Per our notes in the commentary Avalon on the extreme and persistent outperformance of large-cap and growth stocks at the detriment of small-cap and value stocks, we believe that our All Cap Core U.S. Equity investment process will produce solid risk-adjusted returns over the long-term.

Staying true to our investment process, growth’s outperformance signals us to gravitate to the more attractive value components of the market. As such, long-standing style performance trends and the strategy’s constraints on portfolio weights among the various market capitalizations (no more than 2/3 large-cap and no less than 1/3 mid and small-cap), have resulted in relative underperformance on a gross and net basis.

To this end, the All Cap Core U.S. Equity strategy holds a 9.7% weight in the five biggest members of the Russell 3000 Index (Microsoft, Apple, Amazon, Google and Facebook) compared to the 12.3% that is represented in the benchmark. Additionally, our 2/3 maximum weight constraint in large-cap stocks is less than the 80% represented within the benchmark, thus hampering our ability to outperform during a large-cap growth run-up.

For the second quarter of 2019, the Navigator® All Cap Core U.S. Equity strategy had a return of -0.73% (-1.47% net) vs. a 4.10% gain in the Russell 3000 Index. For the five years ending June 2019, the strategy gained 6.86% gross (3.71% net) vs. 10.19% for the Russell 3000.

Our positioning in industrials helped relative performance while our positioning in consumer discretionary and information technology acted as a drag in the second quarter of 2019. Portfolio holdings in Northrop Grumman and Facebook helped relative performance while holdings in G-III Apparel Group and PVH lagged.
During the quarter, the strategy held mostly large-cap stocks (63.1%) compared to mid and small-cap holdings (33.1%). The value and quality characteristics of the All Cap portfolio remain solid in comparison to the S&P 500 as it possesses a lower P/E of 15.7 vs. 18.7 and lower earnings variability combined with higher gross and net profit margins with similar business growth characteristics.

Top 5 Contributors

Ticker Quarter Ending June 30, 2019 Average Weight (%) Contribution to Return (%)
NOC Northrop Grumman Corporation 2.13 20.37
FB Facebook, Inc. Class A 2.81 15.78
MSFT Microsoft Corporation 2.01 14
PGR Progressive Corporation 2.45 11.03
WTFC Wintrust Financial Corporation 1.64 9.02

Top 5 Detractors

Ticker Quarter Ending June 30, 2019 Average Weight (%) Contribution to Return (%)
GIII G-III Apparel Group, Ltd. 2.18 -0.88
PVH PVH Corp. 1.78 -0.81
FL Foot Locker, Inc. 1.68 -0.72
SWKS Skyworks Solutions, Inc. 0.95 -0.32
KFY Korn Ferry 2.44 -0.26

Past performance is not indicative of future results.
The views expressed are those of the author(s) and do not necessarily reflect the views of Clark Capital Management Group. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investments portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.
This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.
The S&P 500 measures the performance of the 500 leading companies in leading industries of the U.S. economy, capturing 75% of U.S. equities.
The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
ISM Manufacturing Index – A widely-watched indicator of recent U.S. economic activity. The index is often referred to as the Purchasing Manager’s Index (PMI). Based on a survey of purchasing managers at more than 300 manufacturing firms by the Institute for Supply Management (ISM), the index monitors changes in production levels from month to month. The index is the core of the ISM Manufacturing Report.
The ISM Non-Manufacturing Index is an index based on surveys of more than 400 non-manufacturing firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM Non-Manufacturing Index tracks economic data, like the ISM Non-Manufacturing Business Activity Index. A composite diffusion index is created based on the data from these surveys, that monitors economic conditions of the nation.
The Composite Index of Leading Indicators, otherwise known as the Leading Economic Index (LEI), is an index published monthly by The Conference Board. It is used to predict the direction of global economic movements in future months. The index is composed of 10 economic components whose changes tend to precede changes in the overall economy. The Conference Board is an independent research association that provides its member organizations with economic and financial information.
The volatility (beta) of a client’s portfolio may be greater or less than its respective benchmark. It is not possible to invest in these indices.
Index returns include the reinvestment of income and dividends. The returns for these unmanaged indexes do not include any transaction costs, management fees or other costs. It is not possible to make an investment directly in any index.
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. Not every client’s account will have these exact characteristics. The actual characteristics with respect to any particular client account will vary based on a number of factors including but not limited to: (i) the size of the account; (ii) investment restrictions applicable to the account, if any; and (iii) market exigencies at the time of investment.
Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. There is no assurance that any securities, sectors or industries discussed herein will be included in an account’s portfolio. Asset allocation will vary and the samples shown may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request. CCM-669