72.6% of the Navigator® Small Cap portfolio is positioned in small-cap stocks with the balance in mid-cap stocks and cash. Industrials are now the largest sector weight in the portfolio as economic conditions continue to improve. Consumer Discretionary, Healthcare and Technology represent our next largest sector weights, each greater than 15%.

Our Technology position increased during the month with the addition of analytics company Verint. We removed Holly Corp as carbon-based energy conditions continue to deteriorate. We replaced a more defensive Healthcare company United Therapeutics with HMS Holdings to upgrade relative out-year earnings growth prospects. The portfolio’s quality characteristics, as measured by earnings variability and gross and net margins, have now tilted towards a barbell of what we believe are high quality, high margin and high yielding companies. We believe that the strong antifragility characteristics score of its holdings will help keep portfolio volatility low.

For the five years ending September 2020, the Navigator® Small Cap Core U.S. Equity strategy delivered annualized gains of 4.52% gross (1.43% net) versus 7.97% gains for the Russell 2000. For the third quarter of 2020, the strategy had a gain of 6.53% gross (5.75% net) vs. a 4.93% gain for the Russell 2000 Index.

Positioning in Financials and Healthcare helped relative performance, while positioning in Consumer Discretionary and Consumer Staples acted as a drag. Our higher quality holdings such as PennyMac Financial Services and Charles River Laboratories helped performance in the quarter while positions in Sprouts Farmers Market and HollyFrontier Corporation hurt performance. The value characteristics of the strategy remain compelling. Its current P/E of 16.8 is far less than that of the S&P Small Cap (35.5) and Russell 2000 with favorable quality characteristics.

Top 5 Contributors

Ticker Quarter Ending September 30, 2020 Average Weight (%) Contribution to Return (%)
PFSI PennyMac Financial Services, Inc. 3.28 1.11
CRL Charles River Laboratories International, Inc. 2.77 0.73
ENSG Ensign Group, Inc. 2.46 0.67
TMHC Taylor Morrison Home Corporation 2.65 0.63
EBS Emergent BioSolutions Inc. 2.48 0.61

Top 5 Detractors

Ticker Quarter Ending September 30, 2020 Average Weight (%) Contribution to Return (%)
SFM Sprouts Farmers Markets, Inc. 2.14 -0.42
HFC HollyFrontier Corporation 1.09 -0.34
ATKR Atkore International Group Inc. 1.87 -0.32
UTHR United Therapeutics Corporation 1.65 -0.25
PLXS Plexus Corp. 1.11 -0.2
Source: Factset. For illustrative purposes only. Past performance does not guarantee future results. The holdings identified do not represent all of the securities purchased, sold or recommended for advisory clients. In the chart above, “weight” is the average percentage weight of the holding during the period, and “contribution” is the contribution to overall performance during the period. To obtain the calculation methodology and a list showing every holding’s contribution to the overall composite during the period, contact: PortfolioAnalytics@ccmg.com.

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.
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.
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 2000 Index measures the performance of the 2000 smallest U.S. companies based on total market capitalization in the Russell 3000, which represents approximately 11% of Russell 3000 total market capitalization..
The ISM Non-Manufacturing Index (NMI) is an economic index based on surveys of more than 400 non-manufacturing (or services) firms’ purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM).
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-670