs. SRC Energy has seen recent potential regulations in Colorado regarding setback distances for wells push the stock lower.  Hostess Brands fell on weak volumes and unfavorable mix which pushed gross margins down, though they did gain share in their sweet baked goods segment. Lithia Motors posted stronger topline on better used vehicle sales, but continued to see rising personnel and marketing expenses pressure margins, driving earnings below expectations.

 

30 Jun 2018
Small Cap Value Fund

Index Drivers:

During the second quarter, the Russell 2000 Index saw strength in the Energy, Real Estate, and Consumer Staples while the Industrials, Materials, and Financials sectors underperformed

Performance Drivers:

The portfolio’s relative performance benefitted from favorable stock selection in Information Technology and Utilities.  Sonic shares moved higher after reporting better than expected same-store sales as weather normalized and management provided a positive outlook. Novanta continued to post strong results as they transition further up the value-chain and expand their addressable markets.  SRC Energy rallied on the back of solid results and rising crude oil prices.  Omnicell gained after strong implementations for their XT platform with new products in place to further support additional growth.  Brooks Automation climbed on strong results across both their life science and semiconductor segments with management’s guidance for their upcoming quarter well ahead of estimates.

 

The portfolio’s relative performance was negatively impacted by unfavorable stock selection in Energy and Financials. Callon Petroleum fell on investor concerns regarding pipeline takeaway capacity for their operations in the Permian Basin. Summit Materials declined as weather caused volumes to come in below expectations and investors awaited future acquisitions. Alamo Group saw results pressured by a strike at one of their plants, now resolved, and management continued to invest in additional plants and equipment to support future growth.  Hostess shares moved lower as the loss of shelf space at a major grocer is a near-term headwind to topline growth, though management plans to increase spending in subsequent periods to help reaccelerate growth.  LegacyTexas fell as elevated credit costs from two specific credits drove earnings below expectations even as their net interest margin expanded from higher rates.