Investment Environment
The U.S. economy remains resilient and a standout among developed economies. The final read for 4Q:23 Gross Domestic Product (GDP) showed the economy grew 3.4%, better than Street* expectations. Growth was led by strong consumer and government spending. The GDP report might have been stronger if not for the labor strikes during the quarter. With some of the weakness stemming from seasonal adjustments and harsh weather, January retail sales were down -1.1% m/m, but they rebounded to 0.6% m/m in February. Recent comments from retail CEOs (Coca-Cola,† Hershey,† Walgreens†) highlight the “cumulative impact of inflation” and customers “seeking value.” Yet, the wealth effect from a roaring stock market has buoyed up discretionary spending. S&P 500 (SP500,SPX) EPS for 4Q:23 was 10.1% with revenue growth of 3.7% per LSEG I/B/E/S.
Inflation in the U.S., while far off its highs, is not yet at the Federal Reserve’s (Fed) 2% target. The February CPI and PPI data were a touch hotter than expected but traders brushed off the reports as they still anticipate the Fed to cut. The Fed’s preferred gauge, Core PCE, for January and February came in line with expectations at 2.8% y/y. The January and February inflation numbers may be due to one-time annual repricing such as health insurance contracts that may not be accurately adjusted for seasonally. Higher than anticipated prices for used cars, air travel, and clothes buoyed up the CPI while for the PPI it was higher fuel and food costs.
The U.S. Fed made no move in March while the Bank of Japan (BOJ) tightened a touch. Unexpectedly, the Swiss National Bank (‘SNB’) jumped ahead of the line to cut rates making it the first developed market central bank to do so since the pandemic. The Fed announced that the one-year Bank Term Funding Program (BTFP) will not be extended and was closed to new loans on March 11. This program was created last spring in the wake of the regional banking crisis to ensure that banks could meet their liquidity needs. Post the BTFP closure, banks are encouraged to use the Fed’s primary discount window should they need to borrow. Liquidity was not New York Community Bank’s† need prior to its tumultuous entry into Category IV. Regulatory requirements resulted in a dividend cut and asset write downs in commercial real estate, specifically multi- family homes.
To prop up China’s real estate market, the People’s Bank of China (‘PBOC’) announced its largest-ever cut in the benchmark mortgage rate, lowering it by 25 bps to 3.95% following January’s cut in its Required Rate of Reserves (‘RRR’). These actions should help stimulate China’s economy. Concerns persist after 11 Chinese companies lost their credit ratings at Moody’s Investors Service which withdrew the scores in an unusual flurry that underscores fallout from record defaults.
Finally, the U.S. Senate passed the so-called mini-bus appropriations bill that completes the funding process for fiscal year 2024. Any threat of government shutdown has been averted.
Sector Weightings1
Over the course of the first quarter, the best performing sectors in the Russell 1000 Value were energy (+13.8%), financials (+13.2%), and industrials (+11.8%). Real estate (-0.9%) was the worst performer and the only in negative territory and was followed by the traditionally defensive utilities (+5.2%), health care (+6.3%), and consumer staples (+6.7%). The strategy’s sector allocation detracted with the benefit from the underweights in utilities and consumer staples offset by the underweights in energy and industrials and overweights in health care and information technology.
| * Wall Street analysts, technicians, and professionals.† Not held by the Fund as of March 31, 2024.1 Source: Attribution versus FactSet Russell 1000 Value/S&P GICS sectors. |
Security Selection1
The portfolio’s top ten average-weighted (over the course of the quarter) names returned 16.1%, on average, better than the overall portfolio and benchmark index with seven generating double-digit gains led by General Electric (GE; 3.92%**), Apollo Global Management (APO; 3.07%**), and Fiserv (FI; 3.92%**). Overall, stock selection contributed favorably. The best result came from the portfolio’s consumer discretionary names which gained 20.3% far ahead of their peers’ rise of 6.9% led in large part by Dick’s Sporting Goods (DKS; 2.71%**). Broadcom (AVGO; 4.10%**) and Flex (FLEX; 2.87%**) were the best contributors in information technology with the portfolio’s holdings topping the group 15.1% versus 6.9% while General Electric highlighted in industrials. The portfolio also benefited from stock selection in health care, real estate, and financials.
On the downside, the portfolio’s communication services stocks were the biggest detractors falling -4.6% behind the group 8.1% gain due mostly to the overweighted Comcast (CMCSA; 2.99%**) and Warner Bros. Discovery†(WBD). Baker Hughes (BKR; 2.00%**) was an outlier in the energy space, the best performing group in the quarter, and was mostly responsible for the group’s names lagging 8.0% versus 13.8%. Additional detractors included onsemi (ON; 0.99%**), Gilead (GILD; 1.70%**), and UPS (UPS; 2.01%**) though the portfolio’s stocks in their respective sectors overall outperformed. Warner Bros. Discovery was eliminated during the quarter.
Representative Buys*
Target Corporation (TGT; Consumer Staples) (1.03%**) MSCI ESG Score: 2 Overall AA
Target, founded in 1902 and headquartered in Minneapolis, MN, is a general merchandise retailer selling products through its 2,000 stores and online. The company offers a collection of owned and exclusive brands as well as national brands and an assortment of food items. Owned brands include A New Day, Pillowfort, Cat & Jack, Goodfellow & Co., JoyLab, and Good & Gather. Exclusive partnerships include brands such as Apple,† Disney (DIS; 1.91%**), Levi’s,† and Ulta Beauty.† At initiation, the stock had a $69.4 billion market capitalization and met all five valuation factors save for price-to-book. Since 1946, the company has given 5% of its profit to communities, changed its internal organization to bring all ESG efforts under one leader, and identified areas for sustainability improvement such as sourcing, chemical management, and packaging. The company targets to achieve zero waste to landfill in U.S. operations by 2030 and is committed to being a net zero enterprise by 2040. Catalysts for the investment are new management, restructuring, and new products/new markets. Target has been modernizing its supply chain operations to become a leading omnichannel retailer. The company expanded its digital fulfillment capabilities and will now focus on building out its regional distribution facilities. The company is also remodeling stores and opening smaller format stores in urban and college campus locations. These new smaller format locations are proving to be twice as productive as current locations. Early in 2024, the company announced the transition of 20-year Target veteran Michael Fiddelke to COO after serving as CFO since 2019, replacing long-time executive John Mulligan who will remain as a strategic advisor role through February 2025. Going back to its roots, Target recently announced a new partnership with Diane von Furstenberg with a limited- time collection of over 200 pieces spanning apparel, accessories, beauty and home, with most items under $50. The collection will offer made-to-order furniture starting at $300. Target continues to open Ulta Beauty shop-in-shops and expand Apple and Disney experiences. It has launched new owned brands, 11 of which are delivering over $1 billion in sales, including four which are delivering over $2 billion in sales, driven by strength in Apparel, Home Furnishings & Décor, and Food & Beverage. Given the infrastructure and leadership changes at the company, Target should see increased revenue and productivity, leading to increased cash flows, greater revenue generation, improving margins, and increased earnings which should yield significant upside over the next two years.
|
Past performance does not guarantee future results. Source: Attribution versus FactSet Russell 1000 Value/S&P GICS sectors. MSCI ESG Score as of March 31, 2024 and subject to change. Please see additional MSCI ESG disclosures at the end of this document. It should not be assumed that an investment in the securities listed was or will be profitable. **Portfolio securities are stated as a percentage of the Fund’s total net assets including cash and cash equivalents as of March 31, 2024. † Not held by the Fund as of March 31, 2024. |
Walt Disney (DIS; Communication Services) (1.91%**) MSCI ESG Score: Overall A
The Walt Disney Co., headquartered in Burbank, CA, is engaged in the business of international family entertainment and media enterprise. The company owns and operates television and radio production, distribution and broadcasting stations, direct-to-consumer services, amusement parks, and hotels. It operates through the following business segments: Disney Entertainment, ESPN, and Disney Parks, Experiences, and Products. At initiation, the stock had a $202 billion market capitalization and met three valuation factors: price-to-sales, price-to-cash flow, and price-to- book. The fundamental catalyst is restructuring and cost reduction to improve DTC (Direct to Consumer) profitability. Additionally, the company has made initiatives to effective monetization of portfolio assets such as ESPN and introducing new content utilizing the considerable intellectual property (IP) within the company. These efforts should lead to increased cash flows and margins eventually resulting in improved earnings growth and ultimately notable upside over the next two years.
Xylem (XYL; Industrials) (0.86%**) MSCI ESG Score: Overall AAA
Xylem, headquartered in Washington, D.C., is a water pump and technology company. Its products and services enable the use, conservation, transportation, and treatment of water. Examples include water and wastewater pumps, filtration, disinfection, treatment, valves, heat exchangers, controls, dispensers, smart meters, controls, and various sensors and devices. End markets include municipalities, utilities, industrial facilities, construction sites, and commercial/residential buildings. At initiation, the stock had a $27 billion market cap and met the highly price correlated valuation factor, price/ book. Currently, the stock has a yield of approximately 1.2%; the company has increased its dividend annually since it was spun out from ITT Industries† in 2011. Xylem’s products and services help humanity improve water affordability, resilience, and reduce water scarcity. Fresh and potable water supply is increasingly under threat by increased pollution and drought conditions in many regions. Water affordability benefits from efficient delivery, infrastructure, use, and treatment of wastewater and clean water. One example of good corporate governance is Xylem Watermark, a program with a mission to enable healthy living through access to clean water, humanitarian disaster response, and other volunteering events. Catalysts are new management and restructuring. Xylem’s CEO retired at year-end 2023 and is succeeded by COO Matthew Pine who has been with the company since 2020. The company also hired William Grogan from IDEXX Corp.† as CFO in October 2023. An upcoming investor event during the second quarter of 2024 should provide clarity on the new leadership team’s medium term operational and financial goals. Xylem formally embarked on a lean operational improvement journey in 2020 that we think will be championed and intensified by the new CEO and CFO with constructive oversight from a recently appointed director who also embraces a lean mindset. Director Mark Morelli, CEO of Vontier,† joined Xylem’s board in 2022. Additionally, in May 2023, Xylem acquired competitor Evoqua Water Technologies for approximately $7.5 billion in stock. This acquisition rounds out Xylem’s industrial portfolio with Evoqua’s leading water treatment solutions for the industrial sector complements Xylem’s global portfolio. Xylem expects annualized cost synergies of $140 million by year end 2026 through procurement scale, facility consolidation, and public company G&A savings. We expect Xylem to scale Evoqua’s capabilities globally and grow its recurring revenue streams. As the company improves its operating performance through its lean journey championed by new management and extracts synergies from its Evoqua acquisition, we think that the company is poised to improve cash flow, operating margins, and earnings meaningfully over the next few years.
|
**Portfolio securities are stated as a percentage of the Fund’s total net assets including cash and cash equivalents as of March 31, 2024. † Not held by the Fund as of March 31, 2024. |
Representative Sells (Ticker Sector)*†
Juniper Networks, Inc. (JNPR; Information Technology) MSCI ESG Score: Overall AA
Juniper Networks, based in the Silicon Valley town of Sunnyvale, CA, Juniper is a leading provider of communications networking equipment, including switches, routers, security and IT orchestration services. At initiation, JNPR had a $9.2 billion market capitalization and met all five valuation factors. Juniper’s Corporate Citizenship and Sustainability policies are guided by SASB materiality guidelines with a focus on the top 30% of stakeholder importance. Current areas of focus include ethics, data protection/privacy, inclusion and diversity, supply chain management, labor practices, ESG management, and reporting transparency, among others. The company adopted SBTi-based targets for Scope1+Scope2 emissions reductions targets of 18% by 2025 and 43% by 2035. The catalysts were strong/ new management and new markets/new products. To fill the newly created role of COO, the company tapped a former Juniper executive who departed to run a start-up security software company and rejoined Juniper through an acquisition, with all aspects of product development and marketing now reporting to a single leader. A new CTO came from Google†(and VMWare prior to that) where he led a team of engineers delivering networking infrastructure solutions to cloud customers. Management is now aligned from product strategy and development to marketing and the new structure should improve Juniper’s pipeline development for sustained relevance. New products included the industry’s first 400GB networking products, including proprietary silicon with embedded enhanced features, which should improve performance and cost. The company has also added new capabilities through a string of small acquisitions in artificial intelligence, security, and automation. The new management team and new product set positions the company well to attack the enterprise market and expand their addressable market. As these software- defined capabilities grow, margins should expand and the growing recurring revenue base should result in expanded valuation multiples. With these catalysts in place, Juniper should see an acceleration of earnings growth which should then lead to significant upside potential. Most recently, on January 9, 2024, Hewlett-Packard Enterprises† reached a definitive agreement to acquire Juniper for approximately $14 billion in an all-cash deal. Based on the likelihood the deal will be cleared, the position has limited upside and as such was completely sold.
Keurig Dr Pepper Inc. (KDP; Consumer Staples) MSCI ESG Score: Overall AA
Keurig Dr Pepper Inc, headquartered in Burlington, MA, was founded in 2018 after the $18.7 billion merger deal combining Dr Pepper Snapple’s drink and distribution network and Keurig Green Mountain’s coffee business. KDP is a leading beverage company in North America with a diverse portfolio of flavored (non-cola) carbonated and non- carbonated beverages, ready-to-drink tea and coffee, juice drinks, mixers, and specialty coffee, and it is a producer of single serve brewing systems. Key owned brands include Dr Pepper, Canada Dry, Snapple, Evian, Vita Coco, Green Mountain, Keurig, and The Original Donut Shop. Keurig also collaborates with brands such as McCafe, Starbucks,† and Dunkin, as well as through private label with Kroger† and Kirkland. At initiation, the stock had a market capitalization of $49.2 billion and met two of the five valuation factors, price-to-book and dividend yield of 2.2%. The catalysts were cost cutting/restructuring, new market/new product, and new management. Although the refreshment beverages business has shown solid performance and momentum, notably through its partnership with Nutrabolt for C4 Energy, the company has not been able recover from its post-pandemic softness in the coffee business despite the launch of two new families of brewers (a cold coffee and a customizable modern coffee makers), holding KDP stock price down as a result. The decision was made to exit the position.
|
*It should not be assumed that an investment in the securities listed was or will be profitable. † Not held by the Fund as of March 31, 2024. |
Warner Brothers Discovery (WBD; Communication Services) MSCI ESG Score: Overall BBB
Warner Brothers Discovery, headquartered in New York, NY is an American multinational mass media and entertainment conglomerate. The company is the result of the divestment of WarnerMedia by AT&T† and its merger with Discovery with trading of the new stock beginning on April 11, 2022. The merger was structured as a Reverse Morris Trust with AT&T shareholders holding a 71% interest in the new company’s (WBD) stock. At elimination, the stock had a $21 billion market capitalization and met three of the five valuation factors: price-to-sales, price-to- cash flow, and price-to-book. The catalysts were new products/new markets, new management, and cost cutting. The combination of Discovery with its non-scripted content with Warner Media’s news content media creates a powerful comprehensive media company with complementary offerings and a worldwide footprint. CEO David Zaslav has a long history of business execution. Despite management’s success in the reduction of debt and improving cash flow through synergistic action resulting in increased free cash flow, we believe that due to the current macro environment impact on advertising and network business, it will take an extended time to deliver on the potential of WBD shares despite its long-term value. As such, the position was eliminated with the proceeds to be redirected to other investment opportunities.
Market Outlook
What may come as a surprise to some is the market is up year-to-date even without the benefit of Apple† outperformance. Strategas calculates that approximately one-fourth of the S&P 500 is at 52-week highs, a sign that participation is broader than it gets credit for. While growth stocks have outperformed year-to-date, real differentiation is occurring within the Magnificent 7 which started back in October 2023. Maybe the new moniker should be the Fab 4 headlined by Nvidia (NVDA),† Meta Platforms (META),† Amazon (AMZN),† and Microsoft (MSFT)† which were up 82%, 37%, 19%, and 12%, respectively, in the first quarter. The other three underperformed both the S&P and S&P IT returns of 11% and 13%, respectively; Alphabet (GOOG,GOOGL) was up 8%, Apple (AAPL) down -11%, and Tesla (TSLA) fell -19%. Amazon (AMZN) was added to the Dow Jones Industrial Average (DJIA) on February 26; this “honor” historically has not boded well for stocks being included. At the end of February, Apple was removed from Goldman Sachs’s† conviction list although it kept its buy rating.
The U.S. remains resilient with durable economic data along with cooling inflation. While other nations/economies are reporting anemic growth, U.S. growth has been expansive. The latest Atlanta Fed GDPNow estimate for 1Q:24 (April 3) was revised higher to 2.8% coming after the better than expected March ISM read. The unemployment rate and initial jobless claims are near historical lows, wage growth is outpacing CPI, and inflation is heading closer to the targeted 2%. Corporate balances sheets are also in great shape with the S&P 500 current ratio (Current Assets to Current Liabilities) at 1.3x and total debt-to-total assets at 26%; higher than the lows during Covid but less than the 20-year average of 28%. “This is a good situation, let’s be honest, this is a good economy.” – Fed Chair Powell. Fund deployment from the 2022 Inflation Reduction, 2021 Infrastructure Investment and Jobs, and 2023 Chips Acts is still to come along with IRS returns for Employee Retention Credits (‘ERC’) which could total $120 billion starting in April sustaining the economy and stock market.
While the fruits of AI have been most clearly felt in the stock prices of Nvidia and others, many analysts believe Financials will be an early beneficiary of enhanced AI productivity. Reprogramming from old COBOL to modern languages may release banks from the shackles of waiting for overnight “batch reports” to get them close to real-time banking. JPMorgan Chase (JPM; 4.20%**) has been a leader as evidenced by earning the #1 spot in the Evident AI Index, the first public benchmark of major banks on their AI maturity, for the last two years. Many portfolio holdings directly benefit from AI implementation and many more benefit from its adoption and productivity increases.
Blackrock (BLK)† estimates $6.5 trillion of cash on the sidelines and $2 trillion in CDs. This is likely to move once the Fed begins to cut rates. EPS estimates for 1Q:24 are for mid-single digits and are expected to rise to high single-digit/low double-digit growth for the next three quarters and again in 2025 with what we know today. Per UBS† research, S&P 500 Tech+ EPS comparisons peaked in 4Q:23 and are still quite strong throughout 2024. However, EPS growth excluding Tech+, bottomed in 2Q:23 and is poised for accelerating growth throughout 2024.
|
**Portfolio securities are stated as a percentage of the Fund’s total net assets including cash and cash equivalents as of March 31, 2024. † Not held by the Fund as of March 31, 2024. |
The U.K. and Eurozone economies have experienced little to no growth over the past 5-7 quarters; the U.K. is technically in a recession while the Eurozone narrowly avoided one. Each is expected to grow in 2024 albeit sub 1% and less than the U.S. consensus of 1.5-2.5%. The Eurozone faces inflation risk due to geopolitics. However, inflation in the Eurozone fell to 2.4% y/y in March aided by lower energy prices though the services component remains sticky at 4%. Even so, the report is encouraging and further supports a rate cut in June. Germany is the largest laggard with expectations for tepid 0.3-0.7% growth in 2024. Inflation in the UK is at 3.4% y/y as of February. It is possible that the ECB and BoE cut before the Fed due to their tepid economic outlooks.
With China targeting GDP growth of “around 5%,” the PBOC announced it will allow banks to hold smaller reserves beginning February 5. Cutting the reserve requirement ration (‘RRR’) by 50 bps is estimated to release 1 trillion yuan (approximately $140 billion) in long-term capital. China is in the process of shoring up its banking industry by merging hundreds of rural lenders into regional behemoths. China fans are hopeful the government will roll out more stimulus after President Xi called for a boost in the sales of traditional consumer products. While deflation remains a risk, the latest CPI figure for February went positive (+0.7% y/y); it had been essentially flat or negative since April 2023. Materials prices have started to improve which could be a harbinger for the success of China’s stimulus efforts.
While still in its early stages, the BOJ’s exit from its yield curve control and slightly lifting interest rates has not been positive for the value of the yen in relation to the USD. The recent Yen/USD slide indicates BOJ policy is still too loose and U.S. economic growth is stronger than expected. Increased rates in Japan could lead for repatriation of Japanese U.S. bond investors to buy closer to home unless U.S. yields remain more compelling. Japan’s economy averted a technical recession with a small gain in 4Q:23. The country’s inflation rate (which the BOJ has sought for years) rose to 2.8% in February and has exceeded the stated 2% target since April 2022. Investors have driven the Nikkei Index (NKY:IND) to its highest point in 34 years ago (when the country was at its economic peak) on March 22 and closed above 40,000 at quarter end.
Risks abound. Neither the Israel/Hamas nor Ukraine/Russia wars show signs of easing. The Houthi rebels in Yemen are making the Red Sea shipping lane to the Suez Canal a dangerous path and forcing shippers to take much longer routes. The U.S. continues to be a global haven for all asset classes. Growth stocks had a banner year in 2023 after value’s relative protection in 2022. The current extreme two standard deviation price-to-book and performance extremes of growth stocks versus value either connote reversion to the mean or the bar is so high for certain growth stocks that expectations may be difficult to surpass. Over time, valuations and earnings matter for stock prices. Value, as represented by the Russell 1000 Value, remains attractive at 16x next-twelve-month P/E and a commensurate 6.3% earnings yield which is greater than U.S. Treasury yields anywhere along the curve.
We remain true to our diversified and disciplined portfolio strategy, diligent, and ever watchful for changes. Our base case is for the U.S. equity markets to go up which historically occurs 70% of the time. However, all portfolio holdings are stress tested for excessive leverage in case of a recession over the next two years and we completed a tariff macro stress test in the event of a Trump victory in November. We are busy and actively working to make the best portfolio decisions possible with the information we have and will adjust should the “facts” change. We are excited about the future but maintain strong risk controls for unexpected turbulent events.
Diane E. Jaffee, CFA, Group Managing Director
Matthew J. Spahn, Managing Director
|
Please see additional disclosures on the following page(s). You should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. A Fund’s Prospectus and Summary Prospectus contain this and other information about the Fund. To receive a Prospectus, please call 800-386-3829 or you may download the Prospectus from the Fund’s website at TCW.com. Please read it carefully. IMPORTANT DISCLOSURE This material may include estimates, projections and other “forward-looking” statements. Actual events may differ substantially from those presented. TCW assumes no duty to update any such statements. This material reflects the current opinions of the author but not necessarily those of TCW and such opinions are subject to change without notice. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time, without notice. This material may include estimates, projections and other “forward-looking” statements. Actual events may differ substantially from those presented. TCW assumes no duty to update any such statements. All projections and estimates are based on current asset prices and are subject to change. Performance Detail as of March 31, 2024
Annual fund operating expenses as stated in the Prospectus dated March 1, 2024, excluding interest and acquired fund fees and expenses, if any. The performance data presented represents past performance and is no guarantee of future results. Returns assume all income items are reinvested. Current performance may be lower or higher than the performance data presented. Performance data current to the most recent month end is available on the Fund’s website at TCW.com. Investment returns and principal value will fluctuate with market conditions. The value of an investment in the Fund, when redeemed, may be worth more or less than its original purchase cost. The annualized since inception return for the index reflects the inception date of the TCW Class I and Class N Share Funds, respectively. For period 12/31/2003- 3/31/2024; 12/31/1997-3/31/2024. The performance data includes the performance of the Fund’s predecessor investment company, (“SG Cowen Predecessor Fund”), which prior to December 14, 2001, was managed by SG Cowen Asset Management Company, Inc. The SG Cowen Predecessor Fund has investment objectives and strategies that are substantially similar to the Fund. The SG Cowen Predecessor Fund’s performance was calculated using the fees and expenses of the Class A shares not including the 4.75% sales charge for Class A shares of the SG Cowen Predecessor Fund. Effective March 1, 2024, the Fund’s investment advisor has agreed to waive fees and/or reimburse expenses to limit the Fund’s total annual operating expenses (excluding interest, brokerage, extraordinary expenses and acquired fund fees and expenses, if any) to 0.70% of average daily net assets with respect to Class I shares and 0.85% of average daily net assets with respect to Class N shares. The contractual fee waiver/expense reimbursement will remain in place through March 1, 2025 and before that date, the investment advisor may not terminate this arrangement without approval of the Board of Directors. Source: TCW, FactSet, State Street B&T Index Disclosure Russell 1000® Value Index – Measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The index is not available for direct investment; therefore its performance does not reflect a reduction for fees or expenses incurred in managing a portfolio. The securities in the index may be substantially different from those in the Fund. London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. Investment Risks Equity investments entail equity risk and price volatility risk. The value of stocks and other equity securities will change based on changes in a company’s financial condition and in overall market and economic conditions. Please see the Fund’s Prospectus for more information on these and other risks. MSCI ESG Ratings An MSCI ESG Rating is designed to measure a company’s resilience to long-term, industry material environmental, social and governance (‘ESG’) risks. MSCI uses a rules-based methodology to identify industry leaders and laggards according to their exposure to ESG risks and how well they manage those risks relative to peers. MSCI’s ESG Ratings range from leader (AAA, AA), average (A, BBB, BB) to laggard (B, CCC). Leader: A company leading its industry in managing the most significant ESG risks and opportunities; Average: A company with a mixed or unexceptional track record of managing the most significant ESG risks and opportunities relative to industry peers; Laggard: A company lagging its industry based on its high exposure and failure to manage significant ESG risks. ESG risks and opportunities can vary by industry and company. The MSCI ESG Ratings model identifies the ESG risks (called Key Issues), that are most material to a GICS® sub-industry or sector. To learn more, please visit www.msci.com/esg-investing. Certain information © MSCI ESG Research, LLC. Reproduced by permission. IMPORTANT DISCLOSURE Although TCW’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for, or a component of, any financial instruments or products or indices. Further, none of the Information can in and of itself be used to determine which securities to buy or sell or when to buy or sell them. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. Glossary of Terms AAA Rating– Rating issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors. AA Rating– A grade assigned to a debt obligation by a rating agency to indicate a very strong capacity to pay interest and repay principal. Such a rating indicates only slightly lower quality than the top rating of AAA. Artificial Intelligence (‘AI’)– The theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages. Bank Term Funding Program (BTFP)– Created by the Federal Reserve to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations. Basis Points (bps)– A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed- income security. BBB Rating– A BBB rating represents a relatively low-risk bond or investment. Benchmark– A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose. BOE (Bank of England)– United Kingdom central bank. BOJ (Bank of Japan)– Japanese central bank. Cash Flow– The movement of money into or out of a business, project, or financial product. Central Bank– A monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. Consumer Price Index (CPI)– Measures the average change in prices over time that consumers pay for a basket of goods and services. Core PCE Index– Measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. COVID-19– A disease caused by a new strain of coronavirus. ‘CO’ stands for corona, ‘VI’ for virus, and ‘D’ for disease. Formerly, this disease was referred to as ‘2019 novel coronavirus’ or ‘2019-nCoV.’ Deflation– A decrease in the general level of prices of goods and services (negative inflation). Dividend Yield– A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. EPS (Earnings Per Share)– The portion of a company’s profit allocated to each outstanding share of common stock. ESG– Environmental, Social, and Governance. European Central Bank (ECB)– The central bank responsible for the monetary system of the European Union (EU) and the euro currency. Eurozone– A geographic and economic region that consists of all the European Union countries that have fully incorporated the euro as their national currency. Federal Reserve (the Fed)– The central bank of the United States which regulates the U.S. monetary and financial system. Fiscal– Relating to government revenue, especially taxes. GDP (Gross Domestic Product)– The market value of all final goods and services produced within a country in a given period of time. Global Industry Classification Standard (GICS)– A standardized classification system for equities developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor’s. Growth– A diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. Portfolio companies would mainly consist of companies with above-average growth in earnings that reinvest their earnings into expansion, acquisitions, and/or research and development. Growth Stock– Shares in a company whose earnings are expected to grow at an above-average rate relative to the market. Inflation– A condition of a rise in the general level of prices of goods and services in an economy over a period of time. Large Capitalization (Large Cap)– Companies with a market capitalization value of more than $10 billion. Magnificent Seven– The Magnificent Seven stocks are a group of high-performing and influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. Market Capitalization– Represents the aggregate value of a company or stock. It is obtained by multiplying the number of shares outstanding by their current price per share. Mutual Funds– An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money-market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus. Outperform– Outperform is when an investment is expected to perform better than the return generated by a particular index or the overall market. Since the performance of many investments is compared to a benchmark index, outperform refers to generating a higher return than a particular benchmark over time. Outperform also refers to an analyst’s rating on a security, and outperform is a better rating than neutral and worse than a strong buy recommendation. Overweight– A condition where the portfolio exposure to a given asset class (or risk measure) exceeds that of the benchmark index. PBOC (People’s Bank of China)– China central bank. PPI (Producer Price Index) A family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller. Price-to-Book (P/BV or Price/Book or P/B)– A ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. Price-to-Free Cash Flow– A valuation metric that compares a company’s market price to its level of annual free cash flow. Price-to-Earnings (P/E)– A valuation ratio of a company’s current share price compared to its per-share earnings. Price-to-Sales– A ratio for valuing a stock relative to its own past performance, other companies, or the market itself. Recession– Two consecutive quarters of negative economic growth as measured by a country’s gross domestic product. Standard & Poor’s 500 Index (S&P 500)– An index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is seen as a leading indicator of U.S. equities and a reflection of the performance of the large-cap universe. Swiss National Bank (SNB)– The central bank of Switzerland. Underperform– When an investment is underperforming, it is not keeping pace with other securities or indices. Underweight– A condition where a portfolio does not hold a sufficient amount of a particular security when compared to the security’s weight in the underlying benchmark portfolio. Unemployment Rate– The percentage of the total labor force that is unemployed but actively seeking employment and willing to work. U.S. Treasuries (U.S. Treasury Securities) – Bills, notes and bonds that are debt obligations of the U.S. government. U.S. Treasury Yield– A Treasury yield is how much investors can earn when they purchase government bonds, notes, bills, or debt obligations. It is the percentage earned on that investment or the interest rate at which the government is borrowing money. Value– A fund that primarily holds stocks that are deemed to be undervalued in price and that are likely to pay dividends. Volatility– A measure of the risk of price moves for a security calculated from the standard deviation of day-to-day logarithmic historical price changes. Yield– The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. Yield Curve A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. For more information about the Fund call us at 800 386 3829. Visit our web site for a full menu of products and services at TCW.com. The TCW Funds are distributed by TCW Funds Distributors LLC |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Original Post
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
