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Portfolio Manager Updates


4Q21 Short Duration Securitized Bond and Core Bond Portfolio Manager Replay

January 11, 2022

  • It was an interesting quarter–the Fed not only announced the beginning of tapering but followed up with an acceleration to the process before it even started. A new, more contagious but possibly less dangerous COVID variant emerged, though the financial markets seemed to have dismissed it by early January. And, we saw some movement in the shorter end of the Treasury yield curve after holding steady in a tight range for the past couple of years.
  • In the ABS market, issuance continues to rise, and deals are getting more creative. We’re seeing more new assets added to the space–issuers who might not have considered securitizing in the past are looking into the securitized market as a viable way to raise money. This trend bodes well for the future of the sector, both from an investor demand and liquidity perspective.
  • In the investment grade corporate market, we think valuations remain stretched, particularly in the front end of the curve where accommodative Fed policy has made that part of the corporate credit curve especially tight. With spreads tight in general, the long end of the market feels vulnerable to spread widening.
  • In the CMBS space, we’re finding the most value right now in transitional assets, e.g., newer construction that needs financing, especially in multi-family. The fundamentals are strong, and the spreads are attractive in that space. We think there's still some recovery stories out there that make sense, but those tend to be on a case-by-case basis, whether it's in hospitality or retail.
(disclosure)

Click here for the Short Duration Securitized Bond Strategy and Core Bond Strategy performance..

Performance is not guaranteed. The performance data quoted represents past performance; past performance does not guarantee future results.

The Bloomberg U.S. Corporate Bond Index is an unmanaged index representing the investment grade fixed rate taxable corporate bond market including USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility, and financial issuers. Index data source: Bloomberg Index Services Limited.

The Bloomberg U.S. Aggregate Index is an unmanaged index representing the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through, and asset-backed securities. Index data source: Bloomberg Index Services Limited.

The Bloomberg U.S. 1-3 Yr. Gov./Credit Index is an unmanaged index of investment grade government and corporate bonds with maturities of one to three years. Index data source: Bloomberg Index Services Limited.

Investment Grade is a Bond Quality Rating of AAA, AA, A or BBB. Non-Investment Grade or High Yield is a Bond Quality Rating of BB or below.

The views expressed are those of the speakers as of January 2022 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Investing involves risk including the possible loss of principal.

4Q21 Large Cap and Large Cap Concentrated Portfolio Manager Replay

January 13, 2022

  • Despite rising inflation and the Fed’s comments surrounding tightening monetary policy, interest rates remained relatively stable, and low, during the quarter, which surprised us.
  • Supply chain issues continue to be an issue for many companies, such as consumer staples companies. For the most part, we believe these are near-term risk that will likely resolve over time.
  • Energy prices remain high as Russia and Saudi Arabia continue to withhold oil production amid strong demand. This, coupled with reduced oil and gas production in the US, led to strong pricing and performance in the sector in 2021.
  • Performance in the health care sector was not as strong as we would have expected given the ongoing pandemic. While COVID-related demand has benefitted some companies, it has undercut demand for other segments of the market, including elective procedures and preventative care.
(disclosure)

Performance is not guaranteed. The performance data quoted represents past performance; past performance does not guarantee future results.

Performance and a complete list of portfolio holdings for each strategy is available here: Large Cap, and Large Cap Concentrated.

The holdings identified do not represent all of the securities purchased, sold, or recommended for the adviser’s clients. The reader should not assume that an investment in the securities identified was or will be profitable. To obtain the contribution calculation methodology and a complete list of every holding’s contribution to the overall portfolio’s performance during the measurement period, contact 855.255.8955 or info@diamond-hill.com.

The views expressed are those of Diamond Hill Capital Management as of January 2022 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Investing involves risk including the possible loss of principal.

4Q21 Long-Short Portfolio Manager Replay

January 18, 2022

  • Investors saw a brief sell-off toward the end of Q3, but markets rebounded to finish Q4 with nearly double-digit gains.
  • From a sector perspective, the only notable shift in the portfolio has been in financials. It’s been a big source of exposure on the long side, and we still have meaningful exposure there. But valuations have also increased meaningfully in the last year or so, and we sold a couple of holdings that reached our fair value estimates.
  • The market environment has been favorable for finding short opportunities. When you have a lot of businesses generating fundamentals that we think are above normalized levels, it can create opportunity for us in the short book. This was the case in Q4, enabling us to add five new shorts to the portfolio.
  • We think it’s likely that monetary policy will be tighter going forward, and we’ll see some restraint on the fiscal side. How that translates to the rate markets is a lot tougher to say. We've generally been surprised that rates have stayed as low as they’ve been for so long. We think modestly higher rates would likely slow economic activity in certain areas like real estate and autos, which could help take some of the pressure off inflation.

The Diamond Hill Funds are distributed by Foreside Financial Services, LLC (Member FINRA). Disclosure and Important Information

(disclosure)

For standardized performance, expenses and important information click here.

Performance is not guaranteed. The performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The Fund’s current performance may be lower or higher than the performance data quoted. Investors may obtain performance information current to the most recent month-end, within 7 business days, at diamond-hill.com.

Click here to view a complete list of holdings for the Long-Short Fund.

The Diamond Hill Funds are distributed by Foreside Financial Services, LLC (Member FINRA).

10/1/2021 to 12/31/2021
Best Security Name Contr. Weight Sector L/S
1 KKR & Co., Inc. 0.6 2.7 Financials Long
2 Pfizer, Inc. 0.6 1.4 Health Care Long
3 Kirby Corp. 0.5 2.0 Industrials Long
4 Microsoft Corp. 0.5 2.9 Information Technology Long
5 Humana, Inc. 0.4 2.2 Health Care Long
Worst Security Name Contr. Weight Sector L/S
1 Medtronic PLC -0.4 1.9 Health Care Long
2 Citigroup, Inc. -0.4 2.7 Financials Long
3 Tesla, Inc. -0.2 (0.3) Consumer Discretionary Short
4 Ormat Technologies, Inc. -0.2 (1.5) Utilities Short
5 Fidelity National Information Services, Inc. -0.2 2.5 Information Technology Long
1/1/2021 to 12/31/2021
Best Security Name Contr. Weight Sector L/S
1 American International Group, Inc. 2.1 4.1 Financials Long
2 KKR & Co., Inc. 2.0 2.7 Financials Long
3 Alphabet, Inc. (Cl A) 1.8 3.8 Communication Services Long
4 Cimarex Energy Co. 1.4 0.0 Energy Long
5 Microsoft Corp. 1.1 2.9 Information Technology Long
Worst Security Name Contr. Weight Sector L/S
1 Fidelity National Information Services, Inc. -0.5 2.5 Information Technology Long
2 Oracle Corp. -0.6 (1.3) Information Technology Short
3 Penumbra, Inc. -0.6 (1.4) Healthcare Short
4 Robert Half International, Inc. -0.9 (1.5) Industrials Short
5 Dick’s Sporting Goods, Inc. -1.1 (0.4) Consumer Discretionary Short

The holdings identified do not represent all of the securities purchased, sold, or recommended for the adviser’s clients. The reader should not assume that an investment in the securities identified was or will be profitable. To obtain the contribution calculation methodology and a complete list of every holding’s contribution to the overall portfolio’s performance during the measurement period, contact 855.255.8955 or info@diamond-hill.com.

The Russell 1000 Growth Index is an unmanaged market capitalization-weighted index measuring the performance of the small cap growth segment of the U.S. equity universe including those Russell 1000 Index companies with higher price-to-value ratios and higher forecasted growth values.

The views expressed are those of the speakers as of January 2022 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.

4Q21 Small, Small-Mid and Mid Cap Portfolio Manager Replay

January 20, 2022

  • Large caps outperformed small caps once again in 2021, with a handful of mega cap tech stocks accounting for a significant amount of the S&P 500’s gains. This continued strength amongst large caps has led to a valuation gap between large and small caps that we haven’t seen in more than 20 years. Given the current environment, we’ve continued to find more opportunities toward the lower end of our market cap range in smaller stocks.
  • The emergence of Omicron threw markets for a loop around Thanksgiving, exacerbating an already very challenging labor market for travel & leisure businesses and causing significant disruption – airlines were forced to cancel thousands of flights, and resorts, hotels and entertainment venues struggled to keep up with demand. While variant outbreaks do pose a challenge, we believe our holdings in the space are well-positioned for the long term, particularly as vaccination progress has enabled travelers to resume somewhat normal travel activity.
  • Supply chain issues continue to impact the ability of some businesses to meet demand. While it’s hard to know when these issues will resolve fully, we are seeing signs that the issues have stabilized or started to slowly improve for some companies.
(disclosure)

Performance is not guaranteed. The performance data quoted represents past performance; past performance does not guarantee future results.

Performance and a complete list of portfolio holdings for each strategy is available here: Small Cap, Small-Mid Cap and Mid Cap.

The Russell 1000 Index is an unmanaged market capitalization-weighted index comprised of the largest 1,000 companies by market capitalization in the Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies by total market capitalization. Index data source: London Stock Exchange Group PLC.

The Russell 2000 Index is an unmanaged market capitalization-weighted index comprised of the smallest 2,000 companies by market capitalization in the Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies by total market capitalization. The Russell 2000 Value Index is an unmanaged market capitalization-weighted index measuring the performance of the small cap value segment of the U.S. equity universe including those Russell 2000 Index companies with lower expected growth values. Index data source: London Stock Exchange Group PLC.

The Russell 2500 Index is an unmanaged market capitalization-weighted index comprised of the smallest 2,500 companies by market capitalization in the Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies by total market capitalization. The Russell 2500 Value Index is an unmanaged market capitalization-weighted index measuring the performance of the small and midcap value segment of the U.S. equity universe including those Russell 2500 Index companies with lower expected growth values. Index data source: London Stock Exchange Group PLC.

The Russell Midcap Index represents the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Value Index is an unmanaged market-capitalization weighted index measuring the performance of the mid cap value segment of the U.S. equity universe including those Russell Midcap Index companies with lower expected growth values.

The holdings identified do not represent all of the securities purchased, sold, or recommended for the adviser’s clients. The reader should not assume that an investment in the securities identified was or will be profitable. To obtain the contribution calculation methodology and a complete list of every holding’s contribution to the overall portfolio’s performance during the measurement period, contact 855.255.8955 or info@diamond-hill.com.

The views expressed are those of the speakers as of January 2022 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Investing involves risk including the possible loss of principal.

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DIAMOND HILL® CAPITAL MANAGEMENT, INC. | DIAMOND-HILL.COM | 855.255.8955 | 325 JOHN H. MCCONNELL BLVD | SUITE 200 | COLUMBUS, OHIO 43215
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