Brian Casey
Analyst · Gabelli. Your line is now open
Good afternoon, and thanks for listening to our quarterly earnings call. Last quarter I highlighted the progress we made throughout the last year, particularly related to sales, asset flows, investment performance, and enhancing our clients experience as we continue to deploy exciting technology upgrades. Continuing our story into the first quarter, our Multi-Asset team performed ahead of its benchmarks, generating alpha for our clients and retaining strong multi-year rankings. Institutional and intermediary distribution enjoyed positive net flows, and the quarter's results were on plan to hold and build on our 2021 results. We continue to expand our Wealth Management business with new account openings and expanded pipeline and robust gross inflows. Looking back at the way markets performed during the first quarter, the acceleration of known factors such as rising inflation, volatile interest rates, and higher commodity prices, coupled with high valuation, supply chain lows, COVID-19 related shutdowns in several large Chinese cities, and the conflict in Ukraine, ultimately proved too much for the markets to bear. Markets generally declined, with a few bright spots here and there, such as securities benefiting from exposure to energy or momentum and securities having high growth forecasts and beaten down valuations. Within the ranks of the smaller indices, many securities with higher leverage outperformed companies with cleaner balance sheets. Our SMidCap strategy under-performed the Russell 2500 Value Index, but ranked in the 19th percentile versus peers in the Morningstar Mid-Cap Blend Category. SmallCap under-performed the Russell 2000 Value Index as widespread volatility led to under-performance in cyclical areas of the SmallCap equity universe. Volatility coupled with supply chain issues, increased inflation and rising interest rates, definitely took a toll on the equity markets. SmallCap also suffered from investors apparent preference for higher leverage and cheap valuations. Areas that are outside our quality value investment process. We are optimistic about prospects for the strategy with smaller market Cap securities, overall, having cheaper valuations leveraged to growing merger and acquisition activity and rising commodity prices. Our MidCap and AllCap strategies underperformed their benchmarks, the Russell MidCap value and Russell 3,000 value indices respectively. A bright spot was our LargeCap value strategy, which outperformed the Russell 1,000 value index benchmark. Among institutional peers in the eVestment universe, LargeCap ranked in 33rd percentile for the trailing 12 months. After improving last year, our LargeCap mutual fund, WHGLX now ranks in the top third of managers and Morningstar 's large value category for the trailing 12 months through March 31, 2022. Shifting to Multi-Assets, our three strategies: total return, income opportunity, and high income all benefited from the teams overweight equity allocations and good positioning of fixed income holdings along the yield curve. Our largest Multi-Asset strategy, income opportunity, finished ahead of its benchmark, the 40% S&P 500, 60% Bloomberg Barclay's Aggregate Bond Index. Among its institutional peers, income opportunity ranked in the top 36% of peers in the broader eVestment manager universe. Our income opportunity mutual fund, WHGIX, retained its strong four-star Morningstar rating in the 30% to 50% equity universe with a 17th percentile ranking for the quarter and a 15th percentile ranking for trailing three months ended March 31st. Income opportunities 5 and 10-year rankings are similarly strong, with 21st and 12th percentile rankings respectively. Our Total Return Mutual Fund, ticker WLVIX, rebounded to outperform its benchmark, which is a blend of 60% S&P 500, 40%. Bloomberg Barclay's Aggregate Bond Index. Morningstar accords our Total Return Mutual Fund a 5-star rating, and it landed in the 21st percentile for the quarter among its 50% to 70% equity universe. It came in at 34th percentile for the trailing one year, and posted a top first percentile ranking for the trailing three years ended March 31st, 2022. It's 5 and 10-year rankings are also strong with fifth and third percentile rankings respectively. Our four-star High Income Mutual Fund, WHGHX, beat its benchmark of 20% S&P 500, 80%. Bloomberg Barclay's Aggregate Bond Index and is in the top third of managers in its Morningstar category. Our alternative Income Mutual Fund, ticker WMNIX, also improved on its solid track record as convertible securities served as volatility dampeners without performance relative to most fixed income indices. Credit Opportunities achieved good performance from its positions in longer-dated securities and beat its benchmark. The CE BofA High Yield Index by approximately 225 basis points for the quarter. Credit spreads remain cheap and our team is finding good risk return opportunities throughout the high-yield universe. Lastly, our systematic SmallCap Growth strategy outperformed once again beating its Russell 2,000 Growth Index by over 600 basis points. Our SmallCap Growth mutual funds, WSCIX, is certainly off to a great start, achieving a six percentile ranking this quarter among its Morningstar SmallCap growth peers. As many of you know, Multi-Assets Chief Investment Officer, Adrian Helfert, has spent many years developing an investment process focused on delivering out performance through multiple market cycles. And we are very pleased with the great start this team has delivered for this strategy. Adrian, just celebrate is third anniversary with us. And during his Westwood tenure, he's introduced a more structured and time-tested investment process, and built an investment team with a depth of experience and ability to create a growing, sustainable, multi-asset franchise for Westwood. In our high net worth strategies, performance was mixed this past quarter. High Alpha took a breather and lagged the Russell 3,000 Index as rising energy prices put pressure on consumer discretionary positions. We remain excited about the outlook for High Alpha. Innovation and business disruptions will likely remain major economic themes, and capital investment in the industries leveraging these trends will afford our High Alpha team many opportunities. Dividend Select outperformed the Russell 1000 Value Index for the quarter. This strategy focuses on high-quality dividend paying domestic securities and remains ahead of the benchmark for trailing 1 and 3 years. Its dividend yield is 80% higher than the dividend yield of the S&P 500, and it's proving to be an attractive alternative for high net worth clients seeking income and long-term capital appreciation. Select Equity underperformed the Russell 3000 Index where some holdings were negatively affected by concerns over a weakened economy, and COVID lock down pressures in China affecting the supply chain. As we entered the second quarter, our team is fully focused on assessing portfolio risk exposure, looking for signs of credit tightening, global food shortages, and potential deceleration in the Purchasing Managers Index. The market experienced a few days of big draw downs, and we maintained strong downside capture in line with the design of our strategy. Shifting to institutional and intermediary sales, both teams generated modest positive net sales during the quarter, although these gains were counterbalanced by the market pullback. Total assets under management for the quarter included inflows of some $366 million, and these were partially offset by outflows totaling roughly $317 million to generate about $50 million in positive net flows. In our equity strategies, we posted positive net flows in both LargeCap and SmallCap. In LargeCap, flows came from existing sub-advisory clients as well as from a new RIA client. In SmallCap, two new clients in our institutional business accounted for flows exceeding $70 million and several current clients also added to their accounts with us. In our intermediary channel, I'm pleased to report that net flows were positive for the fifth quarter in a row. We are seeing strength in gross sales and gained a new $29 million LargeCap mutual fund client. For the remainder of 2022, our institutional pipeline looks healthy with increased opportunities in SMidCap, SmallCap and LargeCap. We have several new, one but not yet funded mandates in the wings, and we're looking forward to bringing in these new clients as the year progresses. Our intermediary team continues to focus on our Multi-Asset strategies, particularly income opportunity and alternative income. Within the realm of U.S. value, the most promising prospects for intermediary sales reside in SmallCap value, where we're finding sustainable demand, and within LargeCap value, where demand for active management is picking up. The institutional team is focused on opportunities provided by our U.S. Value Equity Strategies, leveraging consultant recommendations for SMidCap and SmallCap value, where our mutual fund WWSYX remains open for business. Newly launched vehicles like our SMidCap collective investment trust, and Quality AllCap Ultra Share Mutual Fund are giving clients broader access to these strategies. Gaining more key consultant approvals in institutional for our U.S. value equity strategies, winning larger key partner sales and intermediary, and continuing organic new product development are top initiatives for Westwood over the rest of this year. Turning to Wealth Management, our teams produced inflows of just over a $100 million offset by outflows of approximately a $145 million. Inflows were driven by new accounts and existing client relationships, while outflows reflected seasonal tax payments and some client losses. Our wealth team is optimistic about the outlook as our pipeline is strong, with several large opportunities in late-stage or awaiting funding status. Our advisers are spending a lot of time with CPAs and other centers of influence partners to deepen existing relationships and form new relationships. To help with this process, our advisers love to demonstrate our InvestCloud reporting systems new capabilities that enable users to perform their varied responsibilities with faster and easier access to relevant data. Within the Westwood Private Bank, we leveraged the bank's capabilities to deliver a friction-free loan experience for customers when borrowing against their securities portfolios. Our financial and estate planning capabilities really make a difference for clients and help them to organize their financial lives, which includes the storage of important documents within our portal for secure and easy retrieval. We've recently developed and enhanced alternative investment fund structure to provide easy access to private equity opportunities and this has resonated well with clients and prospects. Finally, we've hired some terrific new advisors and we're excited to see what they can achieve in the years ahead. Across Westwood Holdings Group, our teams have continued to build on the positive strides we made in 2021 with strong investment results from our Multi-Asset team, positive net flows from our institutional and intermediary teams, and expanding Wealth Management business. The M&A landscape is as strong as we've seen in years, and there are many firms looking to partner with organizations like Westwood. We still believe the highest and best use for our excess cash is to find an accretive acquisition. We've been patient and engaging with firms that appear to be good cultural fits with complementary product sets and remain confident that we will find good opportunities in the years ahead. I'll now turn the call over to Terry Forbes, our CFO.
