Monthly Moves: Charting Our Strategies, July 2024

Clark Capital’s Economic Gauges

Clark Capital’s Bottom-Up, Fundamental Strategies

Weakness in the large-cap Technology and Communication sectors combined with expectations of the first FOMC rate cut since March 2020 prompted a significant rotation into stocks sensitive to monetary policy. Undervalued small-caps and mid-caps outperformed and most factor-based S&P indices posted gains led by dividend and value strategies away from growth and momentum stocks which have led the market since late 2022.

To date, 315 S&P 500 companies (58% market cap) have reported 2Q results. Reported sales growth is +4.8% and earnings growth is +12.9%, surpassing expectations by +1.0% and +4.4%, respectively. This puts overall sales growth on track for +5.2% and earnings growth for +10.7% (based on reported figures and consensus). While the earnings recovery seems to be broadening, overvalued large-cap companies that have missed expectations have been punished.

Treasury yields have come in sharply as expectations of rate cuts have accelerated. As of this writing, the market is now expecting the equivalent of four rate cuts by year end and the 10-year Treasury note yield is testing the December lows near 3.8%.

Below are strategy updates from July:

Navigator® All Cap Core U.S. Equity
  • Navigator® All Cap is positioned with approximately 74% in large-cap stocks and the remainder in mid/small-cap companies and cash.
  • During the month, to benefit from improving business fundamentals, the two most recent additions to the portfolio were a banking company and a large healthcare services provider. The most recent exit was an energy services company.
Navigator® High Dividend Equity
  • Navigator® High Dividend Equity is positioned with approximately 97.8% in developed countries with the remainder in cash. The United States is the largest country weight at 91.4%, followed by Britain at 3.1% and Ireland at 1.7%. Large-cap represents 90.9% of the portfolio, 6.9% of the portfolio is mid-cap, and the remainder is in cash.
  • Financials remain the largest sector weight at 23.8% and above the benchmark weight. The next three largest portfolio weights are Healthcare, Industrials, and Information Technology at 14.3%, 14.0%, and 8.5%, respectively.
  • We continue to increase our exposure to the Healthcare sector due to improving business fundamentals. To this end, we added an American health insurance provider. We sold our position in a German multinational technology conglomerate.
Navigator® International Equity ADR
  • Navigator® International Equity/ADR is positioned with ~14% in emerging markets with the balance in developed economies and cash. Britain, Canada, China, Ireland, Japan, and Switzerland are the strategy’s largest country weights, all ranging between 6% and 19%.
  • ADR’s exposure to China is now ~6%, which is roughly in line with its weighting in the All-Country World less US benchmark.
  • Financials, Industrials, and Information Technology are our largest sector weights.
  • During the month, to benefit from improving business fundamentals, we added a British-American global asset management firm, a Swiss pharmaceutical company and UK-based insurance and risk management company. We exited our position in a Mexican financial services company and a U.S.-based industrial technology company.
Navigator® Taxable Fixed Income
  • Within the portfolio, the focus remained on adding bonds in the 5 to 7-year portion of the curve. This was the cheapest part of the credit curve from a spread perspective and allowed the portfolio to take advantage of the move lower in rates by adding duration.
  • Bank bonds continued to be traded in the portfolio, including selling a 5-year bond and purchasing a 10-year bond, which added 20 basis points of yield, reduced the price by 6 points, and added total return potential. At the same time, new issue bonds were added while lower duration, lower yielding energy names were sold. This added almost 50 basis points of yield along with the potential for increased total returns going forward.
  • On the other end of the yield curve, bonds with 1-year duration and less continued to be added as the yield curve remained inverted and the highest yields are reflected here. We believe this combination provides the highest yield while still maintaining the highest potential total return.
Navigator® Tax-Free Fixed Income
  • The Bloomberg Municipal 5-year index continued to rebound and closed the month up 1.03% (Bloomberg data), which moved the year to date return positive at 0.22%.
  • Overall, yield to worst dropped 0.22% during the month from 3.42% to 3.20%, down from a year to date peak of 3.63% at the end of May, largely mirroring the substantial move lower in taxable yields.
  • Muni/Treasury ratios were modestly higher alongside the move lower in rates. The 5-year point ended the month at 71%, up from 68% as the Treasury yield declined by 46 basis points. The 10-year point ended at 69%, up from 65% as the Treasury yield declined by 36 basis points.
  • July’s new issue pipeline remained robust at $41 billion. While this was slightly below the June total of $47.6 billion, it was +47% vs. July 2023 and +20% vs. the 5-year average for the month.
  • Inflows into the muni market were strong as the move in interest rates pushed buyers in. All-term muni funds saw inflows of approximately $6 billion for July.

Clark Capital’s Top-Down, Quantitative Strategies

The rotation in the equity markets away from large-cap growth and Technology stocks into small-cap and value stocks was fast and furious. The Russell 2000 Small Cap Index gained over 10% while large-cap growth stocks declined nearly 2%, bringing the total July return spread to 12%. The valuation landscape supported the rotation based on forward P/E multiples with small-cap core trading at a 31% discount to large-cap core and large-cap value trading at a 44% discount to large-cap growth at month end. All the market needed was a catalyst and the June inflation print and rate cut expectations provided the fuel.

Our risk-based credit models remain in a risk-on position. The Bloomberg U.S. Corporate High-Yield Index ended July trading at a new all-time high and investment grade corporate debt surged higher as duration benefited from anticipated rate cuts coming soon.

Below are strategy updates from July:

Navigator® Alternative
  • Alternative credit and event-driven equity led the mutual fund core, while managed futures lagged.
    The portfolio took profits on some recent winners, including gold, biotech, and micro-caps, but did not sell out of any of these positions.
  • We added a position in uranium miners. We maintain select niche equity positions, but we are overweight cash until we find a tactical opportunity to take on risk at lower levels.
Navigator® Fixed Income Total Return (MultiStrategy Fixed Income)
  • While equity markets have undergone a dramatic rotation towards mid-caps and small-caps and away from large-cap growth, credit markets have been rock steady and uneventful, providing confirmation that riskier high yield credit should continue to be rewarded.
  • Our models continue to favor high yield over Treasuries and cash, with Treasuries now preferred as a potential defensive vehicle.
Navigator® Global Risk Management
  • A huge surge in small-cap stocks since the June CPI report now has pushed small-caps ahead of the S&P 500 since we purchased equities.
  • Credit markets remain stable and solid, and they simply yawned at the rotation out of mega-cap Technology companies into small-caps, indicating that all was quiet on their front.
  • Our models continue to indicate that a risk-on stance should continue, and eventually Treasuries should become the defensive vehicle of choice.
Navigator® Global Tactical
  • Our credit-based models continue to signal a strong fundamental backdrop for risk assets, and they have not faltered very much since they turned positive in November.
  • A huge surge in small-cap stocks since the June CPI report now has pushed small-caps ahead of the S&P 500 since we purchased equities.
  • International stocks have produced solid but lesser gains; we believe a stalling U.S. dollar could provide them a boost.
Navigator® Sector Opportunity
  • The portfolio continues to own Technology, Semiconductors, and the NASDAQ 100, but has reduced those positions as the market rotation has begun in earnest.
  • New additions include Banks (regional and large-cap), Infrastructure, Homebuilders, and Industrials.
  • Defensive sectors like Utilities and Staples have gotten no traction as the risk environment continues to favor the bold.
Navigator® Style Opportunity (MultiStrategy Equity)
  •  The June CPI report provided the confirmation markets were yearning for – that inflation is under control and the Fed can begin cutting rates.
  • A dramatic rotation ensued, as large-cap growth, the prior winner, was sold off while small-caps (often interest rate sensitive) rallied massively.
  • Our models had been positioned in large-cap growth and the S&P 500, but as the rally took hold, we began to established positions in mid-caps and small-caps. As August began, the portfolio was positioned with 20% to large-cap growth, 28% to the S&P 500, and 50% to mid-caps and small-caps (with a growth bias).
Navigator® U.S. Strategic Beta
  • The surge in mid-cap and small-cap stocks after the June CPI report proved beneficial, as our overweight in mid-caps and small-caps began to pay off.
  • The portfolio remains neutral with regard to value vs. growth stocks; however, upon a further and deeper correction, we could look to add to our position in growth stocks at more attractive levels.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or
economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark
Capital investments portfolio. Material presented has been derived from sources considered to be reliable and has not been
independently verified by us or our personnel. Nothing herein should be construed as a solicitation, recommendation or an
offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies.
The “Economic Gauges” represent the firm’s expectations for the market, and how changes in the market will affect the
strategy, but are only projections which assume certain economic conditions and industry developments and are subject to
change without notice. For educational use only.

This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or
research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions
based on their specific investment objectives and financial circumstances. Past performance does not guarantee future
results.

Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may
cause a decline in market value of an investment), credit, payment, call (some bonds allow the issuer to call a bond for
redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the
expected maturity of a security to increase).

Equity securities are subject to price fluctuation and possible loss of principal. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Certain investment strategies tend to increase the total risk of an investment
(relative to the broader market). Strategies that concentrate their investments in limited sectors are more vulnerable to
adverse market, economic, regulatory, political, or other developments affecting those sectors. Treasury yield is the return on
investment, expressed as a percentage, on the U.S. government’s debt obligations. Looked at another way, the Treasury yield
is the effective interest rate that the U.S. government pays to borrow money for different lengths of time.

References to market or composite indices, benchmarks or other measures of relative market performance over a specified
period of time (each, an “index”) are provided for your information only. Reference to an index does not imply that the
portfolio will achieve returns, volatility or other results similar to that index. The composition of the index may not reflect the
manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors,
correlations, concentrations, volatility or tracking error targets, all of which are subject to change. Investors cannot invest
directly in an index.

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial
issuance.

The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large
companies listed on stock exchanges in the United States.

The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which
represent about 93% of the total market capitalization of that index.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default
or loss of income and principal than higher-rated securities.

International Securities means securities listed on a foreign stock exchange and includes, but is not limited to stocks, shares,
bonds, debentures or other debt securities, notes, rights, units, options and any other instruments representing rights to
receive, purchase or subscribe for same.

This document may contain certain information that constitutes forward-looking statements which can be identified by the
use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable
terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation,
or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be
achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as
to the future.

Clark Capital utilizes a proprietary investment model to assist with the construction of the strategy and to assist with making
investment decisions. Investments selected using this process may perform differently than expected as a result of the
factors used in the model, the weight placed on each factor, and changes from the factors’ historical trends. There is no
guarantee that Clark Capital’s use of a model will result in effective investment decisions.

Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission.
Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and
fees can be found in its Form ADV which is available upon request. CCM-1188

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K. Sean Clark, CFA®
EVP, Chief Investment Officer