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Portfolio Manager Updates


3Q21 Short Duration Securitized Bond and Core Bond Portfolio Manager Call Replay

Portfolio managers Henry Song, CFA, and Mark Jackson, CFA, discuss expectations for the market reaction to Fed tapering, the impact of delta on consumers and opportunities they are finding.

  • We continue to believe valuations are stretched in the corporate market. On the front end, spreads are tight, mainly driven by post-pandemic stimulus. On the long end, durations are so long that it doesn’t take much widening to wipe out an entire year’s carry. As such, we believe the 5- to 10-year part of the curve is the most attractive right now.
  • The market has shown great appetite for consumer asset backed securities, so the high volume of issuance year to date has not been problematic. Given the consumer sector’s strong performance, investors have allocated more money to the sector. New investors have also come into the space, which helps absorb some of the supply. We’re also seeing newer segments such as solar loans—with climate change, more states and consumers are adopting solar energy.
  • As tapering begins, we expect some modest spread widening—enough to entice banks to be marginal buyers in the mortgage-backed securities market, especially because a lot of banks are sitting on record cash levels—but we don’t think tapering will be super disruptive to the mortgage market as a whole.
  • We welcomed Dane Hudson to the Diamond Hill fixed income team who joined the firm from Key Corp where he was a senior analyst. Dane interned with Diamond Hill back in 2016, and we are excited to have him as a full-time team member.
(disclosure)

Click here for standardized performance, expenses and important information for the Short Duration Securitized Bond Fund and Core Bond Fund.

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.

The views expressed are those of the speakers as of October 2021 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.

3Q21 Large Cap and Large Cap Concentrated Portfolio Manager Call Replay

Portfolio manager Austin Hawley, CFA, discusses the potential for higher inflation, delta-related supply chain disturbances and opportunities the team is finding.

  • We’ve seen strong market performance over the last 12 months, but it’s important to evaluate some emerging headwinds — including inflation and supply chain disruptions. We believe these headwinds are largely transitory and that earnings growth will continue, but it’s not surprising that the third quarter was more volatile compared to what we’ve seen over the past year.
  • Inflation continues to be top of mind, as some businesses are struggling with supply chain and labor issues. We continue to monitor companies closely—in our view, the key factor is whether companies are strong enough to offset price increases, have the ability to pass through those costs to customers and can continue to grow their business.
  • Despite a flat quarter for the Russell 1000® Index, valuations for the market overall remain relatively high. However, the volatility we've seen in individual sectors and industries has led to more potential opportunities for the portfolio.
(disclosure)

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

Standardized 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 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. Index data source: London Stock Exchange Group PLC.

The views expressed are those of Diamond Hill Capital Management as of October 2021 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.

3Q21 Long-Short Portfolio Manager Call Replay

Portfolio managers Chris Bingaman, CFA, and Nate Palmer, CFA, discuss the impact of delta-variant concerns and opportunities they are finding, both long and short.

  • It was not surprising to see the market take a breather in Q3 after five incredibly strong quarters. Looking at the market before and after the Fed meeting was particularly interesting. Growth performed well most of the quarter and the long end of the curve stayed somewhat depressed relative to its springtime levels. Then growth gave up much of its outperformance in the final seven trading days after a clearly more hawkish Fed meeting. We think it’s a good sign that the market is viewing the recovery as slightly more self-sustaining, and the prospect of less stimulus is now more palatable.
  • In Q3 and year to date, our long and short books have contributed favorably to the relative performance of the strategy. In Q3, financials and energy were key drivers on the long side, while industrials and consumer discretionary detracted. On the short side, consumer staples and financials were the biggest positives, while consumer discretionary and tech were the largest detractors.
  • We think this is a favorable environment to be looking for short opportunities—businesses that are overpriced and present a favorable risk-reward proposition.
  • We are paying close attention to inflation—labor pressure as well as raw materials costs. We think a lot about long-term pricing power and a company’s ability to offset some of these headwinds.
(disclosure)

For standardized performance, expenses and important information click here.

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

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

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.

The views expressed are those of Diamond Hill Capital Management as of October 2021 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.

3Q21 Small, Small-Mid and Mid Cap Portfolio Manager Call Replay

Portfolio managers Chris Welch, CFA, and Aaron Monroe, CFA, provide an update on the impact from delta-related disruptions and opportunities they are finding.

  • Supply chain disruptions are widespread, and it's been challenging for companies to manage through these headwinds. We're focused on assessing whether long-term demand is still healthy for impacted companies and evaluating how they’re positioned to manage through disruptions.
  • As inflation continues to be top of mind, we believe certain companies are better positioned to manage inflation and supply chain issues than others, including commodity owners and those with pricing power.
  • While we’re not in the business of forecasting macro factors like interest rates, the level and expected path of interest rates can have an impact on future business fundamentals for financial firms. The upward trend in interest rates during the quarter helped financials, particularly our banking holdings, across all three portfolios.
(disclosure)

Click here for standardized performance, expenses and important information for the Small Cap Fund, Small-Mid Cap Fund and Mid Cap Fund. A complete list of portfolio holdings for each fund is available here: Small Cap, Small-Mid Cap and Mid Cap.

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.

The views expressed are those of the speakers as of October 2021 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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