Sandhill continues to execute and deliver superior investment results for our clients.

In addition to continued strong performance, our turnover (the rate at which we buy and sell stocks) is very low a key indicator to the health of our portfolios. Low turnover is also tax efficient. Finally, the gains in our client accounts are well distributed across our portfolio companies another indicator of well constructed and stable portfolios.

Equity performance

For the first six months of calendar 2017, Sandhills Concentrated Equity Alpha (CEA) composite returned 14.8% net of fees vs. 8.2% for the S&P 500 Index. Over the last eighteen months
(1/1/16 – 6/30/17), Sandhills CEA composite returned 34.9% net of fees vs. 18.6% for the S&P 500 Index.

The results are very good. I am pleased for our clientele. I would like to tip my hat to our entire investment team. The team is great at sourcing new investment ideas. The depth and granularity of the research when vetting our idea flow is best in class. The team is patient and will only act when it feels it has found a compelling investment idea. And, while always innovating, I am comfortable that our process is defined and repeatable.

Fixed income performance

For the first six months of calendar 2017, Sandhills Corporate Bond composite returned 2.6% net of fees vs. 2.5% for the Bank of America ML 3-5 Year Corporate Bond Index. Even though we outperformed, performance was hurt by a large cash drag from money flowing into this product faster than we can invest it. We buy individual bonds for each customer portfolio in small pieces. This takes time. While difficult in the near term, the risk mitigation in the long term is worth it.

Over the last eighteen months (1/1/16 – 6/30/17), Sandhills Corporate Bond composite returned 8.9% net of fees vs. 6.2% for the BOA ML 3-5 Year Corporate Bond Index.

The current (as of 7/24/17) duration (effective maturity) on our Corporate Bond composite is 4.0 years. The weighted average yield to maturity for our Corporate Bond composite is 3.7%. The approximate yield of the four year US Treasury is approximately 1.7%. So.we have built a highly diversified four year corporate bond portfolio that yields 2% more than the comparable US Treasury. We have no current credit problems in our bond portfolios.

Asset growth

In the first six months of calendar 2017, Sandhills customer assets increased by $154 million. The growth was a combination of new account growth and performance. As of 6/30/17, our customer asset base stood at $905 million. We are thankful to our customers for their loyalty and support.

Passive investing

I am intrigued with the current stampede to passive investing ETFs, index funds etc. I cant understand entering into a relationship with an investment firm knowing that you will do a little worse than average from the outset.

There have been numerous articles lately which state active asset management (what we do) is on a slow death spiral. But as with most things in the investment world that get hot or trendy be careful, the end game can often be difficult.

Consider this quote from the July 10th edition of Barrons:

There is no question that passive funds have a place in the market; the problem is if they become the market. When money pours in, passive funds must buy stocks in the same proportion as the indexes they track with no regard for stock price or fundamental information. Therein lies the conundrum: Indexing works because it can piggyback on the wisdom of the crowd, but its very rise shrinks the crowd whose decisions help make the market.

As an investor, I would much rather have the freedom to invest inside or outside an index in companies that are operating well and have attractive valuations. Many times, outside of the index is where opportunity and inefficiencies are found.

Going forward

We continue to invest in Sandhill so that we can innovate and continue to deliver value to our clients. In late fall, we will be moving to a new location so that we can expand and operate more efficiently. With the return of Tina Hassler at the end of July, our operations team is now fully built out and is in the capable hands of Chief Operating Officer Shant Goubrial.

The execution of the investment team continues to be at the core of our firm, and as we grow, we have not lost sight of this. We work from the inside out knowing that responsible and effective management of your capital will make our customer relationships meaningful and enjoyable.

I hope everyone is enjoying a terrific summer.

With regards,

Edwin M. Tim Johnston III

Founder, Managing Partner



This report has been prepared for informational purposes only and is neither a solicitation to buy or sell securities. The 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 strategy has 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 below. The U.S. dollar is the currency used to express performance. Composites include 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 Sandhill Composites are not immediately reinvested. CEA includes all portfolios 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 ETFs, sector ETFs, and cash. The S&P 500 Index is a float-adjusted market cap-weighted index of 500 of the largest US common stocks. The Corporate Bond composite will generally invest in securities 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. Sandhill claims compliance with the Global Investment Performance Standards (GIPS). For a full GIPS compliant presentation and/or the Firms list of composite descriptions, please call 716-852-0279.