N-CSR/A 1 d132405dncsra.htm ADVISORS INNER CIRCLE FUND II Advisors Inner Circle Fund II

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act File Number 811-07102

 

 

The Advisors’ Inner Circle Fund II

(Exact name of registrant as specified in charter)

 

 

SEI Investments

One Freedom Valley Drive

Oaks, PA 19456

(Address of principal executive offices) (Zip code)

 

 

SEI Investments

One Freedom Valley Drive

Oaks, PA 19456

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: (877) 446-3863

Date of fiscal year end: December 31, 2020

Date of reporting period: December 31, 2020

 

 

 


Reason:

This filing is for the sole purpose of supplementing the previous filing by attaching an auditor’s letter from the Funds’ previous auditor confirming its agreement with the statements made by the Funds in response to Item 304(a) of Regulation S-K. The letter is attached hereto to as an exhibit


Item 1. 

Reports to Stockholders.

A copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act or 1940, as amended (the “Act”) (17 CFR § 270.30e-1), is attached hereto.


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ANNUAL REPORT

 

HANCOCK HORIZON FAMILY OF FUNDS

DECEMBER 31, 2020

 

Burkenroad Small Cap Fund

Diversified Income Fund

Diversified International Fund

Dynamic Asset Allocation Fund

International Small Cap Fund

Louisiana Tax-Free Income Fund

Microcap Fund

Mississippi Tax-Free Income Fund

Quantitative Long/Short Fund

 

 

 

The Advisors’ Inner Circle Fund II

 

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Hancock Horizon Family of Funds  

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December 31, 2020

 

Table of Contents

 

 

 

Shareholder Letter

    2  

Economic Overview and Investment Outlook

    4  

The Hancock Horizon Funds Investment Philosophy

    28  

Management’s Discussion of Fund Performance

    29  

Disclosure of Fund Expenses

    58  

Financial Statements

 

Schedules of Investments

    60  

Statements of Assets and Liabilities

    85  

Statements of Operations

    88  

Statements of Changes in Net Assets

    93  

Financial Highlights

    96  

Notes to Financial Statements

    114  

Report of Independent Registered Public Accounting Firm

    136  

Trustees and Officers of The Advisors’ Inner Circle Fund II

    138  

Notice to Shareholders

    144  

The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (the “Commission”) for the first and third quarters of each fiscal year as an exhibit to its report on Form N-PORT (Form N-Q for filings prior to December 31, 2019). The Funds’ Forms N-Q and Form N-PORT reports are available on the Commission’s website at http://www.sec.gov, and may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

A description of the policies and procedures that The Advisors’ Inner Circle Fund II uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling 1-800-990-2434; and (ii) on the Commission’s website at http://www.sec.gov.

 

1


Shareholder Letter  (unaudited)  
     

 

Dear Shareholder,

As 2019 ended, we felt like U.S. — China trade relations would be the top issue of 2020. Little did we know at the time how insignificant a topic that would become. Our attention was still on China, but for a much different reason. A virus that scientists knew little about was spreading quickly through the population taking a toll on life, commerce, and mental and physical health. Weeks later, this was not just a China issue—it was a global issue. Many ‘firsts’ or ‘worsts’ would soon be recorded and the way we live, work, shop and socialize would all change very quickly. As we all know now, the dark days of the Pandemic are still here. However, there are many reasons to be hopeful. Medical researchers have made tremendous strides in treating, and in time, preventing the spread of the virus through effective vaccines that should bring us back to a more ‘normal’ world. Spring is coming.

Four Star Fund

As of December 31, 2020 the Hancock Horizon Mississippi Tax-Free Institutional Share Class received an overall 4-star rating from Morningstar. The Fund’s rating was achieved relative to 146 US Muni Single State Intermediate Funds in this category.

Microcap Fund Manager Update

In 2020 we announced that Stephen Cangelosi would be added as co-manager to the Hancock Horizon Microcap Fund. Stephen Cangelosi is a senior portfolio manager focused primarily on managing investment portfolios for high net worth individuals and institutional clients. Stephen has been in the finance industry for 29 years, joining the Hancock team as part of the acquisition of Capital One Asset Management LLC.

Benchmark Changes

As of December 31, 2020 the Hancock Horizon Burkenroad Small Cap Fund’s primary benchmark was changed from the Russell 2000 Index to the S&P Small Cap 600 Index, which is a small capitalization index made up of 600 domestic stocks is chosen for market size, liquidity and industry group representation.

Also as of December 31, 2020 the Hancock Horizon Microcap Fund’s primary benchmark was changed from the Russell Microcap Index to the Dow Jones U.S. Micro-Cap Total Stock Market Index. This index is a subset of the Dow Jones U.S. Total Stock Market Index, which measures al U.S. equity securities with readily available prices. We believe this Index is an appropriate benchmark for the Fund because it represents stocks ranked below 2,500 by size and is designed to provide a comprehensive measure of the micro-cap segment of the U.S. stock market.

The Hancock Horizon Dynamic Asset Allocation Fund added a new secondary benchmark. The HFRI Macro Multi Strategy Index—the proposed secondary benchmark—captures monthly returns of an equal-weighted set of hedge funds that follow strategies that have the flexibility in allocation decisions similar to the Fund. This Index is designed to represent the performance of hedge funds which employ components of both Discretionary and Systematic Macro strategies, but neither exclusively both. Strategies frequently contain proprietary trading influences, and in some cases contain distinct, identifiable sub-strategies, such as equity hedge or equity market neutral, or in some cases a number of sub-strategies are blended together without the capacity for portfolio level disaggregation. Strategies employ an investment process is predicated on a

 

 

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December 31, 2020

 

systematic, quantitative evaluation of macroeconomic variables in which the portfolio positioning is predicated on convergence of differentials between markets, not necessarily highly correlated with each other, but currently diverging from their historical levels of correlation. Strategies focus on fundamental relationships across geographic areas of focus both inter and intra-asset classes, and typical holding periods are longer than trend following or discretionary strategies.

We would like to take this opportunity to thank you for your investment in the Hancock Horizon Funds. We appreciate your support and confidence in our management team, and we look forward to serving your future investment needs.

Sincerely,

 

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David Lundgren, CFA

Chief Investment Officer

 

 

Disclosures

Performance quoted is 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, and current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please visit www.hancockhorizonfunds.com

Mutual fund investing involves risk including loss of principal.

Smaller companies typically exhibit higher volatility. Products of companies in which Funds invest may be subject to severe competition and rapid obsolescence.

Hancock Horizon Funds are advised by Horizon Advisers, a registered investment adviser and a wholly owned subsidiary of Hancock Whitney Bank. Hancock Horizon Funds are distributed by SEI Investments Distribution Co., Oaks, PA, 19456, which is not affiliated with Hancock Whitney Bank or any of its affiliates.

This information must be preceded or accompanied by a current prospectus for the Hancock Horizon Funds. Please read the prospectus carefully before investing. To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risks, charges, expenses and performance before investing.

About Morningstar

© 2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

The Morningstar RatingTM for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

 

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Economic Overview and Investment Outlook (unaudited)

 
     

 

2020: A Mosaic of Disaster

 

For asset management professionals, the memory of the Financial Crisis of 2008-09 does not easily fade away. During those dark days, we spent much of our time discussing the many ‘firsts’ or ‘worsts’ used to describe the economy, markets, and employment. Client conversations were plentiful and many advisers also doubled as therapists all the while themselves secretly worrying how it may end. As it became apparent that the global economy wasn’t going to collapse and stock markets would eventually heal, we had hoped this would be a ‘once in a career’ experience. Enter the Pandemic of 2020.

As 2019 ended, we felt like U.S. – China trade relations would be the top issue of 2020. Little did we know at the time how insignificant a topic that would become. Our attention was still on China, but for a much different reason. A virus that scientists knew little about was spreading quickly through the population taking a toll on life, commerce, and mental and physical health. Weeks later, this was not just a China issue - it was a

global issue. Many ‘firsts’ or ‘worsts’ would soon be recorded and the way we live, work, shop, and socialize would all change very quickly. We all know the story.

If you’ve spent any time on social media, you have definitely run across a meme or two (or a hundred), telling 2020 just how we all felt about it and how we were anxiously awaiting to flip the calendar with 2021 at the top. If only it were that simple. Unfortunately, January 1, 2021 was not a light switch. As we all know now, the dark days of the Pandemic are still here. However, there are still many reasons to be hopeful. Medical researchers have made tremendous strides in treating and, in time, preventing the spread of the virus through effective vaccines that should bring us back to a more ‘normal’ world. Spring is coming.

In this issue, we briefly review some of the key market, policy, and economic highlights of 2020 followed by a more in-depth look at 2021 and the reasons to be hopeful.

 

 

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2020 BY THE NUMBERS

 

Employment1

 

Unemployment Rate (U.S)
3.6%    14.8%    6.8%
Start of Year    Peak of Pandemic    End of Year
   (April 20)   

 

6.87 Million    Initial jobless claims for U.S. week of March 27
25 Million    U.S. workers receiving unemployment benefits in May

 

Pandemic

 

20 Million    People with COVID-19 in 20202
10 months    to develop and distribute the first COVID-19 vaccine3
35%    of employees switched from working in office to remote in April / May 20204
 

Economic Growth

 

 

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Stocks1

 

40    Number of years the S&P 500 was positive out of the last 50 years

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

Policy / Government

 

$4 Trillion    Amount of Coronavirus Fiscal Aid / Relief passed in 20201
155 Million    Votes cast in the U.S. Presidential election – most ever1
US DEFICIT6   
$1 Trillion    for 2019
$3 Trillion    for 2020

The Fed and Interest Rates1

 

$3 Trillion    Amount of debt securities purchased by the Federal Reserve through Quantitative Easing (QE) program in 2020
Fed Funds target rate (upper bound)
1.75% at 1/1/20 .25% at 12/31/20

10 year U.S. Treasury

1.9% 1/1/20 0.5% 8/20

0.9% 12/31/20

 

 

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December 31, 2020

 

2020: A Mosaic of Disaster

After a difficult Spring, Markets and the Economy Rebound in the Face of a Difficult Environment

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LOGO The Dark Days of Spring    LOGO Relief and Hope    LOGO The Rebound

•  Global Pandemic

 

•  Stay in place orders are issued

 

•  Unprecedented Global Economic Collapse (U.S. GDP -31.4% 2Q)

 

•  Stock markets plunge (major market indi- ces fall more than 30%)

 

•  Money floods into U.S. Treasuries for safety (10 year U.S. Treasures fall to near 0.5%)

  

•  The Fed moves into action

 

•  Massive fiscal stimulus near $3 trillion – CARES Act

 

•  Better treatment options for COVID patients emerge

 

•  Pharmaceutical companies begin to work on a vaccine

 

•  Restrictions are eased - governments try to balance both safety and commerce

  

•  Stocks roar back off March lows

 

•  Economic Growth soars (U.S. GDP +33.4% 3Q)

 

LOGO Success Amidst Stress

 

•  Election

 

•  The race – vaccine distribution vs. soaring cases

 

•  More fiscal stimulus

 

•  Markets close strong (Many indices finished the year up double digits)

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

2021 – Spring is Coming

In forming our annual outlook for the upcoming year, we typically review the current macroeconomic and market trends to help formulate our expectations for future economic growth, stock market outcomes, and the direction of interest rates. While those fundamental items are still very important, for 2021 there are two other arguably more important considerations. If and when the pandemic ends and how the 2020 election may change government policy are both very critical backdrops that will likely play a large role in shaping the economy and markets in 2021. Hancock Whitney Asset Management’s senior leaders present their key investment themes and more commentary on the outlook for 2021.

 

      
2021 Key Investment Themes     

PANDEMIC

 

•  Vaccine distribution - enthusiasm meets reality

 

•  Herd immunity is on the horizon

 

GOVERNMENT POLICY

 

•  Slim majority limits range of policy choices

 

•  Further Federal support programs expected

 

ECONOMY

 

•  Back to ‘normal’ economic growth

 

•  The recovering economy likely to reach relatively full employment by year-end

 

•  Inflation expected to remain muted

  

STOCK MARKET

 

•  The global growth imperative and ample liquidity will likely drive U.S. large cap stocks performance higher

 

•  Cycle resets – expansion ended

 

•  The rally for Large Cap Value and Small Cap stocks will likely be transitory

 

FEDERAL RESERVE &      INTEREST RATES

 

•  Long-term interest rates are likely to migrate higher

 

•  Debt and deficits are anticipated to continue to rise

 

•  The Federal Reserve has indicated that it will keep short-term interest rates anchored near zero

 

•  We anticipate Anti-QE clamor by year-end

      

 

 

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2021 Outlook: COVID-19 and the Impact on the U.S. Economy

Herd immunity

Works to control the spread of disease within a population when a specific amount of that population (threshold) becomes immune to the disease through vaccination or infection and recovery.

 

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Journal of the American Medical Association; “What Is Herd Immunity?” by Angel N. Desai, MD, MPH1; Maimuna S. Majumder, PhD, MPH2, October 19, 2020

 

Americans are anxious to return to normal activities and for the economy to operate as it did during “normal” times. However, for it to perform up to its full capabilities the population must acquire herd immunity – the level of widespread protection from infection that stops the virus from being transmitted. Fortunately, the availability of vaccines is growing, potentially offering the much - preferred avenue to achieving herd immunity - a vaccination rather than recovery from an infection.

Current trends in infection transmission and testing results indicate the U.S. is not close to achieving herd immunity. A reputable data scientist, Youyang Gu, estimates the percentage of the population that has been infected and has achieved immunity, at least temporarily,

at a midpoint of around 21%, or 69.8 million people. This equates to one out over every five people.8

The percentage of the population required to be immune to stop the spread of a disease varies by disease. A highly contagious disease such as measles requires a very high percentage of people to be immune in order to prevent further spread. COVID-19 is highly contagious, leading public health experts to estimate that around 70% of the population may need to be immune, either from prior infection or a vaccination, to stop its spread. Vaccines offer a chance to speed up this process, though they may not be a panacea. Coronaviruses are known to mutate, meaning that vaccines may offer just partial protection and may not protect everyone.9

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

THE ENSEMBLE OF COVID-19 FORECASTING MODELS

COVID-19 was the dominant factor impacting the economy in 2020. No economic forecast could be made without reference to the course of the pandemic as it surged and ebbed in large geographic areas and densely populated cities. We are interested in understanding how impactful the spread of COVID-19 will be to economic progress in 2021. With that goal in mind, we will make several observations and assumptions.

 

1.

The current level of cases, hospitalizations and deaths will get worse before it improves. The ensemble of 34 models shown on the CDC’s website figures in Chart 1 show the number of total COVID-19 deaths in the United States each week from October 24 through December 26 and the forecasted number of total COVID-19 deaths over the next 4 weeks. The ensemble predicts that a cumulative 383,000 to 424,000 COVID-19 deaths will be reported by January 23. (Chart 1). Thus, the risk of an economic stall or contraction cannot be ruled out due to voluntary or mandated restrictions on population mobility.7

 

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2.

Behavior of the population may change in response to these results, but probably less so than in the early months of the pandemic. Behavioral change has been observed recently according to some mobility measures, as shown in Chart 2. However, the Dallas Federal Reserve’s Mobility and Engagement Index (MEI), which correlates with economic activity (Chart 2, grey line), indicates economic activity has remained fairly steady in the face of rising case growth. The recent dip during the Christmas holiday is similar to that seen at Thanksgiving, from which there was a quick recovery. Mobility has held up better than expected considering the surge in COVID case growth.10

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3.

The current surge will run its course and weaken, as has occurred in every surge globally. Youyang Gu estimates that by the end of 2021, around one third of the population (~ 105 million) will likely have been infected, compared to a current estimated percentage that have already been infected of around 23%.8

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

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Based on current conditions and the improved clarity regarding the prospective timing of vaccine approvals, production and distribution, we can make some projections for the coming year. Immunity achieved via vaccinations should ramp up in the first quarter of 2021 and become a meaningful percentage of the immune population by the end of the second quarter. By the end of 2021, vaccinations may become the major source of immunity, and 70% of the U.S. population could obtain some degree of protection, through a combination of inoculations and prior infection (Chart 3).8 This outcome will allow the nation to approach herd immunity. As the nation approaches that level, new infections will be in decline. Importantly, as the high-risk population are prioritized in the early stages of vaccine distribution, deaths should decline even faster than new infections, and that could result in restrictions on mobility being removed in some locations even before herd immunity is achieved. Even though herd immunity doesa not mean there will be no new infections, population mobility can recover, allowing industries that have suffered the most from pandemic restrictions to restore jobs as revenues rebound.

While we have limited this section to potential outcomes in the U.S., the vaccine rollout internationally is even more complex, with numerous uncertainties and potential shortfalls. A significant risk exists that the Covax program, a global initiative to help people in all countries get rapid, fair and equitable access to safe and effective vaccines, will run short of funds. There is a danger that the plan fails to deliver, or that the roll-out for poor countries is delayed.1

Bloomberg Economics projects that 16 major countries have the potential to quickly achieve herd immunity in 2021, which offers the chance to boost the U.S. and global economies materially in 2021. These countries represent more than half of world GDP and therefore can provide the largest boost –estimated at 3.2 percent—to the world economy though they represent about one third of the world population. Another group of mainly emerging market countries, representing about 9 percent of global GDP has ordered enough vaccine supply to cover their vulnerable populations. If they can close 75 percent of the lost GDP compared to pre-crisis levels, they could add another 0.5 percent to global GDP growth next year.1

While the national and global efforts to vaccinate populations in a fair and equitable manner are not likely to go flawlessly, as evidenced by the disappointing rollout to date, we like the prospects for the COVID-19 pandemic to have a diminishing impact on the course of the economy as 2021 unfolds.

 

 

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Impacts of the Election

 

Democrats have scored come-from-behind wins in both of this year’s Georgia Senate elections and will control the White House and both houses of Congress moving forward in 2021. This has led some to suggest that a major working of the tax code as well as important Senate procedural changes are in the works. However we believe the actual scope of change may be much smaller than many commentators expect.

With a 50-50 tie in the Senate, a party-line vote will leave Democrats dependent on a tie-breaking vote from Vice-President Kamala Harris. Since Senator Joe Manchin, a West Virginia Democrat, has publicly pledged to oppose major structural changes – such as the elimination of the Senate filibuster, the inclusion of additional states in the Union or expansion of the Supreme Court – those proposals look to be off the table. Further with a very narrow margin in the House of Representatives, Democrats will likely need to make any major policy changes acceptable to more moderate members of their party – particularly those in districts likely to be vulnerable in the mid-term elections. In general, moderates of both parties, particularly Democrats, are likely to have substantial leverage in this Congress.

One of the earliest actions of the newly seated government may be to increase funding for COVID relief as there were several popular provisions – including increased support both to individuals and to states and municipalities – that did not make it into the final version of the bill passed in December. There also appears to be bipartisan support for infrastructure spending and there is some discussion of including this

in early stimulus. We expect, instead, it will take time to hammer out details and this discussion may extend to overlap with a focus on the national debt ceiling which is likely to be lifted in the summer. Among the likely beneficiaries of an infrastructure bill are alternative energy companies.

 

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A key concern for investors heading into the November elections, tax reform is likely to be limited even under a Democratic Congress. More moderate House members from wealthier districts are likely to rein in the full agenda. We would expect some moderate increase in corporate taxes and on the highest-income individuals – almost certainly more than a Republican Senate would have delivered. Key for individual investors, the repeal of a step-up in cost basis at inheritance alongside a rollback of estate tax exemptions seem likely to be palatable to Congress. An increase in the capital gains rate along with ordinary rate for top earners is very much on the table as these would all address the goal of decreasing wealth inequality.

A Democratic Senate may make a significant difference in Cabinet selection, but we do not anticipate any changes in the team already announced prior to the Georgia results, which are generally viewed as acceptable to a Republican Senate. The prospective Biden team was chosen with an eye toward government experience and a moderate regulatory stance. In roles of key concern to the market (such as Janet Yellen as

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

Treasury Secretary, Jennifer Granholm in Energy, and Katherine Tai as U.S. Trade Representative) should remain on track and face relatively smooth paths to confirmation in a Democratic Senate.

Similarly, a Democratic Senate opens the door to expansion of the current form of the Affordable Care Act. This would most likely benefit service providers, but drug cost control is likely to be part of this discussion as well. This could be a notable revenue growth drag for pharmaceutical companies.

We expect the Biden administration to act more aggressively in areas where no legislative action is necessary: trade and regulation. We anticipate the Biden White House will move to normalize trading arrangements with traditional partners. However, that

does not necessarily mean a rapid embrace of open trade or an immediate end to Trump-era tariffs. Indeed, we believe Biden may prefer to keep some protections for U.S. industry and workers in place while also redomesticating critical portions of supply chains related to medical goods and other security-related items.

On the regulatory front, we expect that attention will be turned to strengthening environmental and public health rules that were loosened during the Trump administration. However, imposing new regulations will take time so any actual policy changes won’t emerge in the first few months, but we are likely to see more enthusiastic enforcement action across a broad set of issues.

 

 

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2021 Economic Outlook: Onward Through the Fog1

 

The U.S. economy rebounded dramatically in 3Q20 with an unmatched quarter in modern U.S. history, a 33.1% annual rate of reboot. At this writing with roughly 2/3 of data available for 4Q20, we estimate a relatively robust follow-on at a 4-5% annual rate of growth in Real Gross Domestic Product (RGDP), strong by post-2009 standards anyway. Our central projection for 2021 is that U.S. economic growth gradually decelerates to pre-coronavirus norms of 2% trend growth. Stated broadly, we expect the annual average -3.6% rate of decline in 2020 RGDP to reverse to 3.3% growth in 2021 and 1.5% in 2022. Our 2021 forecast includes a 1.0% soft patch in 1Q21, owing to heightened COVID concerns and restrained business in some locales; recovering to a 3.0% annual rate of growth by 3Q21 as vaccines become widely administered.

The U.S. experienced in 4Q20 an alarming surge in COVID-19 case growth, hospitalizations and fatalities; associated with reduced mobility, intensified social distancing and lockdowns of non-essential business in some more impacted areas. However, we note an abundance of anecdotal evidence of popular resistance to mandated restraint of commercial activity; as many businesses, large and small, face an existential struggle and are determined to remain open to the extent possible. While 15 million workers furloughed by the Spring lockdowns have returned to work, another 8 million remain displaced and dependent on pandemic assistance programs and eviction moratoriums. Congressional passage in December of the 2021 federal budget, which includes $900 billion for extension of COVID relief programs, goes a long way toward

ameliorating immediate anxiety among displaced workers and hobbled businesses. Our baseline assessment is that the U.S. economy trudges back toward full employment over the next 18 months, barring unforeseen externalities and unforced policy errors.

One of the less obvious benefits of the super-charged economic rebound in the second half of 2020 is that it accelerated the timeline of the U.S. return to peak economic activity and full employment. U.S. RGDP peaked in 4Q19 at a $19.3 trillion annual rate of output and our previous expectation was that it would take until 3Q23 for activity to return to that level. Our current projection is that the U.S. economy returns to that level in 2Q22, just a little more than a year ahead. If RGDP surprises on the upside in 4Q20, 6.0% growth is a plausible outcome, that would advance peak RGDP forward to 1Q22. We interpret the Federal Open Market Committee’s (FOMC) standing dot-plot projection to mean that the Fed Funds rate will remain anchored to the zero lower bound through 2023 as more messaging of determination to assist the recovery as long as it takes than a hard coded forecast.

But now with peak RGDP feasibly just a year or so ahead and vaccines being distributed, an acceleration in growth this Fall as the economy re-opens full steam will likely force the Fed to offer a more informative projection for 2022. Later this year, a variety of signals will likely paint a mosaic of a maturing economic recovery; including rising commodity prices, the U3 unemployment rate falling below 5% and possibly even core inflation rates inching up to or through 2%. The markets will clamor for clarity and pressure the Fed

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

to account for such extraordinarily accommodative monetary policy concurrent with an expansive economy. We expect the Fed to foreshadow rising Fed Funds rates and an end to the bond buying program, known as quantitative easing (QE), by the end of the year.

 

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“The unemployment rate dropped to 6.7% in December. It is worth recalling that in May 2013 when to former Fed Chair Ben Bernanke first uttered the word “taper,” signaling to the markets that a gradual phase-out of QE would commence at some point, the U3 unemployment rate was 7.5%. When the Fed actually began the phase-out in January 2014, the unemployment rate was 6.6%. The U.S. economy is at the point, in terms of labor force employment, one of the Fed’s primary policy objectives, at which the Fed terminated monetary stimulus in the last cycle. Our assessment is that the time will likely arrive this Fall when the FOMC will see the need to guide market

expectations toward the prospect that monetary policy will start a gradual normalization phase in 2022. Thanksgiving would be good timing, when we can reflect on the expertise of our central bank in navigating our economic ship through treacherous currents. However, the market implications for longer-term interest rates will be significant at that point, when the markets begin to discount the end of QE while the Treasury continues to run historically large federal budget deficits.

The European Central Bank (ECB) doubled down with an additional €500 billion of projected QE in December, reflecting its struggles to stabilize the European economy and ignite demand. In contrast, we expect the Fed to be the first of the developed economies’ central banks to step away from QE, same as the last cycle, when the ECB trailed the Fed’s normalization strategies by over three years. That contrast was a major support for the dollar’s value from 2014 through 2016 and we expect the growing likelihood that the Fed will project a phase-out of QE later this year will similarly buttress the Dollar’s value.

 

 

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The trade war with China, so disruptive in 2019, took a holiday to the back burners of policy interest in 2020 as virtually all countries focused on reignition of their economic engines. However, it is notable that of all the levers of monetary and fiscal stimulus pulled last year, tariff reduction was not among them. The planned Phase 2 trade negotiations with China, perhaps aspirational from inception, will be in abeyance while the incoming Biden Administration evaluates its policy positions. Already though the transition team is signaling that any tariff reductions will be contingent on reformed Chinese trade practices. It is clear that Chinese disregard for intellectual property rights, aggressive cyber theft of sensitive information and illegal protection of domestic industries did not start during the Trump Administration, but are deeply rooted behaviors of the last two decades. The Trump Administration illuminated Chinese unfair trade practices as unavoidably objectionable and gave voice to the economic damage inflicted on American communities from our burgeoning trade deficit with China. These realities are enduring. Our view is that it will not take long for China to remind U.S. policymakers of the imperative to confront China on unfair trade practices and counter its geopolitical ambitions.

A synchronized global recovery in the developed economies is unfolding, led, as in the last recovery from a disastrous recession in 2009, by a vigorous rebound in the U.S. Our confidence in the vibrant U.S. capital markets and our dynamic and innovative economy remains undeterred by the prevalence of negative interest rates, a scary pandemic, and the arrival of domestic political realignment. However, despite our expectation that inflation may creep upward in the U.S. this year, deflationary conditions continue to hobble monetary and fiscal policies in Europe and Japan, and even China lately. Our assessment is that deflationary conditions did not take a vacation during the global COVID recession but rather intensified. Growth is the antidote to deflation and we expect growth to be scarce globally this year, outside of the U.S., China and some of its emerging market trading partners. As in much of the last decade, we expect the U.S. to be distinguished globally by relatively strong growth and attractive investment opportunity.

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

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December 31, 2020

 

2021 Equity Outlook11

 

After a year of unprecedented turbulence and volatility, equity investors are approaching 2021 with visions of a return to normalcy dancing in their heads. The uncertainty that dominated the market throughout 2020, birthed at first by the emergence of the novel coronavirus in Wuhan, Hubei Province, China, and then boosted by pandemic-infected election-year politics in the U.S., should fade somewhat as a vaccinated world can get back to business-as-usual. 2021 will nevertheless be an unusual environment for investing, because no investor alive has experience navigating an economy emerging from a global health scare and the deep, albeit brief, economic Contraction brought on by it.

 

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A reset of sorts happened in 2020 for equity markets. Amidst the extreme selloff in prices in February and March, the new workfrom-home environment accelerated the pace of change in human behavior. The kinds of companies – and technologies – that support that change in behavior became ever more dominant in

the global marketplace. Additionally, consumers and homeowners took advantage of the situation to make long-needed or desired improvements to their homes. The different types of companies supporting that kind of consumer behavior, solidified and grew their long-established place of prominence.

From that reset, which is roughly characterized by the low in stock market prices on March 23rd, stock markets have now climbed to record highs on a seeming abundance of encouraging news. Yet despite the good mood prevailing in equity markets at the present time, investors face a number of questions that promise to make 2021 interesting, albeit likely less volatile than 2020. While usually true any year, this year’s questions have a different caste, driven, as they are, by the massive change the world experienced in 2020. Will we really be getting back to normal or will something new emerge? Amid changing politics, will regulatory and governance policies revert to previous (i.e., pre-Trump Administration) trends or send our economy in a new direction (for example, “public benefit” corporations)? How will underlying fundamentals, and expectations for changes in those fundamentals, trend in 2021 and will they provide support for the continuation of positive returns? Finally, are valuations a cause for concern?

BACK TO NORMAL OR ONWARD AND UPWARD

Leading the market higher currently (since the end of October mainly) has been a resurgence in the types of stocks that underperformed the most in the earlier part of 2020, and even prior to that. Some of these stocks or sectors could be characterized as back to normal sectors

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

(housing, energy) while others are merely formerly beaten down extreme value opportunities (banks).

Take energy companies, for example. More and more, as mobility comes back to pre-pandemic levels, the economy needs energy to drive forward; a growing economy demands more energy. On the other hand, new methods of living and conducting business have come to the fore, and so mobility, portability, and communication methods have all evolved leading to dominance by companies that barely had a market for their offerings in the early part of 2020. America, and the world at large, are retooling.

Going into 2021, with the odd combination of hope associated with a vaccinated population, along with the persistence of the virus in said population and the eagerness of politicians to “fix” the problem, it is prudent to assume a good bit of both a return to normal as well as a persistence of new ways of getting along. Further, investors should also be keen to the near term risks of more virus problems, which could upset the entire apple cart again. The portfolio implication is that investors should be both nimble and diversified, adjusting and adapting their evaluation methods and being mindful of sources of risk. Stock selection will be a critical component of success in the year(s) to come. However, factors as sources of returns (value versus growth, small versus large) may yet come back to the fore after a long period of domination by one segment of the market – large U.S. growth company stocks. Investors will therefore benefit from diversification among broad sub-groups of stocks.

WORLD IN TRANSITION

Among the more overlooked trends in the recent past, and one that perhaps received a boost in the recent socio-economic turbulence, is a growing belief that the world should move beyond owner-centered capitalism. While some radical anti-capitalist beliefs have been around a long time, there has been a surge recently in companies adopting a public benefit corporation (PBC) structure. The over-simplified explanation of the difference between a traditional (or “C”) corporation and a PBC is the inclusion in the company’s charter of a public benefit purpose, which means the board of the company has a fiduciary obligation that goes beyond a purely financial, shareholder oriented one.

This evolution in corporate thinking does not imply, in itself, that profits are not important, but it does give management of such companies leeway to consider other things in evaluating their investment decisions and their performance. A sample of language that might be found in a proxy filing to change their charter includes: the company’s “proposed public benefit purpose is to help make the industries it serves more productive and create high-quality employment opportunities.” While sufficiently vague as to not obligate the company to do anything other than do what it currently does (i.e., be a provider of a product to make its customers more productive and be a good place to work), the diversion of attention away from purely rational financial evaluations and management could have a very long-term, or secular, impact on aggregate corporate profitably.

 

 

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This is a new trend and a rapidly developing and evolving one, which equity investors should be aware of but which does not likely have any significantly exploitable investment opportunities or risks just yet.

BASIC CORPORATE FUNDAMENTALS AND EVOLVING EXPECTATIONS

In addition to those broad themes, a key driver for 2021 will be the continuing recovery in underlying fundamentals from the extreme contraction of last summer. Analysts’ aggregate expectation for S&P 500 EPS growth for the full year of 2021 is currently a very robust 22%. Even though the comparison should be quite favorable after the 2020 earnings recession which accompanied the economic recession, that 22% level is an attractive one. More impressive is the expectation of 8% growth in S&P 500 sales.

These levels of growth are quite achievable and reflect an expected strong recovery in overall economic activity. Growth is also likely to be supported and boosted by corporate investing activities. Corporations in the aggregate are sitting on a mountain of cash. Merger and acquisition activity is picking up, as are actions to return capital to shareholders (such as dividends and share buybacks). More investing and more fluidity of corporate funds will be a strong catalyst for fundamental growth.

Analysts’ estimates are also likely to be currently flavored with a good bit of caution as a) analysts have not yet caught up from the 2020 collapse and b) analysts do not want to get burned by overestimating pandemic recovery growth. The implication of this is that the likelihood for positive surprise is still high. If both hold, that is, if expectations of growth remain high and move higher and then are exceeded by actual results, that will be a strong support for equity prices.

VALUATION

Investors have bid up stock prices since the pandemic bottom to a level that, for many, is hard to digest. Standard measures of valuation point to overvalued equity markets. The P/E for the S&P 500, based on the previous 12 months’ earnings, at the end of 2020 stood at 27.9. This level is unusual to be sure; it was last this high in the 1999-2001 period. At that time however, the robust 1990’s economic expansion was coming to an end and a recession was looming on the horizon. At the start of this year, markets are looking in the rear-view mirror at a deep, albeit short, recession. Strong underlying corporate performance in 2021 should support, or at least offset, extended valuations.

EQUITY OUTLOOK OVERVIEW

Equity markets, along with the economy overall, experienced a reset in 2020. The rapidity with which equity prices collapsed in the face of a looming pandemic was unprecedented. While governments drove the shutdowns that sunk economic activity, governments and central banks responded with extraordinary actions to combat the slowdown and markets reacted accordingly, rebounding based on

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

optimism about both the hoped-for end of the pandemic as well as the shortness of the recession. Fundamental performance (sales growth, profit growth) turned out to be not nearly as bad as the

worst expectations in late May. As 2021 rolls along, economic growth and corporate fundamental growth is likely to outperform expectations, providing support to stock prices.

 

 

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2021 Fixed Income Outlook1

 

The bond market’s behavior of 2021 will look nothing like the rollercoaster ride investors experienced in 2020. With the U.S. and global economic recovery of 2021 squarely underway, the fixed income markets begin the long journey back to pre-pandemic order. The economic triage of 2020 in the form of lower interest rates and free government stimulus money served their purposes well but will be increasingly less necessary as the Real GDP returns to normal. While there will certainly be twists and turns along the way the overall trend in the fixed income markets is clear. The longer term cost of money (interest rates) will creep moderately higher in 2021 on heavy government borrowing, rising inflation expectations and improving economic activity. Trend indicators confirm a downtrend in effect since late 2018 in the U.S. Treasury 10 year note yield has recently completed a reversal and turned higher.

Despite the trend higher however, longer term interest rates should remain relatively low by historical comparison. We anticipate the 10 year U.S. Treasury note yield will return to the 1.25% to 1.50% range by yearend. Short term interest rates will remain near zero in 2021 as dictated by the Federal Reserve. The net result will be a modestly steeper yield curve as is common in an economic recovery.

Among the fixed income sectors, corporate bonds and inflation protected securities will likely outperform government securities in the improving economy. Looking ahead to 2021 bond investors would best prepare for more modest returns where coupons are collected but market values erode due to rising interest rates.

The Federal Reserve played a historic role in averting a virus induced economic and financial disaster of biblical

proportion in 2020. In 2021 the Federal Reserve will be much lower profile as almost all of the emergency program “facilities” implemented during March 2020 are winding down. The Fed will mostly return to its traditional role of monitoring the pace of the economic growth, progress in employment gains and inflation. While there has been no formal announcements yet, all indications are there will be no change of Chairmanship at the Federal Reserve under the Biden administration and likely no immediate change to Fed policy. The annual two person rotation in 2021 among the all-important Federal Open Market Committee (FOMC) voting members should nudge the committee in a slightly more dovish direction. The Fed Funds target interest rate will likely remain near zero for all of 2021 as has been telegraphed by Chairman Powell. The Fed’s new and more tolerant inflation averaging policy announced in September 2020 will provide ample leeway (justification) for keeping overnight interest rates unchanged for the coming year. The Fed will view periodic surges in inflation above the 2% level as short term “transitory” occurrences that do not require an immediate response. In addition to current inflation measures the Fed will also be watching long term inflation expectations to gauge investor attitudes. Currently the Fed’s preferred long term inflation expectations measure is pointing to investor expectations approaching 2% annually.

The area of greatest uncertainty regarding Federal Reserve policy in 2021 relates to its asset purchase (quantitative easing) program. As we enter 2021, the Fed is purchasing $120 billion per month in U.S. Treasury notes, bonds and agency mortgage debt in an effort to keep longer term rates lower and spur the

 

 

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Economic Overview and Investment Outlook (unaudited) (continued)

 
     

 

economy. The recent trend at the U.S. Treasury Department to shift more borrowing from short term T-Bills to longer term Treasury coupon securities will put additional upward pressure on longer term interest rates in 2021 and possibly slow the economy unless the Fed compensates with a “twist” to larger purchases of longer term debt and less short term debt as well. The Fed will likely tolerate a moderate and orderly rise in interest rates but a sharp rise in longer term interest rates in 2021 will probably bring action by the Fed to mitigate the move. With the return of the U.S. economy to more normal growth in the latter half of 2021, Chairman Powell will need to begin the delicate task of preparing the bond markets for the eventual start of “tapering” its quantitative easing program sometime in 2022.

 

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The prior Federal Reserve Chairperson Janet Yellen is widely anticipated to take over as Secretary of Treasury under the Biden administration. We anticipate given Yellen’s recent tenure at the Fed and her longstanding relationship with the current Chairman Jay Powell that there will be unprecedented

coordination between the Treasury and the Federal Reserve on economic recovery efforts and monetary policy. A working relationship made all the more important given the massive amount of new Treasury debt in the pipeline and the Federal Reserve’s slower balance sheet growth. Estimates are the general public (excluding Federal Reserve) may need to purchase a record $1.8 trillion in Treasury notes and bonds to absorb the 2021 glut of new supply.

For the credit markets the year 2020 was the worst of times and the best of times. It was a tumultuous year where intermediate term investment grade yield spreads to U.S. Treasury securities skyrocketed 5 fold in the market chaos of February and March only to reverse course in late March and decline to the lowest spread since early 2018 and nearly the lowest on record. For the calendar year 2020 the Bloomberg Barclays Intermediate Corporate Bond Index returned a whopping 7.47% total return far outperforming intermediate Treasury securities at 5.77%. Looking ahead to 2021 and the improving global economy, intermediate investment grade corporate bonds should again outperform government investments albeit with much lower total returns. For similar reasons, high yield bonds will also be a better fixed income performer though again with much lower returns than 2020.

A DISCIPLINED APPROACH IS KEY

Markets clearly still have many hurdles to overcome and political and pandemic risks remain elevated. While this environment can be volatile and stressful for many in the short term, successful investors are able to remove emotion from the process and stay disciplined in their approach.

We hope 2021 proves to be a prosperous year for all!

 

 

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December 31, 2020

 

About Our Authors

 

  David Lundgren, CFA is the Chief Investment Officer at Hancock Whitney Bank and portfolio manager for high net worth and large institutional clients. At Hancock Whitney, David is responsible for directing the bank’s investment approach, models and portfolio management; manages a platform of client- focused internal and external money managers; ensures bank meets regulatory requirements. Additionally, he is a fund manager for Hancock Horizon Family of Funds. Prior to joining the Hancock Whitney team in 1998, he was a portfolio manager at First Commerce Corporation.
  Paul Teten, CFA is a Chief Investment Strategist at Hancock Whitney Bank, where he supervises the formulation and implementation of proprietary equity and fixed income strategies. Paul has over 40 years of experience in the finance industry, joining the Hancock Whitney team as part of the acquisition of the trust and asset management business of Capital One, National Association. At Capital One, he served in various capacities over 14 years as Director of Fixed Income Portfolio Management, Chair of the Asset Allocation Committee and Chief Investment Officer. His prior experience includes 5 years of portfolio management for the Bank of America Private Bank and 17 years of fixed income trading and portfolio management at Criterion Investment Management in Houston, culminating in his role as Senior Investment Strategist.
  Richard Chauvin, CFA is an investment director at Hancock Whitney Bank, where he chairs the asset allocation committee; is responsible for investment research and strategy; and serves as portfolio manager for high net worth and institutional clients. Richard has been in the banking industry for over 30 years, with 4 years as a member of the Hancock Whitney team. Prior to joining Hancock Whitney, he spent 10 years as the Chief Investment Officer at Capital One and three years as a Senior Portfolio Manager at Hibernia Bank.
  Martin Sirera, CFA is the investment director at Hancock Whitney Bank, where he is responsible for management of Equity Strategies and client relationships; for participation in firm Asset Allocation decisions. Martin has been in the banking industry for 28 years, joining the Hancock Whitney team as part of the acquisition of the trust and asset management business of Capital One, National Association. Prior to joining Hancock Whitney, he worked for Capital One and Hibernia Bank.
  Stephen Morgan, is the investment director at Hancock Whitney Bank, where he is facilitates a team of investment professionals focused on delivering superior investment strategies and client outcomes. Stephen has been in the banking industry for 24 years, joining Hancock Whitney as part of the acquisition of Capital One Asset Management, LLC. Prior to joining Capital One, Stephen worked at Morgan Stanley, efolio.com, Hibernia Bank and Waterhouse Securities. Stephen has a Bachelor of Mathematics from Carleton College and is a Master of Mathematics from the University of Wisconsin.

 

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Economic Overview and Investment Outlook (unaudited) (concluded)

 
     

 

  Jeffrey Tanguis is an investment director at Hancock Whitney Bank, where he is responsible for developing and implementing fixed income strategy and serves as a portfolio manager for high net worth clients. Additionally, he is manages the Louisiana Tax-Free Income Fund and the Mississippi Tax-Free Income Fund for the Hancock Horizon Family of Funds. Jeff has been in the banking industry for 35 years, with 13 years as a member of the Hancock Whitney team. Prior to joining Hancock Whitney, he spent 20 years working with Hibernia Bank as the senior fixed income portfolio manager.

 

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FOOTNOTES:

1 Bloomberg

2 Worldometers

3 Moderna

4 National Bureau of Economic Research (NBER)

5 International Monetary Fund (IMF)

6 Congressional Budget Office (CBO)

7 Centers for Disease Control (CDC)

8 covidprojections.com

9 Mayo Clinic

10 Evercore ISI

11 Factset

 

Except as otherwise indicated, all All economic data cited is based on information provided by Bloomberg.

All employment data cited is based on information provided by the United States Bureau of Labor Statistics.

The information, views, opinions, and positions expressed by the author(s), presenter(s) and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.

This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.

Investment products and services, such as brokerage, advisory accounts, annuities, and insurance are offered through Hancock Whitney Investment Services, Inc., a registered broker/dealer, member FINRA/SIPC and an SEC-Registered Investment Advisor.

Hancock Whitney Bank offers other investment products, which may include asset management accounts as part of its Wealth Management Services. Hancock Whitney Bank and Hancock Whitney Investment Services Inc. are both wholly owned subsidiaries of Hancock Whitney Corporation.

Investment and Insurance Products:

 

NO BANK GUARANTEE   NOT A DEPOSIT   MAY LOSE VALUE   NOT FDIC INSURED   LOGO
NOT INSURED BY  ANY FEDERAL GOVERNMENT AGENCY
© Hancock Whitney
 

 

27


The Hancock Horizon Funds Investment Philosophy (unaudited)

 
     

 

High quality standards are an integral part of our investment approach. We do not believe that it is necessary to speculate in low quality securities to be able to produce good returns. To us, the most desirable investment program is one that utilizes high quality securities within a disciplined management process. Our quality standards are evident in the security holdings of all the Hancock Horizon Funds.

Discipline is an important key to long-term investment success. It means sticking to your investment approach for the long haul, provided that your approach recognizes real fundamental values that could ultimately be reflected in satisfactory investment returns. Value to us means determining the relative attractiveness of individual securities and asset classes using analytical methods that are unemotional and fundamentally driven. We continually analyze results to confirm or challenge the value added by our process. Occasionally, enhancements have been warranted, but over time the core decision-making process has remained intact. No significant changes are anticipated. We believe our approach will remain valuable and effective for the coming year.

With a high-quality, value-conscious and disciplined investment approach, it naturally follows that risk management is an integral part of our process as well. Some investors and fund managers focus on returns while neglecting risk. We believe that risk and return are equally important considerations. As a shareholder in the Hancock Horizon Funds, you can expect us to maintain our quality controls and investment disciplines. We will not reach for yield or attempt to enhance return by using securities or

methods that are not compatible with the stated objectives of each fund. Our primary goal is to provide a way for investors to participate in the financial markets according to their particular needs. We do so by offering a diversified family of mutual funds that is truly representative of the expected risk and return characteristics of each asset class or investment category.

 

 

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Management’s Discussion of Fund Performance (unaudited)

 
     

 

The Hancock Horizon Burkenroad Small Cap Fund (the “Fund”) seeks long-term capital appreciation by investing in small capitalization stocks and other equity securities of companies located or doing business in Alabama, Florida, Georgia, Louisiana, Mississippi, and Texas.

Horizon Advisers intends to utilize Tulane University’s Burkenroad Reports as a source of investment research, but also employs its own fundamental research and analysis in its investment decision-making. In selecting securities, Horizon Advisers primarily considers sales and expense trends, market position, historic and expected earnings and dividends.

On December 31, 2020, common stocks represented 99.7% of the Fund’s assets. The Burkenroad Fund’s largest holdings were in Industrial and Financial stocks, while Consumer Staples and Utilities stocks accounted for minimal exposure. The Burkenroad Fund’s return for the past year was 7.45%, 7.23% and 6.92% for Institutional Class Shares, Investor Class Shares and Class D Shares, respectively. These results lagged the Fund’s benchmark, the Russell 2000 Index, which returned 19.96% for that same period. Beginning January 1, 2021, the primary benchmark for the Fund will be the S&P SmallCap 600 Index, which returned 11.29% in 2020. Long-term performance remains outstanding.

2020 will be a year that not only investors, but also the entire world will not forget anytime soon. The Covid-19 pandemic sent markets sharply lower in the first quarter of the year, and cyclical companies, especially energy, were hard hit. Markets recovered in the second and third quarters and the Burkenroad Fund registered positive relative outperformance for that period. Yet, small cap markets exploded higher in the last quarter of the year on vaccine approval and fading political risk. The Burkenroad Fund’s Institutional class returned 28.09% in the final quarter of 2020.

The market volatility disproportionately affected certain sectors. For instance, the price of crude plummeted during the year and actually registered a negative price briefly on a near-term contract during the spring. Small cap energy stocks registered another abysmal year down over 37%, by far the largest sector decline in the Russell 2000 Index, and the Fund’s overweight to the Energy sector was a major drag on the return relative to its benchmark. Additionally, biotechnology stocks had strong performance, and the Fund’s relative underweight to the industry, due in part to the geographic constraints, weighed on performance. Despite certain sectors and industries either over- or under-represented in the Gulf Coast universe weighing on stocks, there were numerous bright areas for the Fund. Stock selection in Technology and Communication Services were beneficial to relative performance. Additionally, underweights to the Real Estate and Utilities sectors added to relative performance.

Our unique regional approach to investing produced recent relative performance below our expectations and less appealing than our longer-term results. However, we remain confident that our approach is sound and that the demographics and economics of the Gulf South remain attractive for investment. We continue to enhance and refine our investment approach with the aim to deliver strong returns for our investors.

We have seen tremendous growth in assets over the years and have achieved great success in investment performance. We appreciate our shareholders’ confidence in us to manage their assets and look forward to many more years of shared success.

 

 

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Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Burkenroad Small Cap Fund, Institutional Class Shares, Investor Class Shares or Class D Shares, versus the Russell 2000 Index, S&P SmallCap 600 Index and the Lipper Small-Cap Core Funds Classification

 

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(1) On December 31, 2020, the Fund’s benchmark changed from the Russell 2000 Index® to the S&P SmallCap 600 Index, because the Adviser believes that the S&P SmallCap 600 Index better reflects the investment strategies of the Fund.

S&P SmallCap 600 Index is a small-capitalization benchmark index made up of 600 domestic stocks chosen for market size, liquidity, and industry group representation.

Russell 2000 Index is an unmanaged index comprised of 2,000 stocks of U.S. companies with small market capitalization.

Lipper Small-Cap Core Funds Classification Funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) below Lipper’s USDE small-cap ceiling. Small-Cap Core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P SmallCap 600 Index.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings

 

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% of Total Portfolio Investments

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
10-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares*†

    7.45%       2.20%       n/a       n/a       7.17%  

Investor Class Shares†

    7.23%       2.01%       7.30%       9.26%       10.10%  

Class D Shares

    6.92%       1.94%       7.15%       9.05%       9.88%  

S&P SmallCap 600 Index

    11.29%       7.74%       12.38%       11.92%       9.94%  

Russell 2000 Index

    19.96%       10.25%       13.26%       11.20%       9.07%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on December 31, 2001.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

* Institutional Class Shares commenced operations on May 31, 2016. Returns shown on the graph, prior to inception date, are based on Investor Class Shares.

 

 

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December 31, 2020

 

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

Digital Turbine

    3.1%      
   
   

Amedisys

    2.7%      
   
   

Mr Cooper Group

    2.4%      
   
   

Pool

    2.4%      
   
   

US Physical Therapy

    2.2%      
   
   

Ebix

    2.2%      
   
   

RealPage

    2.2%      
   
   

TopBuild

    2.1%      
   
   

Alamo Group

    2.1%      
   
   

Cardlytics

    2.1%          
 

 

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Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

The Hancock Horizon Diversified Income Fund (the “Fund”) seeks to maximize current income, and secondarily long-term capital appreciation using a multi-asset class portfolio structure. As of December 31, 2020, stocks and income producing securities represented 98% of the Fund’s net assets. The Fund was invested predominantly in four asset categories chosen for their historical ability to produce consistent levels of income. In descending order, the asset class weights at year-end was Dividend Stocks 33%, High Yield Bonds 31%, Preferred Stocks 20%, REITs 14%, and Cash 2%.

The Hancock Horizon Diversified Income Fund’s performance for the past year ending December 31, 2020 was 1.39% for the Institutional Class Shares, and 1.14% for the Investor Class Shares. The Fund continues to focus on income generation investing in a mix of equity and fixed income assets that can produce consistent income.

The issues that faced investors in 2019 continued into 2020, specifically geopolitical fears, possible global economic slowdown, trade tensions and a presidential election. All seemed to take a backseat once the pandemic started. The lockdowns added economic uncertainty putting cash flows in possible jeopardy, for example, a dividend cut or suspension.

In spite of interest rates going down again to provide economic stimulus, the Fund ended the year with a 30 day SEC yield of 3.41% for the Institutional Class Shares, and 2.91% for the Investor Class Shares.

Going forward there appears to be more value in fixed income products relative to equity investments.

 

 

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Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Diversified Income Fund, Institutional Class Shares or Investor Class Shares, versus a 50/50 Hybrid of the Dow Jones U.S. Select Dividend Index & Bloomberg Barclays U.S. Intermediate Aggregate Bond Index, the Dow Jones U.S. Select Dividend Index, the Bloomberg Barclays U.S. Intermediate Aggregate Bond Index, and the Lipper Flexible Portfolio Funds Classification

 

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The Dow Jones U.S. Select Dividend Index represents U.S. dividend paying companies that have non-negative historical dividend per share growth rate, a five year dividend to earnings-per-share ratio of less than or equal to 60%, paid dividends in each of the previous five years, and a three month average daily trading volume of 200,000 shares.

The Bloomberg Barclays U.S. Intermediate Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

The Lipper Flexible Portfolio Funds Classification is an equal dollar weighted index of the largest mutual funds within the Flexible Portfolio fund classification, as defined by Lipper.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings

 

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% of Total Portfolio Investments

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
Inception to Date
 

Institutional Class Shares†

    1.39%       3.48%       4.71%       3.05%  

Investor Class Shares†

    1.14%       3.21%       4.46%       2.80%  

50/50 Hybrid of the Dow Jones U.S. Select Dividend Index and Bloomberg Barclays Intermediate U.S. Aggregate Bond Index

    1.48%       4.41%       6.68%       6.77%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on September 26, 2012.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

 

 

33


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

NRG Energy

    2.2%      
   
   

Netflix

    1.8%      
   
   

First Horizon

    1.8%      
   
   

International Game Technology

    1.8%      
   
   

PNC Financial Services Group

    1.7%      
   
   

Quicken Loans

    1.7%      
   
   

Cincinnati Bell Telephone

    1.7%      
   
   

United Rentals North America

    1.7%      
   
   

Sunoco

    1.7%      
   
   

XPO Logistics

    1.7%          
 

 

34


   

LOGO

December 31, 2020

 

At December 31, 2020, the Hancock Horizon Diversified International Fund’s (the “Fund”) largest geographic concentrations were in Europe (ex-UK), which represents roughly 40% of the Fund’s allocation, and Asia (ex-Japan), which represents just under a quarter of the Fund’s overall common stock investments. The Fund’s largest sector exposures were in Financials, Information Technology, and Consumer Discretionary. The Fund’s returns for the year ended December 31, 2020 were 8.63% for the Institutional Class Shares and 8.51% for the Investor Class Shares. The Fund’s results underperformed its benchmark, the MSCI ACWI ex-U.S. Index, which returned 10.65% during this time period.

International stocks began the year falling by over 20% during the depths of the Pandemic at the end of March. During times of such dramatic moves in the equity market portfolio positioning can be an outsized contributor to relative performance, while the quality of stocks within the portfolio can mean very little. As it relates to the Covid crisis, a portfolio would have done exceptionally well if it owned stocks that made respirators or rubber gloves. A portfolio made up of Chinese mobile and online gaming companies would have also fared quite well. Conversely, if a portfolio had exposure related to travel or human connection it likely trailed the Index. The Fund had such exposure which caused it to trail the benchmark during the first few months of the year. The strategy’s positioning is a function of a bottom up, fundamentally driven investment process where the outcome can lead to certain concentrations (like the examples listed above). In the short term, it can hinder results, but over more meaningful periods of time relative performance is a function of our

ability to invest in businesses that, in our view, are undervalued in the moment but can generate outsized returns in the long run.

Accelerated by the effects of COVID-19, a large part of the economy was forced indoors and online. This dynamic began to unwind later in the year as the prospects for a vaccine improved and consumer preferences became more personal in nature. As the virtual world saw decelerating growth compared to the beginning of 2020, it was more likely that companies supporting the physical world would see accelerated growth. This notion proved true during the last few months of 2020. As a result, the Fund outperformed the Index by over 1,000 basis points in the fourth quarter.

Contributing to performance, headquartered in Taiwan, ASE Technology Holding Company is the world’s largest provider of semiconductor packaging and testing services, offering a broad and comprehensive variety of semiconductor chip packaging solutions found principally in mobile applications. During the period the company unveiled the world’s first smart factory powered by a 5G network located in Taiwan. The new factory, equipped with automated guided vehicles and remote augmented reality, solidifies ASE’s position as a leader in facilitating 5G technology globally. As company fundamentals continue to improve, investors responded favorably sending shares higher by 40% during the year.

Detracting from performance for the period, TravelSky Technology is the leading provider of information technology and commercial services in China’s air travel and tourism industry. Its clients include airlines, airports, travel agencies, individual

 

 

35


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

and corporate travel consumers. During the onset of the COVID-19 pandemic, air travel in China fell from 85 million passengers per day to less than 10 million passengers per day. Market participants were unable to see past the initial drop in passenger data. It sent the stock down to valuation levels that suggest bookings would remain significantly depressed through 2021. Recent data out of China suggests the pace of the recovery is accelerating, and TravelSky is positioned to benefit from consumer’s proclivity for a physical economy that includes personal interaction and unrestricted mobility.

 

 

36


   

LOGO

December 31, 2020

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Diversified International Fund, Institutional Class Shares or Investor Class Shares, versus the MSCI All Country World ex-US Index, and the Lipper International Multi-Cap Growth Funds Classification

 

LOGO

The MSCI ACWI ex-U.S. Index is designed to provide a broad measure of stock performance throughout the world, with the exception of U.S. based companies. It includes both developed and emerging markets.

Lipper International Multi-Cap Growth Funds Classification invests in a variety of market-capitalization ranges without concentrating 75% of their equity assets in any one market-capitalization range over an extended period of time. International multi-cap growth funds typically have an above-average price-to-cash flow ratio, price-to-book ratio, and three-year sales-per-share growth value compared to MSCI EAFE Index.

The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index that consists of indices in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.

The MSCI EAFE Index is a stock market index serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings

 

LOGO

% of Total Portfolio Investments

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
10-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares†

    8.63%       3.19%       8.20%       3.93%       5.90%  

Investor Class Shares†

    8.51%       3.07%       8.01%       3.70%       5.67%  

MSCI All Country World ex-U.S. Index

    10.65%       4.88%       8.93%       4.92%       5.70%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on September 30, 2008.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

 

 

 

37


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Country Weightings

 

Japan

     23.0%  

United Kingdom

     16.5%  

Sweden

     8.7%  

Finland

     6.7%  

Italy

     6.0%  

Germany

     6.0%  

United States

     4.8%  

Canada

     4.4%  

Netherlands

     4.0%  

Norway

     3.8%  

Australia

     3.0%  

Singapore

     2.1%  

Switzerland

     2.0%  

Israel

     1.8%  

Belgium

     1.7%  

Hong Kong

     1.5%  

Spain

     1.4%  

France

     1.3%  

Denmark

     1.3%  

Total

     100.0%  

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

Taiwan Semiconductor Manufacturing

    2.8%      
   
   

Samsung Electronics

    2.4%      
   
   

Amadeus IT Group

    2.3%      
   
   

Denso

    2.2%      
   
   

Royal Dutch Shell

    2.2%      
   
   

Barclays

    2.1%      
   
   

HDFC Bank

    2.1%      
   
   

Continental

    2.0%      
   
   

Merck KGaA

    2.0%      
   
   

Rio Tinto

    2.0%          
 

 

38


   

LOGO

December 31, 2020

 

The Hancock Horizon Dynamic Asset Allocation Fund (the “Fund”) seeks long-term capital appreciation. The Fund aims to manage volatility and enhance total portfolio returns by identifying and investing in trends of at least 20 asset classes. The strategy follows a systematic approach that rebalances periodically by purchasing exchange-traded securities displaying positive trends and selling assets that exhibit negative trends.

As of December 31, 2020, the Fund had an above average risk relative allocation with roughly 40% in equities, 28% in alternative investments, 31% in fixed income, and the remaining in money markets. The largest holdings included the iShares Core S&P 500 ETF (12.0%) and the iShares Emerging Markets ETF (8.3%), based on Net Assets as of December 31, 2020.

2020 will be a year that not only investors, but also the entire world will not forget anytime soon. The massive market swings began with a sharp downturn in the spring due to the emergence of Covid-19, followed by a strong rebound in the middle of the year, and then a move sharply higher in the end of the year with news of a vaccine and diminishing political risk. The Dynamic Asset Allocation Fund remained flexible throughout the year, taking advantage of the market movements.

The Fund’s return for 2020 was 8.43% for the Institutional Class Shares and 8.14% for the Investor Class Shares. Though the Fund trailed a balanced index of 50% MSCI ACWI Index and 50% Bloomberg Barclays U.S. Aggregate Bond Index, which returned 12.64% over the same period, it outperformed its hedge fund proxy benchmark, the HFRI Macro Multi-Strategy, which returned 4.12% for the year. The Fund’s allocation moved considerably from a

conservative allocation to a moderately aggressive allocation as markets rebounded in the second half of the year.

Exposure to equities in the second half of the year, especially large cap US stocks, small cap US stocks, and emerging markets helped relative performance. Exposure to long-term treasuries in the first half of the year also was a solid contributor. The largest detractors to performance occurred in February and March as exposure to risk assets weighed on relative performance.

The Fund ended the year with a moderate to aggressive risk exposure as the economic rebound from the Covid pandemic starts to take shape. The strategy will continue to invest across the asset class spectrum in an effort to meet its long-term investment objectives.

 

 

39


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Dynamic Asset Allocation Fund, Institutional Class Shares or Investor Class Shares versus a 50/50 Hybrid of the MSCI ACWI Index and the Bloomberg Barclays U.S. Aggregate Bond Index, MSCI ACWI Index, Bloomberg Barclays U.S. Aggregate Bond Index and the Lipper Flexible Portfolio Funds Classification

 

LOGO

The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

The Bloomberg Barclays U.S. Aggregate Bond Index is made up of the Bloomberg Barclays U.S. Government/Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, including securities that are of investment grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.

The Lipper Flexible Portfolio Funds Classification is an equal dollar weighted index of the largest mutual funds within the Flexible Portfolio fund classification, as defined by Lipper.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings

 

LOGO

% of Total Portfolio Investments

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares†

    8.43%       3.95%       6.59%       3.63%  

Investor Class Shares†

    8.14%       3.69%       6.33%       3.37%  

50/50 Hybrid of MSCI ACWI Index and Bloomberg Barclays U.S. Aggregate Bond Index

    12.64%       8.13%       8.60%       5.10%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on May 29, 2015.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

 

 

40


   

LOGO

December 31, 2020

 

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

iShares Core S&P 500 ETF

    12.0%      
   
   

iShares MSCI Emerging Markets ETF

    8.2%      
   
   

iShares Core U.S. Aggregate Bond ETF

    7.9%      
   
   

iShares Commodities Select Strategy ETF

    7.0%      
   
   

iShares MSCI EAFE Index Fund

    6.9%      
   
   

iShares Russell 2000 ETF

    6.1%      
   
   

Vanguard Real Estate ETF

    5.7%      
   
   

VanEck Vectors J.P. Morgan EM Local Currency Bond ETF

    5.0%      
   
   

First Trust North American Energy Infrastructure Fund

    4.7%      
   
   

SPDR Bloomberg Barclays International Treasury Bond ETF

    3.7%          
 

 

41


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

At December 31, 2020, the Hancock Horizon International Small Cap Fund’s (the “Fund”) largest geographic concentrations were in Europe (ex-U.K.), Japan, and the United Kingdom, which combined represented 87% of the Fund’s common stock investments. The Fund’s largest sector exposures were in Industrials, Information Technology, and Consumer Discretionary. The Fund’s return for the year ending December 31, 2020, was 12.47% for Institutional Class Shares and 12.03% for Investor Class Shares. The Fund underperformed its benchmark, the MSCI World ex USA Small Cap Index (the “Index”), which returned 13.20% during this period.

2020 was a year unlike any other as the world grappled with the COVID-19 pandemic. Despite the turbulence, international markets experienced a very positive year on the strength of the deep value rally seen in the last two months of 2020. Our approach was generally able to outpace the market through the bulk of the year as a result of good stock selection.

In the first quarter, governments worldwide were forced to induce a global economic blackout for an unknowable period of time in an effort to contain the spread of coronavirus, triggering the quickest, sharpest, and most fundamentally indiscriminate sell-off ever in stock market history. Volatility soared to levels not seen since the Great Financial Crisis as global economies ground to a halt. Despite the historically extreme market conditions, the Fund did well in the first quarter, outperforming the benchmark by about 70 basis points.

Then, just as dramatically, fueled by swift, decisive global central bank action supported by extraordinary fiscal stimulus, markets reversed course and shot up in the second quarter. Better-than-

expected economic news, though from a very low

base, propelled investor hopes for a V-shaped recovery later in the quarter. The rebound was not felt equally, however, with very significant dispersion across factors, sectors, and countries. Many of the themes contributing to the narrowness of the market continued: the U.S. outperformed international markets, growth outperformed value, and technology stocks were largely in the driver’s seat. Amidst the whipsaw, the Fund posted an absolute return of over 21%, and yet was unable to keep up with the benchmark as it lagged the benchmark by about -70 basis points during the second quarter.

The third quarter provided no real relief from the global pandemic and economic malaise, as the letter “K” replaced “V” as the perceived shape of the economic recovery with very distinct winners and losers. Markets were strongly influenced by the prospects for a vaccine, stumbling when optimism softened or when a manufacturer reported disappointing drug trial news. Despite a pullback in September, global markets posted a second consecutive strong quarter. The Fed announced that low interest rates would remain in place for several years, which “juiced” global equity markets, and emerging markets outpaced the rest of the world as energy continued to lag amid reduced oil demand. On a relative basis, this was the strongest quarter for the Fund during the year, as it outperformed the Index by 110 basis points.

Fittingly, the fourth quarter of 2020 brought with it a flurry of important global events: we got not one, but two COVID-19 vaccines; a conclusive U.S. Presidential election; and a negotiated Brexit deal. November was a record-breaking month for equities, but the most significant record by far was the speed at

 

 

42


   

LOGO

December 31, 2020

 

which the coronavirus vaccines were developed. The reports of high efficacy rates in clinical trials sent markets soaring, and approvals quickly followed with actual vaccinations occurring before year-end. Fourth quarter market performance was defined by November – undoubtedly a welcome rotation for deep value and contrarian investors, but not so for fundamentally-driven investors, as reasonably priced, quality growth stocks were left behind. As such, the Fund gave back some of its gains on the year, trailing the benchmark by about 90 basis points.

For the twelve months ending December 31, 2020, at the sector level our process did best in Real Estate, Consumer Discretionary, and Industrials, but struggled most in Materials, Consumer Staples, and Utilities. From a country perspective, the primary contributors were Sweden, Singapore, and Israel, while Canada, the Netherlands, and Hong Kong detracted.

With markets reaching new pinnacles, it is clear that there is optimism, with investors looking forward to a recovery in the second half of 2021 fueled by a mountain of pent-up consumer demand. However, a return to normal is far from guaranteed, as the new year brings the baggage of extended growth stock valuations, looming asset bubbles, and the unknown consequences of unprecedented government stimulus, not to mention the monumental task of vaccinating a global population. Within the nexus of challenges and uncertainties, we find no shortage of companies demonstrating superior fundamentals and ever-better valuations presenting strong investment opportunities.

 

 

43


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon International Small Cap Fund, Institutional Class Shares or Investor Class Shares Shares versus the MSCI World ex-USA Small Cap Index, S&P Developed ex-U.S. Small Cap Index and the Lipper International Small/Mid Cap Growth Funds Classification

 

LOGO

The MSCI World ex-USA Small Cap Index captures small cap representation across 22 of 23 Developed Markets (“DM”) countries (excluding the United States). With 2,540 constituents, the index covers approximately 14% of the free float-adjusted market capitalization in each country.

The S&P Developed ex-U.S. Small Cap Index comprises the stocks representing the lowest 15% of float-adjusted market cap in each developed country. It is a subset of the S&P Global BMI, a comprehensive, rules-based index measuring global stock market performance.

Lipper International Small/Mid Cap Growth Funds Classification: Funds that, by portfolio practice, invest at least 75% of their equity assets in companies strictly outside of the U.S. with market capitalizations (on a three-year weighted basis) below Lipper’s international large-cap floor. International small/mid-cap growth funds typically have above-average characteristics compared to their small/mid-cap-specific subset of the MSCI EAFE Index.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weights

 

LOGO

% of Total Portfolio Investments

 

Annualize   One-Year
Return
    3-Year
Return
    5-Year
Return
    Inception
To Date
 

Institutional Class Shares†

    12.47%       1.89%       5.82%       4.97%  

Investor Class Shares†

    12.03%       1.57%       5.52%       4.68%  

MSCI World ex-USA Small Cap Index

    13.20%       5.45%       10.06%       8.16%  

S&P Developed ex-U.S. Small Cap Index

    14.27%       5.14%       9.81%       7.84%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on May 29, 2015.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

 

 

44


   

LOGO

December 31, 2020

 

Country Weightings

 

Japan

     23.0%  

United Kingdom

     16.5%  

Sweden

     8.7%  

Finland

     6.7%  

Italy

     6.0%  

Germany

     6.0%  

United States

     4.8%  

Canada

     4.4%  

Netherlands

     4.0%  

Norway

     3.8%  

Australia

     3.0%  

Singapore

     2.1%  

Switzerland

     2.0%  

Israel

     1.8%  

Belgium

     1.7%  

Hong Kong

     1.5%  

Spain

     1.4%  

France

     1.3%  

Denmark

     1.2%  

Total

     100%  

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

Signify

    1.7%      
   
   

Capcom

    1.5%      
   
   

Fukui Computer Holdings

    1.2%      
   
   

Instalco

    1.2%      
   
   

Lindab International

    1.2%      
   
   

Bouvet

    1.1%      
   
   

Itochu Enex

    1.0%      
   
   

Kamux

    1.0%      
   
   

Ebara Jitsugyo

    1.0%      
   
   

Kintetsu World Express

    1.0%          
 

 

45


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

The Hancock Horizon Louisiana Tax Free Income Fund (the “Fund”) seeks current income exempt from both federal income tax and Louisiana personal income tax by investing primarily in municipal bonds of Louisiana issuers. For the period ending December 31, 2020, the Fund generated a total return of +3.94% for the Institutional Class Shares and +3.78% for the Investor Class Shares. This compares to +5.21% for the Bloomberg Barclays Municipal Bond Index and +4.17% for the Lipper Other States Municipal Debt Index. Fund performance was generally in line with its Lipper peer group. During this fiscal period, the Fund’s sector allocation continued to emphasize higher yielding revenue bonds over general obligation securities, both state and local. At the fiscal year-end total revenue bonds represented 55.2 % of the portfolio while general obligation bonds comprised 30.6% of the Fund. The period ended with the Fund’s average maturity at 12.3 years and a weighted average effective duration of 3.8. The average quality of the Fund remained steady at AA.

The fiscal year ended December 31, 2020 was a period of extremely volatile municipal interest rates due primarily to the spread of the Covid-19 pandemic around the globe. The second quarter of 2020 saw an unprecedented drop in economic activity as communities went into shut down, with GDP dropping an historic 31.4% annualized. And while US Treasury rates plummeted in a flight to quality, yields on municipal bonds skyrocketed as market participants eschewed any securities with perceived credit risk. Municipal bonds are particularly susceptible to this type of risk off environment due to the largely retail nature of the investor base. The market for new issue munis effectively closed to many issuers, and in secondary markets volume collapsed and bid-ask spreads widened dramatically. In response, the Federal Reserve (“Fed”) sprang into action, providing markets with an almost unlimited

amount of liquidity. The Fed ramped up its purchases of US treasuries and mortgage-backed securities, a policy developed and implemented in the wake of the Great Financial Crisis of 2008-09. In addition, however, the Fed implemented additional liquidity backstop programs tailored specifically to the municipal bond market. The Municipal Liquidity Facility was created with the ability to purchase municipal securities directly from eligible issuers, thus providing municipalities with funding away from the financial markets. The state of Illinois and the New York Metropolitan Transportation Authority were the only entities to use the facility, but this program, along with many others, was successful in returning markets to more normal functioning.

Louisiana’s economy was particularly hard hit by the Covid-19 pandemic. In addition, the state has significant exposure to the oil and gas industry. By some measures, 1 in 9 jobs across the state are tied to the energy sector either directly or indirectly. As the pandemic spread, oil prices fell from above $60 into the teens. Lower oil prices leads to lost jobs and lower revenues across the Louisiana economy. According to the Bureau of Labor Statistics the state lost 238,000 jobs in the month of April. During this month the unemployment rate across the state rose dramatically, from 6.7% to 15.1%. In intervening months, the broader economy has made significant improvements. Total US GDP increased at an annualized rate of 33.4% in Q3 2020. Looking ahead, we believe the Louisiana economy will likely face significant challenges from the effects of the global pandemic and volatile energy prices. These factors will likely lead to slower employment growth and strained state and local budgets. On a hopeful note, Covid-19 vaccinations have begun, and optimistic expectations are for the country overall to reach herd immunity in late 2021. Many risks remain, including the threat of virus mutations and risks from an uneven rollout of vaccines globally.

 

 

46


   

LOGO

December 31, 2020

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Louisiana Tax-Free Income Fund, Institutional Class Shares or Investor Class Shares versus the Bloomberg Barclays Municipal Bond Index, and the Lipper Other States Municipal Funds Classification

 

LOGO

The Bloomberg Barclays Municipal Bond Index is a widely-recognized index of municipal bonds with maturities of at least one year.

Lipper Other States Municipal Funds Classification: Funds that invest in municipal debt issues with dollar weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis.

The performance data quoted represents past performance and the investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares†

    3.94%       3.43%       3.07%       4.64%  

Investor Class Shares†

    3.78%       3.25%       2.88%       4.41%  

Bloomberg Barclays Municipal Bond Index

    5.21%       4.64%       3.91%       4.75%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on February 1, 2011.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

Sector Weightings

 

LOGO

% of Total Portfolio Investments

Top Ten Holdings

 

       
          Percentage of
Total Investments
       
   
   

Louisiana, Local Government Environmental Facilities & Community Development Authority

    32.7%      
   
   

Lafayette, Utilities Revenue

    9.0%      
   
   

Louisiana, Transportation Authority

    4.5%      
   
   

Lafayette, Parish School Board

    4.0%      
   
   

Terrebonne Levee, Conservation District

    4.0%      
   
   

Iberia, Parishwide School District

    3.8%      
   
   

Desoto, Parish School Board

    3.5%      
   
   

Plaquemine City

    3.5%      
   
   

Lafourche, Parish School Board

    3.1%      
   
   

St. Tammany Parish, Hospital Service District No. 2

    3.1%          
 

 

47


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Credit Quality Ratings

Moody’s

 

LOGO

S&P

 

LOGO

Moody’s gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. There are nine symbols as follows, from that used to designate least credit risk to that denoting greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Moody’s Money Market Fund Ratings are opinions of the investment quality of shares in mutual funds and similar investment vehicles which principally invest in short-term fixed income obligations. As such, these ratings incorporate Moody’s assessment of a fund’s published investment objectives and policies, the creditworthiness of the assets held by the fund, the liquidity profile of the fund’s assets relative to the fund’s investor base, the assets’ susceptibility to market risk, as well as the management characteristics of the fund. There are six symbols as follows, from

that used to designate least credit risk to that denoting greatest credit risk: Aaa-mf, Aa-mf, A-mf, Baa-mf and B-mf. For more information on Moody’s Ratings, please visit their website at www.moodys.com.

Standard & Poor’s (“S&P”) ratings are grades given to bonds that indicate their credit quality. S&P gives ratings after evaluating a bond issuer’s financial strength or the ability to pay a bond’s principal and interest in a timely fashion. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). S&P provides principal stability fund ratings on a money market fund’s capacity to maintain stable principal. S&P gives ratings after evaluating the credit worthiness of the Fund’s investments, counterparties and managements ability and policies to maintain the fund’s stable net asset value. Rating are measured on a scale that generally ranges from AAAm (highest) to Dm (lowest). For more information on S&P Ratings, please visit their website at www.standardandpoors.com.

 

 

48


   

LOGO

December 31, 2020

 

The Hancock Horizon Microcap Fund (the “Fund”) seeks long-term capital appreciation by investing in stocks which the Advisor believes to have above average growth potential based on analysis. The Fund will attempt to achieve this objective by investing primarily in equity securities of U.S. companies with market capitalizations under $750 million.

As of December 31, 2020, common stocks represented 97.3% of the Fund’s Net Assets. At year-end the Fund’s largest holdings were in Health Care, Financials, and Consumer Discretionary, while Utilities, Staples, and Communication Services had the least exposure.

The Fund‘s return for the past year ended December 31, 2020, was -10.49% for the Institutional Class Shares and -10.68% for the Investor Class Shares. The Fund’s benchmark, the Russell Microcap Index, returned 20.96% for the same period.

The Fund’s performance was negatively impacted by both overall stock selection and sector positioning. The largest detractors for the 12 month period were in the Health Care and Financial sectors. Stock selection and sector positioning for both sectors hurt relative performance. A relative under weighting in the Real Estate sector and an over weighting in the Communication Services sector were positive contributors. Also, the Fund’s stock selection in the Energy and Communication Services sectors were the largest positive contributors to performance.

Looking ahead we expect the economy to slowly return to normal as vaccinations continue to ramp up and herd immunity is reached in the second half of the year. Until then unprecedented amounts of fiscal stimulus and low interest rates should help

provide a safety net for U.S. consumers and businesses.

 

 

49


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Microcap Fund, Institutional Class Shares or Investor Class Shares, versus the Russell Microcap Index and the Lipper Small-Cap Core Funds Classification

 

LOGO

(1) On December 31, 2020, the Fund’s benchmark changed from the Russell Microcap Index to the Dow Jones U.S. Micro-Cap Total Stock Market Index, because the Adviser believes that the Dow Jones U.S. Micro-Cap Total Stock Market Index better reflects the investment strategies of the Fund.

The Dow Jones U.S. Micro-Cap Total Stock Market Index, a member of the Dow Jones Total Stock Market Indices family, is designed to provide a comprehensive measure of the micro-cap segment of the U.S. stock market.

The Russell Microcap Index is a capitalization weighted index of 2,000 small cap and micro cap stocks that captures the smallest 1,000 companies in the Russell 2000, plus 1,000 smaller U.S.-based listed stocks.

The Lipper Small-Cap Core Funds Classification: Funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) below Lipper’s USDE small-cap ceiling. Small-Cap Core funds have more latitude in the companies in which they invest. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, comparable to the S&P Small Cap 600 Index.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings

 

LOGO

% of Total Portfolio Investments

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
Inception to Date
 

Institutional Class Shares†

    -10.49%       -7.54%       1.21%       0.46%  

Investor Class Shares†

    -10.68%       -7.76%       0.96%       0.21%  

Dow Jones U.S. Micro-Cap Total Stock Market Index

    21.02%       7.75%       10.33%       7.38%  

Russell Microcap Index

    20.96%       8.78%       11.89%       8.79%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on May 29, 2015.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

 

 

 

50


   

LOGO

December 31, 2020

 

Top Ten Equity Holdings

 

       
          Percentage of
Total Investments
       
   
   

Curo Group Holdings

    1.8%      
   
   

Vericel

    1.4%      
   
   

Antares Pharma

    1.3%      
   
   

Inspired Entertainment

    1.3%      
   
   

Bluerock Residential Growth REIT

    1.2%      
   
   

Strattec Security

    1.2%      
   
   

First Foundation

    1.2%      
   
   

Dorian LPG

    1.2%      
   
   

Citi Trends

    1.2%      
   
   

Luna Innovations

    1.2%          
 

 

51


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

The Hancock Horizon Mississippi Tax-Free Income Fund (the “Fund”) seeks current income exempt from both federal income tax and Mississippi personal income tax by investing primarily in municipal bonds of Mississippi issuers. For the period ending December 31, 2020, the Fund generated a total return of +4.37% for the Institutional Class Shares and +4.31% for the Investor Class Shares. This compares to +5.21% for the Bloomberg Barclays Municipal Bond Index and +4.17% for the Lipper Other States Municipal Debt Index. Fund performance was generally in line with its Lipper peer group. During this fiscal period, the Fund’s sector allocation continued to emphasize higher yielding revenue bonds over general obligation securities, both state and local. At the fiscal year-end total revenue bonds represented 46.3 % of the portfolio while general obligation bonds comprised 37.7% of the Fund. The period ended with the Fund’s average maturity at 8.9 years and a weighted average effective duration of 4.3. The average quality of the Fund remained steady at AA.

The fiscal year ended December 31, 2020 was a period of extremely volatile municipal interest rates due primarily to the spread of the Covid-19 pandemic around the globe. The second quarter of 2020 saw an unprecedented drop in economic activity as communities went into shut down, with GDP dropping an historic 31.4% annualized. And while US Treasury rates plummeted in a flight to quality, yields on municipal bonds skyrocketed as market participants eschewed any securities with perceived credit risk. Municipal bonds are particularly susceptible to this type of risk off environment due to the largely retail nature of the investor base. The market for new issue munis effectively closed to many issuers, and in secondary markets volume collapsed

and bid-ask spreads widened dramatically. In response, the Federal Reserve (the “Fed”) sprang into action, providing markets with an almost unlimited amount of liquidity. The Fed ramped up its purchases of US treasuries and mortgage-backed securities, a policy developed and implemented in the wake of the Great Financial Crisis of 2008-09. In addition, however, the Fed implemented additional liquidity backstop programs tailored specifically to the municipal bond market. The Municipal Liquidity Facility was created with the ability to purchase municipal securities directly from eligible issuers, thus providing municipalities with funding away from the financial markets. The state of Illinois and the New York Metropolitan Transportation Authority were the only entities to use the facility, but this program, along with many others, was successful in returning markets to more normal functioning.

Mississippi’s economy was especially hard hit by the Covid-19 pandemic. The state’s unemployment rate began the year higher than the national average (5.3% vs. 3.5%), and in March the state lost 114,000 bobs, increasing the unemployment rate to 16.3% (compared to 14.8% for the economy overall). In intervening months, the broader economy has made significant improvements. Total US GDP increased at an annualized rate of 33.4% in Q3 2020. Looking ahead, we believe the Mississippi economy will likely face significant challenges from the effects of the global pandemic. These factors will likely lead to slower employment growth and strained state and local budgets. On a hopeful note, Covid-19 vaccinations have begun, and optimistic expectations are for the country overall to reach herd immunity in late 2021. Many risks remain, including the threat of virus mutations and risks from an uneven rollout of vaccines globally.

 

 

52


   

LOGO

December 31, 2020

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Mississippi Tax-Free Income Fund, Institutional Class Shares or Investor Class Shares versus the Bloomberg Barclays Municipal Bond Index, and the Lipper Other States Municipal Funds Classification

 

LOGO

The Bloomberg Barclays Municipal Bond Index is a widely-recognized index of municipal bonds with maturities of at least one year.

Lipper Other States Municipal Funds Classification: Funds that invest in municipal debt issues with dollar weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis.

The performance data quoted represents past performance and the investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares†

    4.37%       3.76%       3.09%       4.40%  

Investor Class Shares†

    4.31%       3.63%       2.90%       4.18%  

Bloomberg Barclays Municipal Bond Index

    5.21%       4.64%       3.91%       4.75%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on February 1, 2011.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

Sector Weightings

 

LOGO

% of Total Portfolio Investments

Top Ten Holdings

 

       
          Percentage of
Total Investments
       
   
   

Mississippi State, Development Bank

    35.0%      
   
   

Mississippi State

    16.8%      
   
   

Oxford

    5.0%      
   
   

Mississippi State, University Educational Building

    4.6%      
   
   

Lauderdale County

    4.5%      
   
   

Starkville

    3.9%      
   
   

University of Southern Mississippi

    3.7%      
   
   

Forrest County

    3.5%      
   
   

Copiah County

    3.4%      
   
   

Long Beach, School District

    2.7%          
 

 

53


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Credit Quality Ratings

Moody’s

 

LOGO

S&P

 

LOGO

Moody’s gradations of creditworthiness are indicated by rating symbols, with each symbol representing a group in which the credit characteristics are broadly the same. There are nine symbols as follows, from that used to designate least credit risk to that denoting greatest credit risk: Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C. Moody’s Money Market Fund Ratings are opinions of the investment quality of shares in mutual funds and similar investment vehicles which principally invest in short-term fixed income obligations. As such, these ratings incorporate Moody’s assessment of a fund’s published investment objectives and policies, the creditworthiness of the assets held by the fund, the liquidity profile of the fund’s assets relative to the fund’s investor base, the assets’ susceptibility to market risk, as well as the management characteristics of the fund. There are six symbols as follows, from

that used to designate least credit risk to that denoting greatest credit risk: Aaa-mf, Aa-mf , A-mf, Baa-mf and B-mf. For more information on Moody’s Ratings, please visit their website at www.moodys.com.

Standard & Poor’s (“S&P”) ratings are grades given to bonds that indicate their credit quality. S&P gives ratings after evaluating a bond issuer’s financial strength or the ability to pay a bond’s principal and interest in a timely fashion. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). S&P provides principal stability fund ratings on a money market fund’s capacity to maintain stable principal. S&P gives ratings after evaluating the credit worthiness of the Fund’s investments, counterparties and managements ability and policies to maintain the fund’s stable net asset value. Rating are measured on a scale that generally ranges from AAAm (highest) to Dm (lowest). For more information on S&P Ratings, please visit their website at www.standardandpoors.com.

 

 

54


   

LOGO

December 31, 2020

 

The Quantitative Long/Short Fund (the “Fund”) seeks long-term capital appreciation by taking long and short positions in equity securities of publicly-traded companies in the U.S.

Horizon Advisers establishes long positions in common stocks we believe to be “undervalued” and establishes short positions in common stocks we believe to be “overvalued” based on quantitative, fundamental and technical analyses. There are two aspects to our investment process. One involves a top down approach to the Fund’s net equity positioning by reviewing various forms of valuation and momentum indicators of the general US equity markets. The second relates to the bottom up approach to stock selection derived primarily using quantitative techniques. Our quantitative model ranks stocks according to their relative attractiveness based on valuation, earnings, and momentum factors.

On December 31, 2020, the Quantitative Long/Short Fund had a net long position of 62%, with 14.5% of the Fund’s value in short positions. The Fund’s largest holdings were in Information Technology, Consumer Discretionary, and Industrial sectors while having the least exposure to Utilities and Real Estate.

The Quantitative Long/Short Fund’s return for the year ended December 31, 2020 was -3.74% for Institutional Class Shares, -4.01% for Investor Class Shares compared to +4.60% for the HFRX Equity Hedge Index for the same period.

The Fund benefited from stock selection and underweight allocations to Energy, Real Estate and Utilities. Stock selection in Consumer Discretionary and Financial sectors were the biggest detractors

during the year. Allocations to short positions was also a detractor, as lower quality stocks with poor fundamental and technical characteristics rallied the most after the market bottomed in March.

Thanks to a dramatic rise in market prices and a decline in earnings growth over the last couple of years, PE expansion has been the primary driver of stock returns, thus leaving valuations at very high levels. This by itself would suggest lower expected returns over the next 5-10 years. However, monetary and fiscal policies may continue to provide the liquidity that pushes markets higher as the TINA phenomenon rages on. In addition we should see positive earnings growth come back in 2021 as the economy regains its footing and comparisons become much easier. At this time risk remains elevated and investor sentiment seems more stretched at these levels, so we remain cautious and will pay close attention to changes in market trends as they develop.

 

 

55


Management’s Discussion of Fund Performance  (unaudited) (continued)  
     

 

Comparison of Change in the Value of a $10,000 Investment in the Hancock Horizon Quantitative Long/Short Fund, Institutional Class Shares or Investor Class Shares, versus the HFRX Equity Hedge Index, the S&P Composite 1500 Index, and the Lipper Long/Short Equity Funds Index

 

LOGO

HFRX Equity Hedge Index Equity Hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. Equity Hedge managers would typically maintain at least 50%, and may in some cases be substantially entirely invested in equities, both long and short. Hedge Fund Research, Inc. (HFR) utilizes a UCITSIII compliant methodology to construct the HFRX Hedge Fund Indices. The methodology is based on defined and predetermined rules and objective criteria to select and rebalance components to maximize representation of the Hedge Fund Universe. HFRX Indices utilize state-of-the-art quantitative techniques and analysis; multi-level screening, cluster analysis, Monte-Carlo simulations and optimization techniques ensure that each Index is a pure representation of its corresponding investment focus.

The S&P Composite 1500 Index is a broad market portfolio representing the large cap, mid cap, and small cap segments of the U.S. Equity market.

Lipper Long/Short Equity Funds Index is comprised of funds that employ portfolio strategies combining long holdings of equities with short sales of equity, equity options, or equity index options. The funds may be either net long or net short, depending on the portfolio manager’s view of the market.

The performance data quoted represents past performance and 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. Past performance is no guarantee of future results.

Current performance may be higher or lower than the performance quoted. For performance data current to the most recent month end, please call 1-800-990-2434 or visit www.hancockhorizonfunds.com.

Sector Weightings — Long

 

LOGO

% of Total Portfolio Investments, which excludes Securities Sold Short

Sector Weightings — Short

 

LOGO

Securities Sold Short, as a % of Total Portfolio Investments

 

 

56


   

LOGO

December 31, 2020

 

     One-Year
Return
    Annualized
3-Year
Return
    Annualized
5-Year
Return
    Annualized
10-Year
Return
    Annualized
Inception
to Date
 

Institutional Class Shares†

    -3.74%       0.43%       2.45%       5.52%       4.48%  

Investor Class Shares†

    -4.01%       0.23%       2.29%       5.31%       4.27%  

HFRX Equity Hedge Index

    4.60%       1.61%       2.92%       0.76%       1.12%  

† Effective July 31, 2020, Hancock Funds changed their fiscal year end to

December 31 (See Note 1 in the Notes to Financial Statements).

For periods ended December 31, 2020. Past performance is not predictive of future performance. Fund commenced operations on September 30, 2008.

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The returns reflect fee waivers and/or reimbursements in effect; absent fee waivers and reimbursements, performance would have been lower.

Top Ten Equity Holdings—Long

 

       
          Percentage of
Total Investments
       
   
   

Lam Research

    1.3%      
   
   

Crown Holdings

    1.2%      
   
   

Intuit

    1.2%      
   
   

Generac Holdings

    1.2%      
   
   

Cadence Design Systems

    1.2%      
   
   

PayPal Holdings

    1.2%      
   
   

PNC Financial Services Group

    1.2%      
   
   

Amazon.com

    1.2%      
   
   

Renewable Energy Group

    1.2%      
   
   

Apple

    1.2%          

Top Ten Equity Holdings—Short

 

       
          Percentage of
Total Investments
       
   
   

Brady

    0.5%          
   
   

Bank of New York Mellon

    0.5%          
   
   

Boston Scientific

    0.5%          
   
   

Karyopharm Therapeutics

    0.5%          
   
   

Vectrus

    0.5%          
   
   

Misonix

    0.5%          
   
   

American Tower

    0.5%          
   
   

Citrix Systems

    0.5%          
   
   

Atrion

    0.5%          
   
   

NorthWestern

    0.5%          
 

 

57


Disclosure of Fund Expenses  (unaudited)  
     

 

All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is affected by these ongoing costs, which include (among others) costs for portfolio management, administrative services, 12b-1 fees, and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.

Operating expenses such as these are deducted from a mutual fund’s gross income and directly reduce its final investment return. These expenses are expressed as a percentage of a mutual fund’s average net assets; this percentage is known as a mutual fund’s expense ratio.

The following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire period from June 1, 2020 to December 31, 2020.

The table on the next page illustrates your Fund’s costs in two ways:

Actual Fund return — This section helps you to estimate the actual expenses that your Fund incurred over the period. The “Expenses Paid During Period” column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the “Ending Account Value” number is derived from deducting that expense cost from the Fund’s gross investment return.

You can use this information, together with the actual amount you invested in the Fund, to estimate the expenses your Fund incurred over that period. Simply divide your actual account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under the “Expenses Paid During Period” column.

Hypothetical 5% return — This section helps you compare your Fund’s costs with those of other mutual funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the expense ratio (Column 3) is unchanged. This example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. You can assess your Fund’s comparative cost by comparing the hypothetical result for your Fund in the “Expenses Paid During Period” column with those that appear in the same charts in the shareholder reports for other mutual funds.

Note: Because the hypothetical return is set at 5% for comparison purposes — NOT your Fund’s actual return — the account values shown do not apply to your specific investment. Expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. If these transactional costs were included, your cost would have been higher.

 

 

58


   

LOGO

December 31, 2020

 

         
     Beginning
Account
Value
7/1/2020
     Ending
Account
Value
12/31/2020
     Annualized
Expense
Ratios
    Expenses
Paid
During
Period*
 

Burkenroad Small Cap Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,350.90        1.00   $ 5.91  

Investor Class Shares

    1,000.00        1,350.00        1.20     7.09  

Class D Shares

    1,000.00        1,348.10        1.50     8.85  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,020.11        1.00   $ 5.08  

Investor Class Shares

    1,000.00        1,019.10        1.20     6.09  

Class D Shares

    1,000.00        1,017.60        1.50     7.61  
         

Diversified Income Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,153.80        0.90   $ 4.87  

Investor Class Shares

    1,000.00        1,151.80        1.15     6.22  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,020.61        0.90   $ 4.57  

Investor Class Shares

    1,000.00        1,019.36        1.15     5.84  
         

Diversified International Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,339.70        1.34   $ 7.88  

Investor Class Shares

    1,000.00        1,338.60        1.49     8.76  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,018.40        1.34   $ 6.80  

Investor Class Shares

    1,000.00        1,017.65        1.49     7.56  
         

Dynamic Asset Allocation Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,128.80        1.31   $ 7.01  

Investor Class Shares

    1,000.00        1,127.30        1.56     8.34  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,018.55        1.31   $ 6.65  

Investor Class Shares

    1,000.00        1,017.29        1.56     7.91  
         

International Small Cap Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,279.30        1.25   $ 7.16  

Investor Class Shares

    1,000.00        1,276.70        1.51     8.64  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,018.85        1.25   $ 6.34  

Investor Class Shares

    1,000.00        1,017.55        1.51     7.66  
                                   
         
     Beginning
Account
Value
7/1/2020
     Ending
Account
Value
12/31/2020
     Annualized
Expense
Ratios
    Expenses
Paid
During
Period*
 

Louisiana Tax-Free Income Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,014.60        0.75   $ 3.80  

Investor Class Shares

    1,000.00        1,013.80        0.90     4.56  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,021.37        0.75   $ 3.81  

Investor Class Shares

    1,000.00        1,020.61        0.90     4.57  
         

Microcap Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,212.40        1.30   $ 7.23  

Investor Class Shares

    1,000.00        1,211.50        1.55     8.62  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,018.60        1.30   $ 6.60  

Investor Class Shares

    1,000.00        1,017.34        1.55     7.86  
         

Mississippi Tax-Free Income Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,017.40        0.75   $ 3.80  

Investor Class Shares

    1,000.00        1,016.80        0.85     4.31  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,021.37        0.75   $ 3.81  

Investor Class Shares

    1,000.00        1,020.86        0.85     4.32  
         

Quantitative Long/Short Fund

 

Actual Fund Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,084.30        1.54   $ 8.07  

Investor Class Shares

    1,000.00        1,082.40        1.80     9.42  

Hypothetical 5% Return

 

Institutional Class Shares

  $ 1,000.00      $ 1,017,39        1.54   $ 7.81  

Investor Class Shares

    1,000.00        1,016,09        1.80     9.12  
                                   
*

Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

 

 

59


Schedules of Investments  
     

Burkenroad Small Cap Fund

 

 

 

Description      Shares      Value
(000)
 

Common Stock — 100.2%

 

Aerospace & Defense — 1.9%

       

HEICO

       19,000      $ 2,515  

Total Aerospace & Defense

 

     2,515  
Automotive — 2.8%                

AGCO

       21,000        2,165  

AutoNation*

       22,000        1,536  

Total Automotive

 

     3,701  
Banks — 12.0%                

International Bancshares

       69,000        2,583  

Mr Cooper Group*

       103,000        3,196  

Prosperity Bancshares

       34,000        2,358  

ServisFirst Bancshares

       41,000        1,652  

Synovus Financial

       54,000        1,748  

Trustmark

       60,000        1,639  

United Community Banks

       90,000        2,560  

Total Banks

 

     15,736  
Building & Construction — 6.0%                

Green Brick Partners*

       50,000        1,148  

Masonite International*

       20,000        1,967  

Taylor Morrison Home, Cl A*

       77,000        1,975  

TopBuild*

       15,000        2,761  

Total Building & Construction

 

     7,851  
Chemicals — 2.5%                

Element Solutions

       116,000        2,057  

Huntsman

       51,000        1,282  

Total Chemicals

 

     3,339  
Commercial Services — 1.8%                

Insperity

       29,000        2,361  

Total Commercial Services

 

     2,361  
Computer Software — 8.7%                

ACI Worldwide*

       41,000        1,576  

Digital Turbine*

       73,000        4,129  

Ebix

       76,000        2,886  

RealPage*

       33,000        2,879  

Total Computer Software

 

         11,470  
Computers & Services — 1.7%                

Lumentum Holdings*

       24,000        2,275  

Total Computers & Services

 

     2,275  
Description      Shares      Value
(000)
 
Electrical Utilities — 0.8%                

Vistra

       50,000      $ 983  

Total Electrical Utilities

 

     983  
Engineering Services — 2.7%                

Comfort Systems USA

       33,000        1,738  

MasTec*

       26,000        1,773  

Total Engineering Services

 

     3,511  
Financial Services — 2.5%                

Aaron’s Holdings*

       37,000        1,993  

Affiliated Managers Group

       13,000        1,322  

Total Financial Services

 

     3,315  
Food, Beverage & Tobacco — 0.8%                

Ingles Markets, Cl A

       26,000        1,109  

Total Food, Beverage & Tobacco

 

     1,109  
Insurance — 3.8%                

Amerisafe

       33,000        1,895  

Primerica

       15,000        2,009  

Stewart Information Services

       21,000        1,016  

Total Insurance

 

     4,920  
Leasing & Renting — 0.9%                

Rent-A-Center, Cl A

       29,000        1,111  

Total Leasing & Renting

 

     1,111  
Machinery — 3.5%                

Alamo Group

       20,000        2,759  

Mueller Water Products, Cl A

       147,000        1,820  

Total Machinery

 

     4,579  
Manufacturing — 2.7%                

Acuity Brands

       9,000        1,090  

Bloom Energy, Cl A*

       84,000        2,407  

Total Manufacturing

 

     3,497  
Materials — 1.2%                

Eagle Materials

       16,000        1,621  

Total Materials

 

     1,621  
Media — 4.7%                

Cardlytics*

       19,000        2,713  

Glu Mobile*

       195,000        1,757  

Gray Television*

       96,000        1,717  

Total Media

 

         6,187  
 

 

60


Schedules of Investments  

LOGO

December 31, 2020

     

Burkenroad Small Cap Fund (concluded)

 

 

 

Description      Shares      Value
(000)
 
Medical Products & Services — 16.2%                

Amedisys*

       12,000      $ 3,520  

Arena Pharmaceuticals*

       20,000        1,537  

Arrowhead Pharmaceuticals*

       19,000        1,458  

Catalyst Pharmaceuticals*

       220,000        735  

Dicerna Pharmaceuticals*

       38,000        837  

Emergent Biosolutions*

       9,000        806  

Encompass Health

       31,000        2,563  

Integer Holdings*

       29,000        2,354  

Luminex

       21,000        486  

Molecular Templates*

       58,000        545  

Repligen*

       12,000        2,300  

Sorrento Therapeutics*

       125,000        853  

US Physical Therapy

       24,000        2,886  

Voyager Therapeutics*

       56,000        400  

Total Medical Products & Services

 

     21,280  
Paper & Paper Products — 1.4%                

Neenah

       34,000        1,881  

Total Paper & Paper Products

 

     1,881  
Petroleum & Fuel Products — 4.6%                

Cabot Oil & Gas

       54,000        879  

Cactus, Cl A

       61,000        1,590  

Halliburton

       103,000        1,947  

Magnolia Oil & Gas*

       220,000        1,553  

Total Petroleum & Fuel Products

 

         5,969  
Petroleum Refining — 0.8%                

HollyFrontier

       38,000        982  

Total Petroleum Refining

 

     982  
Real Estate Investment Trust — 5.5%                

American Campus Communities

       33,000        1,411  

Americold Realty Trust

       26,000        971  

CyrusOne

       20,000        1,463  

Lamar Advertising, Cl A

       26,000        2,164  

NexPoint Residential Trust

       29,524        1,249  

Total Real Estate Investment Trust

 

     7,258  
Retail — 5.8%                

GMS*

       37,000        1,128  

Pool

       8,500        3,166  

Ruth’s Hospitality Group

       95,000        1,684  

YETI Holdings*

       24,000        1,643  

Total Retail

 

     7,621  
Description      Shares      Value
(000)
 
Semi-Conductors & Instruments — 4.9%                

Cirrus Logic*

       30,000      $ 2,466  

Diodes*

       37,000        2,608  

Jabil

       32,000        1,361  

Total Semi-Conductors & Instruments

 

     6,435  

Total Common Stock (Cost $69,998 (000))

 

         131,507  

Cash Equivalent (A) — 0.3%

       

Goldman Sachs Financials Square Funds Government, Cl Institutional, 0.026%

       345,818        346  

Total Cash Equivalent (Cost $346 (000))

 

     346  

Total Investments — 100.5% (Cost $70,344 (000))

 

   $ 131,853  

Percentages are based on net assets of $131,262 (000).

*

Non-income producing security.

(A)

The rate reported is the 7-day effective yield as of December 31, 2020.

Cl — Class

As of December 31, 2020, all of the Fund’s investments are Level 1 of the fair value hierarchy, in accordance with the authoritative guidance under U.S. G.A.A.P.

For the period ended December 31, 2020, there were no transfers in or out of Level 3.

For more information on valuation inputs, see Note 2 — Significant Accounting Policies in Notes to Financial Statements.

The accompanying notes are an integral part of the financial statements.

 

 

61


Schedules of Investments  
     

Diversified Income Fund

 

 

 

Description      Shares      Value
(000)
 

Common Stock — 46.5%

 

Aerospace & Defense — 0.5%                

General Dynamics

       975      $ 145  

Total Aerospace & Defense

 

     145  
Agriculture — 0.5%                

CF Industries Holdings

       3,994        155  

Total Agriculture

 

     155  
Apparel & Textiles — 0.5%                

Oxford Industries

       2,278        149  

Total Apparel & Textiles

 

     149  
Banks — 3.7%                

Bank of New York Mellon

       3,496        148  

Citigroup

       2,405        148  

Comerica

       2,573        144  

Fifth Third Bancorp

       5,199        143  

M&T Bank

       1,171        149  

Regions Financial

       9,009        145  

Wells Fargo

       4,838        146  

Zions Bancorp

       3,368        146  

Total Banks

 

     1,169  
Chemicals — 0.9%                

Dow

       2,658        147  

LyondellBasell Industries, Cl A

       1,602        147  

Total Chemicals

 

     294  
Computers & Services — 3.2%                

Cisco Systems

       3,255        146  

Hewlett Packard Enterprise

       12,422        147  

HP

       6,016        148  

Juniper Networks

       6,557        148  

NetApp

       2,213        146  

Seagate Technology

       2,275        141  

Xerox Holdings

       6,431        149  

Total Computers & Services

 

         1,025  
Diversified Support Services — 0.5%                

Healthcare Services Group

       5,337        150  

Total Diversified Support Services

 

     150  
E-Commerce — 0.4%                

PetMed Express

       4,288        138  

Total E-Commerce

 

     138  
Description      Shares      Value
(000)
 
Electrical Utilities — 0.5%                

NRG Energy

       4,075      $ 153  

Total Electrical Utilities

 

     153  
Financial Services — 1.4%                

Invesco

       8,387        146  

State Street

       1,998        146  

Synchrony Financial

       4,277        149  

Total Financial Services

 

     441  
Food, Beverage & Tobacco — 1.7%                

Altria Group

       3,366        138  

General Mills

       2,233        131  

J M Smucker

       1,176        136  

Philip Morris International

       1,754        145  

Total Food, Beverage & Tobacco

 

     550  
Gas & Natural Gas — 0.5%                

UGI

       4,118        144  

Total Gas & Natural Gas

 

     144  
Household Products — 0.9%                

Energizer Holdings

       3,084        130  

Newell Brands

       6,898        146  

Total Household Products

 

     276  
Industrials — 0.9% 3M      837      146  

Emerson Electric

       1,800        145  

Total Industrials

 

     291  
Information Technology — 0.5%                

International Business Machines

       1,177        148  

Total Information Technology

 

     148  
Insurance — 3.3%                

Everest Re Group

       637        149  

Hartford Financial Services Group

       3,030        148  

Lincoln National

       2,892        146  

Metlife

       3,101        146  

Principal Financial Group

       2,966        147  

Prudential Financial

       1,871        146  

Unum Group

       6,573        151  

Total Insurance

 

         1,033  
Machinery — 0.5%                

Crane

       1,920        149  

Total Machinery

 

     149  
 

 

62


Schedules of Investments  

LOGO

December 31, 2020

     

Diversified Income Fund (continued)

 

 

 

Description      Shares      Value
(000)
 
Manufacturing — 0.9%                

Kraft Heinz

       4,120      $ 143  

nVent Electric

       6,246        146  

Total Manufacturing

 

     289  
Media — 1.4%                

Interpublic Group

       6,102        143  

Omnicom Group

       2,334        146  

ViacomCBS, Cl B

       3,987        149  

Total Media

 

     438  
Medical Products & Services — 1.3%                

AbbVie

       1,393        149  

CVS Health

       2,111        144  

Five Star Senior Living

       356        3  

Gilead Sciences

       2,283        133  

Total Medical Products & Services

 

     429  
Paper & Paper Products — 0.9%                

International Paper

       2,895        144  

WestRock

       3,236        141  

Total Paper & Paper Products

 

     285  
Petroleum & Fuel Products — 0.9%                

Schlumberger

       6,587        144  

TechnipFMC

       15,350            144  

Total Petroleum & Fuel Products

                288  
Petroleum Refining — 0.9%                

HollyFrontier

       5,644        146  

Valero Energy

       2,598        147  

Total Petroleum Refining

 

     293  
Pharmaceuticals — 0.4%                

Pfizer

       3,731        137  

Total Pharmaceuticals

 

     137  
Real Estate Investment Trust — 15.1%                

Alexandria Real Estate Equities

       706        126  

American Homes 4 Rent, Cl A

       3,853        116  

Americold Realty Trust

       2,720        102  

CoreSite Realty

       865        108  

Crown Castle International

       653        104  

CubeSmart

       3,723        125  

CyrusOne

       1,543        113  

Digital Realty Trust

       789        110  
Description      Shares      Value
(000)
 
Real Estate Investment Trust (continued)                

Diversified Healthcare Trust

       5,259      $ 22  

Duke Realty

       3,080        123  

EastGroup Properties

       941        130  

Equinix

       141        101  

Equity LifeStyle Properties

       1,643        104  

Extra Space Storage

       1,105        128  

First Industrial Realty Trust

       2,830        119  

Healthcare Realty Trust

       3,719        110  

Healthcare Trust of America, Cl A

       3,946        109  

Healthpeak Properties

       4,427        134  

Invitation Homes

       3,733        111  

Iron Mountain

       3,915        115  

Lamar Advertising, Cl A

       1,631        136  

Lexington Realty Trust

       9,271        98  

Life Storage

       1,133        135  

Medical Properties Trust

       6,036        131  

National Health Investors

       1,744        121  

Omega Healthcare Investors

       3,808        138  

Physicians Realty Trust

       6,121        109  

Potlatch

       2,568        128  

Prologis

       1,164        116  

PS Business Parks

       812        108  

Public Storage

       550        127  

Rayonier

       3,875        114  

Sabra Health Care

       7,365        128  

SBA Communications, Cl A

       353        100  

Sun Communities

       753        115  

Ventas

       2,825        139  

VICI Properties

       5,087        130  

Vornado Realty Trust

       3,973        148  

Welltower

       1,971        127  

Weyerhaeuser

       3,844        129  

WP Carey

       1,560        110  

Total Real Estate Investment Trust

 

         4,797  
Retail — 0.9%                

Hanesbrands

       9,794        143  

MSC Industrial Direct, Cl A

       1,719        145  

Total Retail

 

     288  
Semi-Conductors & Instruments — 0.5%         

Broadcom

       345        151  

Total Semi-Conductors & Instruments

 

     151  
Specialized Consumer Services — 0.4%                

H&R Block

       7,752        123  

Total Specialized Consumer Services

 

     123  
 

 

63


Schedules of Investments  
     

Diversified Income Fund (continued)

 

 

 

Description      Shares/Face
Amount (000)
     Value
(000)
 
Telecommunication Services — 0.4%         

CenturyLink

       14,240      $ 139  

Total Telecommunication Services

 

     139  
Telephones & Telecommunication — 0.9%         

AT&T

       4,941        142  

Verizon Communications

       2,340        137  

Total Telephones & Telecommunication

 

     279  
Transportation Services — 0.4%                

Greenbrier

       3,864        140  

Total Transportation Services

 

     140  
Waste Management Services — 0.4%         

Ingredion

       1,816        143  

Total Waste Management Services

 

     143  
Wholesale — 0.4%                

Cardinal Health

       2,613        140  

Total Wholesale

 

     140  

Total Common Stock (Cost $12,799 (000))

 

         14,769  

Corporate Bonds — 43.5%

       
Automotive — 2.5%                

General Motors Financial (A)
6.500%, VAR ICE LIBOR USD 3 Month+3.436%

     $ 250        272  

Tesla (B)
5.300%, 08/15/25

       500        521  

Total Automotive

 

     793  
Banks — 6.0%                

Bank of America (A)
6.100%, VAR ICE LIBOR USD 3 Month+3.898%

       250        283  

Citigroup (A)
5.950%, VAR ICE LIBOR USD 3 Month+4.068%

       250        262  

Citizens Financial Group (A)
6.375%, VAR ICE LIBOR USD 3 Month+3.157%

       250        257  

JPMorgan Chase (A)
4.600%, VAR United States Secured Overnight Financing Rate+3.125%

       300        310  

PNC Financial Services Group (A)
5.000%, VAR ICE LIBOR USD 3 Month+3.300%

       495        541  
Description      Face Amount
(000)
     Value
(000)
 
Banks (continued)                

Wells Fargo (A)
5.900%, VAR ICE LIBOR USD 3 Month+3.110%

     $ 250      $ 265  

Total Banks

 

         1,918  
Computers & Services — 1.6%                

CommScope (B)
5.500%, 03/01/24

           500        516  

Total Computers & Services

                516  
Consumer Finance — 1.7%                

Quicken Loans (B)
5.250%, 01/15/28

       500        534  

Total Consumer Finance

                534  
Electrical Utilities — 4.2%                

Calpine (B)
4.500%, 02/15/28

       500        520  

Dominion Energy
5.750%, VAR ICE LIBOR USD 3 Month+3.057%, 10/01/54

       250        279  

NRG Energy (B)
5.250%, 06/15/29

       500        550  

Total Electrical Utilities

                1,349  
Entertainment — 4.5%                

International Game Technology (B)
6.500%, 02/15/25

       500        559  

Netflix (B)
4.875%, 06/15/30

       500        575  

ViacomCBS
6.250%, VAR ICE LIBOR USD 3 Month