Monthly Moves: Charting Our Strategies, May 2024

Clark Capital’s Economic Gauges

Clark Capital’s Bottom-Up, Fundamental Strategies

Equities reversed last month’s reversal! Large-cap growth stocks lead the way, up nearly 6%, or more than 2x the gain in the equally weighted S&P 500 Index. 2-year Treasury yields fell from their 2024 high yield on April 30th of 5% back to 4.87%, potentially signaling the beginning of a change in Fed policy towards easing.

The big inflation contributors, which have held broad measures stubbornly above 3%, are now showing signs of receding. Supply chain constraints have nearly disappeared, goods prices are contracting, and labor market tightness as displayed in lower quit rates and the Job Openings and Labor Turnover Survey (JOLTS) data corroborate slower average hourly earnings gains. Finally, rent inflation appears to have peaked.

Prior to the start of Federal Reserve rate cut cycles, quality and growth factors historically performed well. The bottom-up equity portfolios remain focused on both factors, while also being mindful that valuations for large-cap, high free cash flow companies are fairly valued-to-expensive versus defensives cyclical dividend growers.

Below are strategy updates from May:

Navigator® All Cap Core U.S. Equity
  • Navigator® All Cap is positioned with 76% in large-cap stocks and the remainder in mid/small-cap companies and cash.
  • Albeit underweight to the benchmark, Information Technology remains the largest sector weight in the strategy at around 26%.
  • During the month, to benefit from improving business fundamentals, the two most recent additions to the portfolio were a global financial services company and a sporting goods retail chain. The two most recent exits were a global independent investment banking advisory firm and an automotive parts and accessories retailer.
Navigator® High Dividend Equity
  • Navigator® High Dividend Equity is positioned with approximately 98% in developed countries with the remainder in cash. The United States is the largest country weight at 91%, followed by Britain at 3%, and Ireland at 2%.
  • 91% of the portfolio is positioned in large-cap stocks, 7% is positioned in mid-cap, and the remainder is in cash.
  • Financials are the largest sector weight at about 23%, which is slightly above the benchmark weight. The next three largest portfolio weights are Industrials, Healthcare, and Information Technology at 15%, 13%, and 10%, respectively.
  • Positioning in Information Technology, Financials, and Utilities contributed to relative performance versus detractors Consumer Discretionary, Basic Materials, and Communications.
  • During the month, there were three portfolio sales due to declining business momentum and weak earnings. These sales included a global coffee retail chain, a multinational medical devices and health care company, and a home improvement retail chain.
Navigator® International Equity ADR
  • Navigator® International Equity/ADR is positioned with 16% 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 21%.
  • ADR’s exposure to China is now around 6%, which is slightly below its weighting in the All-Country World less US benchmark.
  • Financials, Healthcare, Industrials, and Information Technology are our largest sector weights.
  • During the month, to benefit from improving business fundamentals, we added a manufacturer of industrial and automotive belts and hoses, a British-American global asset management group, and a Canadian bank. We exited our positions in a Japanese telecommunications holding company, a Canadian financial services company, and a Canadian multinational banking and financial services company.
Navigator® Taxable Fixed Income
  • Lower interest rates spurred higher issuance of new corporate bonds, with $140 billion hitting the market, 40% above expectations, bringing total new corporate bonds for the year to $795 billion, 27% higher than the previous year.
  • Despite higher issuance, credit spreads measured by the Option Adjusted Spread (OAS) on the Bloomberg Barclays Investment Grade Corporate Index decreased by 2 basis points, nearing levels not seen since 2005-2006.
  • Within the portfolio, our ongoing strategy remains focused on seizing opportunities presented by market dynamics. We continue to focus on purchasing bonds with maturities of 5 years or less to capture additional yield while accepting only minimal increases in credit risk. We believe this approach should continue to contribute positively to the portfolio’s performance for the remainder of the year.
Navigator® Tax-Free Fixed Income
  • In May, municipal bond issuance exceeded $40 billion, marking only the second instance since 2009, as reported by Municipal Market Analytics. We attribute this surge to previously deferred winter and spring issuance finally reaching the market, along with issuers expediting deals in anticipation of the election. Year-to-date, total issuance stands at $189 billion, reflecting a 33% increase compared to the previous year (according to BAML data).
  • We continue to utilize a butterfly trade in our investment approach. We focus on the front end to leverage persistent high yields, exploit the still-inverted state of the curve, and select intermediate-term securities for their benchmark characteristics.
  • We favor bonds maturing in approximately 15 years. We believe these bonds have good call protection due to their attractive yield, relative value, and roll-down characteristics.

Clark Capital’s Top-Down, Quantitative Strategies

After modest weakness in April, the market snapped back with good gains in May. The S&P 500, Russell 3000, Nasdaq Composite, and Nasdaq 100 indices all reached new record highs during the month. Gains were strong across the board in both equities and fixed income. The S&P 500 gained 4.96%, the Russell 2000 added 5.01%, and the MSCI ACWI ex-US 2.90%. Rates inched lower with the 10-year Treasury yield closing the month at 4.51%, down 18 basis points. High yield bonds rose 1.10%, investment grade corporate bonds rose 1.41%, and 7 to 10-year Treasuries added 1.81%.

The market remains hyper-focused on inflation statistics, with recent data showing continued moderating pricing pressures. Fed rate cut expectations have fallen to between 1-2 cuts this year. The economy has remained strong and in general corporate earnings have beaten expectations, providing a supportive backdrop for the markets.

Below are strategy updates from May:

Navigator® Alternative
  • Within the mutual fund core, options-based and managed futures (and their ability to short rates) have led the way, while long-short real estate lagged.
  • In May, we added to deeply sold equities that appear to be bottoming, including Chinese technology companies, biotech, and clean energy.
  • Gold, silver, and copper (and their mining stocks) enjoyed strong performance as inflation continues to linger.
Navigator® Fixed Income Total Return (MultiStrategy Fixed Income)
  • We believe that the weakness in fixed income markets has been entirely due to rising interest rates.
  • High yield and investment grade spreads have not risen, and spreads remain near the lower end of historical ranges.
  • Despite rising interest rates and modest fixed income losses across the board, our models indicate that the backdrop for credit risk persists and appears healthy.
Navigator® Global Risk Management
  • Credit spreads remain very tight, as high yield spreads have hovered just below 3% despite rising interest rates.
  • We see virtually zero credit distress, as all the damage being done in fixed income markets has been due to duration effects.
  • Technology alone will not be enough to drive markets higher, and our credit models indicate that improving inflation could spur a resurgence in market breadth.
Navigator® Global Tactical
  • Our credit-based models indicate a healthy backdrop for risk assets, and we are encouraged by broader market participation that includes value stocks and small-caps slightly more than the first quarter.
  • Our position in risk-on equities looks to be stable over the intermediate term. It appears that U.S. stocks are losing relative performance vs. international equities, which we would view as a positive and overdue development.
Navigator® Sector Opportunity
  • May’s rising interest rate backdrop has left very few industries and ETFs able to outpace the S&P 500. Only broad large-cap growth, the NASDAQ 100, and broad Technology can be described as trending well.
  • Prior winners including Software, Industrials, and Homebuilders have begun to fade, but Utilities are faring well in defiance of rising interest rates. However, other defensive areas continue to flail, so we do not perceive signs of broader weakness.
Navigator® Style Opportunity (MultiStrategy Equity)
  • As markets have narrowed during May, the Style portfolio has reacted by adding to large-cap growth while reducing its exposure to mid-cap growth. The portfolio is also avoiding value, particularly mid-cap and small-cap, which have historically been interest rate sensitive.
Navigator® U.S. Strategic Beta
  • During May, the portfolio reduced its exposure to minimum volatility and added to growth, effectively neutralizing the portfolio’s growth vs. value positioning.
  • We maintain an overweight to mid-caps and small-caps based on what we believe is a substantial valuation gap.
  • If we see the Fed move towards easing, that could well provide a catalyst to aid mid-caps and small-caps, which historically have been interest rate sensitive.

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

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

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


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