April 1, 2019
To our stakeholders-
Sandhill had an exceptional first quarter.
Our Concentrated Equity Alpha (CEA) composite gained 18.4% net of fees in the first quarter of 2019 vs. an increase of 13.1% for the S&P 500 Index for the same time period.
Our Corporate Bond composite gained 3.91% net of fees in the first quarter of 2019 vs. an increase of 3.50% for the Bank of America Merrill Lynch 3-5 Year Corporate Bond Index.
While these results are very good, most of you know that I put limited credence in short term results. It is when you look at Sandhill’s performance over the longer term that we become a compelling story.
There have been some sharp swings in the equity markets over the last few years. If you step back, here are the results that Sandhill has posted:
|CEA Composite (net of fees)||S&P 500 Index|
|Year 2016||+ 17.5 %||+ 9.5 %|
|Year 2017||+ 33.0 %||+ 19.4 %|
|Year 2018||– 4.3 %||– 6.2 %|
|Q1 2019||+ 18.4 %||+ 13.1 %|
|Cumulative Return||+ 77.1 %||+ 38.7 %|
|+ 19.2 %||+ 10.6 %|
These results are a big win for our clients and top of class nationally.
If you step back to the beginning of our story, the results are also compelling. Since Sandhill’s CEA composite inception on March 1, 2004 to the close of business on March 31, 2019, Sandhill’s CEA composite had the following results:
|CEA Composite (net of fees)||S&P 500 Index|
3/1/04 – 03/31/19
|+ 329.9 %||+ 147.6 %|
|+10.1 %||+ 6.2 %|
Corporate bond results
As we hold almost all of our corporate bond positions to maturity (or an issuer calls them), I put little credence in short term bond results. We continue our program of buying investment grade paper at the short end of the yield curve.
Our bond portfolios did very well in the quarter as our Corporate Bond composite increased 3.91% net of fees. The reason for the strong performance in the quarter was the Federal Reserve said that it saw growth slowing (but the economy still strong) and any rate increases are on hold for the time being. Bonds rallied sharply. All that investment grade corporate paper that we gorged on from May of 2018 into the fall of 2018 when rates were substantially higher has served us well
On the credit side, we are in really good shape – we only had to make one sale due to credit worries in the first quarter. We are sifting through the portfolio right now to make sure we see no other credit issues on the horizon.
We have gotten to be better asset managers in the corporate bond market – I think we are just starting to hit our stride. I have learned to make the mistakes on price rather than credit. Paying the wrong price might cost a portfolio a few basis points – a credit mistake can kill a whole year’s fixed income return. I would also like to acknowledge Aaron VandeGuchte who has joined me on the bond team – his help and input have made us better.
The current composition of our Corporate Bond Composite is a duration of 3.3 years and a yield to maturity of 4.11% (on 4/1/19). The three-year U.S. Treasury yields 2.28% – so we are in great shape.
A part of any firm’s growth and success is innovation. I have been thinking about introducing one or two new products for our clients. That said, I have not gotten there yet with regard to finding and/or designing the products. I know what I am looking for and am working on solutions. Our mantra as Sandhill has always been to make it simple, be transparent, and deliver best in class results. This has not (and will not) change, but I do think there are a couple of things we could do to help our clients. More to come on this later.
Assets under management
Sandhill’s assets under management as of 3/31/18 are $1.37 billion. Assets under management grew $156 million in the quarter.
Additions to the team
Brian Dillon has joined the Sandhill team in business development. Brian will be working out of Boston, MA. I have known Brian since childhood and he will bring class, energy, and a great network to Sandhill. Brian joins us from Marsh & McLennan.
Chris Roop has joined the Sandhill team as a partner in business development. Chris will be working out of the Albany, NY area. Chris brings extensive knowledge and depth to Sandhill in our sales and marketing effort. Chris was a leading sales executive at Manning & Napier for fifteen years prior to joining Sandhill.
Our teams continue to execute very well for our clients. We come to work for our clients and know that best in class results and service will result in a win for all stakeholders. We also continue to remain focused on buying and holding high quality assets run by smart people that will be of greater value down the road.
Best to everyone as the weather warms and we get outside for some fun and games.
Edwin M. Johnston III
Founder & Managing Partner
This report has been prepared for informational purposes only and is neither a solicitation to buy or sell securities. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company. Individual results may vary. Investments may not be suitable for all investors. Performance may be materially affected by market and economic conditions. Investment strategies have the potential for profit or loss. The performance statistics disclosed above are calculated on the rates of return from accounts managed by Sandhill, as defined by the following. The U.S. dollar is the currency used to express performance. Composites includes discretionary 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. Performance presented net-of-fees is reduced by investment management fees, trading expenses, and administrative fees. Interest, dividends and capital gains in these Composites are not immediately reinvested. The Concentrated Equity Alpha Composite includes all discretionary non-wrap fee paying accounts in the all-cap core strategy which may hold large, mid, and small capitalization U.S. common stocks, American Depositary Receipts (A.D.R.’s), domestic ETF’s, sector ETF’s, and cash. Accounts with securities that are not part of the all-cap core strategy are not included in the composite. The S&P 500 Index is a float-adjusted market cap-weighted index of 500 of the largest US common stocks. S&P 500 Index historical performance does not represent reinvestment of dividends/capital gains or the deduction of management fees. The Corporate Bond Composite consists of all discretionary non-wrap fee paying accounts invested solely in individual Corporate Bonds and cash equivalents. The Corporate Bonds will generally be rated single B to single A and will have maturities of three to nine years. The Bank of America Merrill Lynch 3-5 year Corporate Bond Index is a subset of the Bank of America Merrill Lynch US Corporate Master Index tracking the performance of US dollar denominated investment grade rated corporate debt publicly issued in the US domestic market. Referenced benchmarks are not available for direct investment. Prior to May 1st, 2018 these composites held both WRAP and Non-WRAP clients. This is reflected in the historical performance. For a full performance presentation and/or the Firm’s list of composite descriptions, please call 716-852-0279.