Sandhill is firing on all cylinders.
For year to date 2016 through 9/30/16, Sandhill’s flagship CEA composite is up 14.9% net of fees vs. 6.1% for the S&P 500 Index. Our performance puts Sandhill in the top of its class nationally.
The catalyst for our performance was the second quarter earnings’ results of our operating companies in the CEA portfolios – many of our companies beat revenue and earnings expectations – some by a wide margin. When earnings results for our portfolio companies are the driver of excess return, it is a healthy sign for our portfolios.
Another encouraging aspect of our strong performance is that we are positioned defensively and the CEA composite has an 11.8% cash position as of 9/30/16. This is the best of both worlds – a lot of excess return to the benchmark and cash on the sidelines to deploy should the market correct.
Finally, we have been very careful in the composition of our portfolios. We have added recurring revenue companies such as Global Payments (credit card processing) and Akamai (network delivery of web content) that have good growth prospects and are less cyclical.
The news on the fixed income side of the aisle is encouraging as well. For year to date 2016 through 9/30/16, our Corporate Bond composite is up 6.3% net of fees – a very strong number given the composite portfolios have a duration (effective maturity) of 4.1 years.
As I have mentioned, there are two types of risk for our fixed income portfolios. First, there is interest rate risk and our portfolios carry very little interest rate risk because of their short duration – that is, if interest rates rise our bonds come due fairly quickly and we can reinvest the capital at higher rates. Second, there is credit risk and our portfolios are very well diversified to minimize credit exposure to any one company. We have been buying bonds for our portfolios recently in small increments – new positions ranging from 1% to 2% of a portfolio’s value. So, our exposures remain small to each company. This creates more work in getting a client’s money to work – but the client is in a better position once the portfolio is built.
Our fixed income product has become very popular. Our Corporate Bond product now has more than $98 million in assets in the composite, and if you add the corporate bonds in our balanced accounts, our fixed income business now has well over $100 million in assets.
One of the great things about our bond portfolios is that each client owns the individual bonds in their account. Our intention is to hold the bonds to maturity. So, there is complete transparency as to what the client owns and how the income from the bonds is being produced. Our clients like that transparency and accountability.
Sandhill now manages $711 million in client capital as of 9/30/16. Our strong growth trajectory continues. One year ago (9/30/15), Sandhill’s assets under management totaled $578 million – so our assets under management have increased 23% in just one year. We would like to thank all of our clients for their trust, patience, and confidence.
Sandhill is owned by its employees and is debt free. This allows us great freedom in how we operate the company – and I think this is a real benefit for our clients. As we get bigger and generate more cash, we have invested most of the capital back into the firm in the form of human capital (knowledge) and information technology.
From my perspective, the growth is confirming and exciting – but at the end of the day and regardless of our size – the mission first and foremost is to deliver quality results to our clients that add real value and allow our client base to achieve its financial goals. We continue to believe that good active management is of great value.
I think it is fair to say that we have two unpopular candidates and a very unpredictable election season. To me, the real action is in the congressional elections. Trump with a Democratic House or Senate or Hilary with a Republican House or Senate is probably manageable. If either one wins and their party gains control of both houses of Congress – watch out – it could be problematic.
We enter the election buttoned down. As mentioned, Sandhill is carrying meaningful cash in its CEA (equity) portfolios and has very short duration, well diversified corporate bond portfolios.
We are very pleased to welcome Tom Baker Jr. as a vice president for business development. Tom comes to Sandhill from the wealth advisory group at Key Private Bank.
We are very pleased to welcome David Kraemer as a vice president for business development. David will be opening Sandhill’s Pittsburgh operation. David most recently worked for TIAA-CREF and Wilshire Consulting in Pittsburgh.
We are also pleased to welcome Hannah Schwartz to the client service team. Hannah comes to Sandhill from CP Staffing Solutions.
My best to everyone for a terrific fall season.
Edwin M. “Tim” Johnston III
Founder | Managing Partner
Performance Disclosures: Sandhill Investment Management (“Sandhill”) is a registered investment advisor that is not affiliated with any parent company. The performance statistics disclosed above are calculated on the rates of return from accounts managed by Sandhill, as defined below.
These accounts are managed by Sandhill on a discretionary basis. There are no non-fee paying accounts included in the composites. The U.S. dollar is the currency used to express performance. The Concentrated Equity Alpha, Large Cap Yield, and Corporate Bond composites include accounts under management from the first full month at which the account’s capital is fully invested by Sandhill. Closed accounts are included in the composites through the completion of the last full month under management and are not removed from the historical rates of return.
Sandhill claims compliance with the Global Investment Performance Standards (GIPS®). To request a complete list and description of firm composites and/or a full performance presentation that adheres to GIPS® Standards, please contact Shant Goubrial at (716) 852‐0279 x 305 or sgoubrial@sandhill‐im.com or visit the firm’s website at sandhill‐im.com.
i The information in this report has been obtained from sources believed to be accurate; however, Sandhill Investment Management makes no guarantee as to the accuracy or completeness of the information. Past performance is not a guarantee of future results. Investing involves risk, including the possible loss of principal. There is no guarantee that the CEA, Large Cap Yield, and Corporate Bond composites will achieve their investment objectives or that they are suitable for all investors.
ii For a full list of all composite recommendations for the preceding year, please contact Sandhill’s Chief Compliance Officer, Ryan Myers, at (716) 852-0279 Ext. 307 or email your request to email@example.com.