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Investor Series – Performance

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Performance is key.
The funny thing about math is that the numbers don’t lie. Portfolio managers can talk all about how complex and sophisticated their strategies are but if the performance is absent, that’s a major problem. In this step of the analysis, we attempt to answer the question of how is this fund performing? This is only one side of the coin though. The other side is how we expect a fund to perform in certain environments so we must also ask, how should this fund be performing? This is the side that tends to get overlooked when comparing a fund to both its benchmark and its peers. For example, the interest rate climate we are in right now would suggest a pullback in the prices of bonds and therefore a pullback in bond funds. This is especially true for bond funds with a higher sensitivity to changes in interest rates because they hold longer maturity bonds in their underlying portfolio, this is also known as “Duration”. The Fed has already raised rates a few times this year and has signaled more to come. Knowing that, we’d expect to see some pullback in our core bond funds and we have. If we look at one of our core holdings, the Segall Bryant & Hamill Plus Bond Fund (WIIBX) we can see evidence of that. Year to date, the fund is down -1.11% while it’s benchmark, the Barclays US Aggregate Bond Index, is down -1.59% and the Intermediate Term Bond Category (its peers) is down -1.41% . Because of this, it’s been in the top quartile performance-wise so far this year in comparison to similar funds. In climates where we’d expect it to perform, it so far has. In 2016, the fund was up 4.01% while the benchmark in that same year was only up 2.65%. In 2017, WIIBX was at a positive 4.81% while its benchmark lagged behind at a positive 3.54% . We can confirm this as having been a strong performing fund based on the classic Modern Portfolio Theory statistics of R-Squared, Beta, and Alpha. WIIBX shows its “best-fit” index is the Barclays Agg because of its high R-Squared value of 94.33% (100% is essentially a perfect fit). Its Beta of 0.95 to the index also suggests its highly correlated and taking both of these into account together means that the direction of movement of its price can be explained by movement of its comparative benchmark. Looking at Alpha however, suggests that management has been successful in generating returns above that of the benchmark and we can see that in the numbers described earlier from 2016 to current. Alpha for this fund has been 0.84% for the last 3 years. This is why it’s important to look at the full story of what the numbers tell us when looking at performance. By comparing it to the most relevant benchmark and to its category peers in the scope of how we expect it to behave, we can then make the best judgement of its performance.
Griffin Sheehy, Financial Analyst

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