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Commentary iMGP SBH Focused Small Value First Quarter 2022 Commentary

During the first quarter of 2022, the iMGP SBH Focused Small Value declined 4.64%%, trailing the Russell 2000 Value Index benchmark’s 2.4% loss and the Morningstar Small Value category (down 2.02%). Since its July 2020 inception, the fund’s 25.02% annualized gain trails the Russell 2000 Value’s gain of 36.46%, and the Morningstar category’s 37.31% return.

Performance as of 3/31/22One MonthYear to DateOne-YearAverage Annual Since Inception (7/31/20)
iMGP SBH Focused Small Value Ins-2.21%-4.64%-2.93%25.02%
Russell 2000 Value1.96%-2.40%3.32%36.46%
Russell 20001.24%-7.53%-5.79%23.67%
Morningstar Small Value Category0.43%-2.02%6.11%37.31%
Gross Expense Ratio 2.11%, Net Expense Ratio 1.15%

Performance quoted represents past performance and 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. Current performance of the funds may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund.To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit Returns less than one year are not annualized.

Portfolio Breakdown as of 03/31/2022

By SectorFund Russell 2000 Value+/-
Consumer Discretionary9.5%7.1%2.4%
Information Technology13.7%5.4%8.3%
Communication Services0.0%3.6%-3.6%
Health Care & Pharmaceuticals4.6%8.9%-4.3%
Industrials 33.6%15.3%18.3%
Consumer Staples 7.6%3.0%4.5%
Real Estate 2.7%11.9%-9.2%
Top 10 Holdings

Portfolio Positioning/Opportunity Set

The portfolio was well positioned heading into the quarter as strong management teams continued executing well throughout the COVID pandemic, despite inflation, supply chain, and labor constraints. However, significant increases in oil prices following Russia’s invasion of Ukraine brought additional challenges to many of our holdings. We have remained underweight the energy sector based on our philosophical belief that sustainably higher Returns on Invested Capital (ROIC) that depend solely on the unpredictable and volatile price of an underlying commodity are difficult to achieve. This underweight impacted relative performance, particularly in March. We are closely watching the commodity markets to see if we are truly entering a commodity super cycle driven more by supply shock versus demand, which is much harder to predict. We have avoided adding additional exposure to companies with large presences in Europe given the Russia-Ukraine war and its impact on energy prices in Europe.

Discussion of Performance Drivers

It is important to understand that the portfolio is built stock by stock with sector and cash weightings being residuals of the bottom-up, fundamental stock-picking. That said, we do report on the relative performance contributions of both sector weights and stock selection to help shareholders understand drivers of recent performance. It is also important to remember that the performance of a stock over a single quarter tells us nothing about whether it will be a successful position for the fund; that is only known at the point when the stock is sold.

PartnerSelect SBH Focus Small Value Attribution

  • Sector allocation was the driver of relative underperformance in the quarter, while stock selection had only a negligible impact.
  • The three sectors that contributed most to the portfolio’s performance relative to its benchmark in the quarter were Health Care (driven by allocation and selection), Consumer Discretionary (driven by selection) and Financials (driven by allocation).
  • Materials holding Compass Minerals was a top contributor on an individual stock basis. Compass Minerals performed well during the quarter after a very challenging fourth quarter 2021. The stock is discussed in more detail below.
  • The single largest detractor for the quarter was the fund’s material underweight to the Energy sector (1.96% vs. 8.0%). PDC Energy, the only energy holding in the portfolio, performed very well in the quarter, up 49.53%. (Comparatively, the benchmark’s energy exposure was up 43.88%.) PDC Energy’s management continues to execute well, but the position was trimmed during the quarter. Additional comments are below in the Contributors section.
  • The three sectors that detracted most from the portfolio’s performance relative to its benchmark in the quarter were Energy (driven by allocation), Consumer Staples (driven by selection), and Information Technology (driven by allocation).
  • On an individual stock basis, Materials holding Glatfelter was a top detractor due primarily to its exposure to European natural gas prices, which are a feedstock within its German operations. See more details below.

Top 10 Contributors as of the Quarter Ended March 31 2022

Portfolio Weight %Benchmark Weight %Three MonthContribution to Return %Economic Sector
PDC Energy Inc1.660.4249.530.74Energy
Compass Minerals International Inc3.650.023.240.74Materials
KBR Inc3.260.0615.190.48Industrials
Mercury Systems Inc0.910.020.740.28Industrials
SP Plus Corp 2.690.011.130.27Industrials
Equity Commonwealth REIT2.230.228.920.19Real Estate
CSG Systems International Inc1.530.0710.780.15Information Technology
Orthofix Medical 2.560.045.180.12Healthcare
Harley Davidson Inc2.114.540.08Consumer Discretionary
Sterling Construction Co Inc2.590.041.900.07Industries

2022  Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

Top 10 Detractors as of the Quarter Ended March 31

Portfolio Weight %Benchmark Weight %Three Month %Contribution to Return %Economic Sector
Glatfelter Corp3.040.05-27.21-0.89Materials
Coty Inc Class A4.630.00-14.38-0.79Consumer Staples
The Hain Celestial Group Inc3.340.00-19.27-0.73Consumer Staples
SPX Corp3.010.03-17.21-0.58Industrials
Faro Technologies Corp1.830.04-25.85-0.57Information Technology
Belden Inc3.250.18-15.72-0.56Information Technology
Regal Rexnord Corp3,320.00-12.38-0.43Industrials
Astec Industries Inc1.010.09-37.76-0.42 Industrials
AZZ Inc2.490.09-12.45-0.34 Industrials
Quanex Building Products 1.900.00-15.00-0.30 Industrials

2022  Portfolio contribution for a holding represents the product of the average portfolio weight and the total return earned by the holding during the period. Past performance is no guarantee of future results. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

Commentary on Selected Contributors and Detractors


PDC Energy, Inc. The thesis for owning PDC Energy was driven by management’s focus on deleveraging the business while allocating capital with a disciplined return focus. The company is laser focused on utilizing cash flow from higher oil prices to pay down substantial amounts of debt and fund dividend and stock buybacks. In addition, the company continues to perform very well operationally. There is a concern by what seems to be a never-ending appetite for buying energy stocks and the sustainability of the cash flow picture for the industry. Given these concerns, we have trimmed back the position. Valuation remains very attractive relative to peers, but much of the stock price action will continue to be driven by overall oil prices, which are hard to predict.

Compass Mineral International. The investment in Compass Minerals International, a leading global supplier of essential minerals, centers on the management team driving a renewed focus on operational discipline and portfolio management. Compass has divested its non-core Brazilian assets, while disclosing a strategy to develop a very large, untapped lithium asset. The outperformance in the quarter was predominately due to the stock being oversold from the fourth quarter but also to the market’s realization that Compass’ Plant Nutrition business in North America should benefit greatly from higher agricultural prices. At current levels, the valuation is fair based on conservative assumptions of demand for the company’s products, however, the stock is significantly undervalued assuming the company can develop its lithium asset on budget and on time.

KBR, Inc. The reason for owning KBR was based on the competitive moat the company has developed across its businesses, which play into emerging trends, such as incremental funding around environmental regulations and in other areas within government spending, such as space exploration. The stock performed well due to the company’s consistent execution in the face of the challenging backdrop of inflation and supply chain headwinds. Going forward, the company should benefit from more global defense spending due to Russia’s invasion of Ukraine. We have maintained our position in KBR given the fact that some of the megatrends to which the company is exposed are in the very early innings and given the company’s outlook for significant earnings power and return improvement over the next several years. We believe the market has not fully recognized these at this time.


Glafelter Corp. The investment rationale for owning Glafelter Corp. (GLT) was the defensibility of its global portfolio of products, which derives 80% of its revenues from consumer staples end markets. The company has built out its business with recent acquisitions to become a global market share leader in advanced materials. The stock has underperformed predominantly from inflation running significantly faster than the company’s ability to raise prices; the Russia-Ukraine war has only made this situation more challenging. Glafelter has sizeable operations in Europe that rely on Russian natural gas, the price of which has risen to levels never seen before and this is compressing the company’s margins. While Glafelter is raising prices and restructuring customer contracts, this will take time to execute. We believe the stock is very attractively valued; however, with the headwinds we see today, we have not added to the position.

Hain Celestial Group, Inc. Our decision to own Hain Celestial Group was the turnaround of the company under new leadership, which has transformed the business into one that is more niche and higher margin, with higher velocity brands. However, Hain is facing significant cost and logistics pressures in its European businesses due originally to the COVID pandemic but now due to energy and raw material input challenges resulting from the Russia-Ukraine war. While the company is raising prices very aggressively, there is a lag combined with a lack of certainty regarding Hain’s ability to capture all the cost increases. The stock is very attractive from a valuation viewpoint; however, lacking a near-term catalyst until the war in Ukraine ends, we have decided not to add to the position.

Coty, Inc. The investment thesis in Coty Inc. (COTY) has been based on the company’s entirely new management team, which was looking to bring focus, efficiency, and innovation into the company’s core product markets of beauty and fragrance. The progress it has made has been very impressive; however, the company is in the very early stages of this transformation. We continue to be positive on the inflection we are seeing and remain positive as valuation is still well below the overall peer group. Given COTY’s exposure to the European consumer, the stock was punished from a risk-off viewpoint following Russia’s invasion of Ukraine.

Astec Industries, Inc. Our decision to invest in Astec Industries, Inc. (ASTE) was driven by a simplification plan recently laid out by the management team. We believe the team has done an excellent job positioning the company to take advantage of increased infrastructure spending and, as a result, it has seen all-time record backlogs build. Despite this, the stock missed expectations as supply chain and labor challenges have held on far longer than expected. We continue to believe Astec has significant runway for margin expansion over the next several years from increased customer spending and the new Infrastructure Bill, which passed recently. However, supply chain challenges remain the biggest constraint today and likely for the next several quarters. We did add to the position, however, given the significant pullback in the stock.

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The funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting Read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Past performance does not guarantee future results. 

Investing in small companies subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies. Though not an international fund, the fund may invest in foreign securities. Investing in foreign securities exposes investors to economic, political and market risks and fluctuations in foreign currencies. These risks are greater for investments in emerging markets. 

basis point (bps) is a value equalling one one-hundredth of a percent (1/100 of 1%)

Return on Invested Capital (ROIC) is acalculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. Return on invested capital gives a sense of how well a company is using its money to generate returns.

The Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

Each Morningstar Category Average represents a universe of Funds with similar investment objectives.

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the IMGP  due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

The iMGP Funds are Distributed by ALPS Distributors, Inc.