Quarterly Commentary

Fourth Quarter 2019

CCIIX in Context

The Cornerstone Capital Access Impact Fund (CCIIX) maintains our regional positioning of 61% U.S., 19% Western Europe, 17% Asia Pacific, and the remainder in the rest of the world. This reflects the ongoing strength of the U.S. economy relative to other regions.

We are also maintaining our overweight allocation to the IT and Industrial sectors. Our view is that IT and e-commerce companies are permanently changing traditional businesses through increased efficiencies, and that Industrials are critical to providing the infrastructure necessary for renewables projects and other sustainable investing goals.

The Global Wall of Worry

The MSCI ACWI returned 9.0% for 4Q19 and 23.9% for the full year against a backdrop that could be described as a “wall of worry.” Fears included:

  • An escalating U.S.-China trade war.
  • A. U.S. recession.
  • A slowdown in global growth.
  • Impeachment hearings.
  • Brexit chaos.

Meanwhile, U.S. equity markets surged to record highs in 2019, with the S&P 500 returning 9.9% for the quarter and 29% for the year. To be sure, a large part of the stock market rally in the first half of 2019 was a recovery from the steep sell-off in Q4 2018; in fact, the S&P 500 was essentially flat between September 2018 and October 2019.

S&P 500

Source: Bloomberg

The sharp gain in prices in Q4 2019 got stocks out of that range and pushed equities to new highs. It’s likely that the catalysts behind those gains in stock prices were 1) an apparent bottoming in negative earnings estimate revisions, 2) an accommodative Federal Reserve (“Fed)”, and 3) a “phase one” trade agreement with China. The anticipated completion of the U.S.-Mexico-Canada (USMCA) trade deal (signed in January) may have also bolstered sentiment.

Signs of Improvement for 2020

Recent stock price gains have been driven by price-earnings (P/E) multiple expansion, reflecting the absence of corporate profit growth. While multiples are above their 15-year average, they are still below levels reached in 2016 and 2017.

S&P 500 Price / Earnings Multiple (Trailing 12-Months)

Source: S&P

S&P 500 profit growth, although still quite weak, came in better than expected in both Q2 and Q3. Moreover, net earnings estimate revisions appear to have troughed.

However, the coronavirus Covid-19 is now rattling market sentiment, replacing some of the relief that came from the resolution of the first part of the trade war with China. When the U.S. first imposed tariffs on goods from China in 2018, there followed a marked slowing in global economic activity. Then, before the coronavirus outbreak, the Global Manufacturing Purchasing Managers Index had moved above 50, the level that signals an expanding global economy. We are watching the spread of the virus and its impact on productivity in China and more broadly on global supply chains.

Although we expect more muted gains for equities in 2020, we believe stocks will likely offer the best returns among major asset classes. Prior to the virus outbreak, the global economy appeared to be recovering, albeit slowly, which would have been a significant positive for corporate profit growth. The global investment community is still attempting to quantify the impact of the virus, which will depend in part on its duration and level of contagion, but we think the overall impact to the global markets could be significant, based on our prior experience stemming from the SARS epidemic. That said, the U.S. markets continue to hit new highs in February 2020, despite an increase in volatility (VIX) from a low of 12.07 on January 17 to spike to 19.37 on January 31 (before settling at its current level of 15.28).

Fund Performance Update, Fourth Quarter 2019

The Cornerstone Capital Access Impact Fund returned 5.70% between its inception on November 13 and the end of 4Q19, exceeding the benchmark MSCI ACWI index by 117 bps. All four of the sub-advisors in the fund exceeded the benchmark by ranges of 67 – 227 bps.

Performance data quoted represents past performance. Past performance 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. Current performance may be lower or higher than the performance data quoted. Cornerstone Capital Group maintains a contractual agreement effective through 12.31.2022 to cap the gross expense ratio of 2.47% at a net 1.35%.


Performance was driven by the following factors:

  • Next Economy strategy (Green Alpha Advisors): This strategy returned 6.8% for the quarter, which was 227 bps above the benchmark. This was driven by Tesla, Beyond Meat and Splunk, and by strong performance in the Technology and Industrials sectors.
  • Fintech strategy (Ark Invest): The Fintech strategy returned 5.5% in 4Q19, exceeding the benchmark by 97 bps. Strong performance at Zillow, Apple, and Line drove returns. The largest detractors were Wirecard, which faced accounting irregularity accusations, and Pinterest, which saw a slowdown in the US market.
  • Water strategy (KBI Global Investors): The Water strategy returned 5.2% for 4Q19, surpassing the benchmark by 67 bps. Solid performance was seen across the Infrastructure, Utility and Technology segments, with only two names detracting from performance (Manila Water and Andritz).
  • Global Sustainable Growth strategy (Schroders): This strategy returned 6.3%, which was 177 bps above the benchmark. Communication Services and Industrials drove the quarter, with marginal weakness in the Consumer Staples sector detracting. Top performers included Vestas, a Danish wind turbine supplier, and United Healthcare.

Major position changes in 4Q19 included the sale of Manila Water, a Philippine water company, which faced an increasingly hostile regulatory environment that weighed on performance. It was replaced by Kubota, a Japanese provider of special pipes and membrane bioreactors for water treatment.

The portfolio also added positions in pharmaceutical company Roche, due to its solid focus on both short-term and long-term R&D and conviction around its oncology platform, as well as adding a position in TOMRA Systems, a market leader in recycling technology. Sekisui Chemical was also sold on the view that consensus expectations looked too high.

In the Fintech space, the portfolio swapped out of Line and into Z Holdings, which was in the process of acquiring Line. Line is the Japanese version of WeChat, and also has a mobile money application. Positions were also initiated in Zip, a provider of innovative lending and credit products, and Silvergate, a digital bank focused on cryptocurrency.

Top ten holdings by portfolio weight (12.31.2019)*

Company Portfolio Weight (%)
Square, Inc. 2.58
Apple, Inc. 1.88
Xylem, Inc. 1.57
Kurita Water Industries Ltd. 1.54
Veolia Environnement S.A. 1.52
Amazon.com, Inc. 1.47
Alibaba Group Holding Ltd. 1.41
Tencent Holdings Ltd. ADR 1.34
Taiwan Semiconductor Manufacturing Co. Ltd. 1.32
Danaher Corp. 1.28

*Holdings and weightings subject to change. Total number of holdings at 12.31.2019: 226.

Notes: The price-to-earnings ratio (P/E ratio) is defined as a ratio for valuing a company that measure its current share price relative to its per-share earnings. The Global Purchasing Managers Index is a measure of the prevailing direction of economics trends in manufacturing. The CBOE Volatility Index (VIX) is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options.

Manager Spotlight: Green Alpha

The Green Alpha Next Economy Index invests in companies that create or enable solutions to our greatest systemic risks – climate change, resource degradation and scarcity, and widening inequality. Their Next Economy thesis reflects Green Alpha’s belief that investing in such companies offers the best chance to create material change within the economy, as well as the best chance to help clients preserve and grow their wealth over the long term. Based in Colorado, the Green Alpha Team has been running the strategy since 2008. The strategy has been fossil fuel free since inception and exhibits no style drift.

The Next Economy Index currently holds 122 securities and average turnover is low, as the portfolio is rebalanced annually. The portfolio invests broadly across industries, with an emphasis on the tech sector, reflecting Green Alpha’s view that tech-enabled solutions power change throughout the economy. While the strategy does not emphasize specific investment factors, or “styles,” Green Alpha’s Investment Committee pays careful attention to valuation and growth at a reasonable price. The Investment Committee is intentional about investing in solutions-oriented companies. They are also intentional about not trying to fit within traditional investment styles. The team has spent significant time defining a universe of companies, solutions, and sectors for potential investment, and their model is dynamic so that as new types of companies or solutions emerge, they are evaluated for potential addition to the Next Economy Index portfolio.

Given the broad-based investment approach within the theme of Next Economy Investing, the portfolio touches on many of the themes that Cornerstone Capital is looking to express through the CCIIX strategy. These include Climate and Clean Energy; Circular Economy; and Data Driven Solutions.

Similarly, the strategy addresses a number of the United Nations Sustainable Development Goals (SDGs), including:

Goal 3: Good Health and Well-Being
Goal 7: Affordable and Clean Energy
Goal 11: Sustainable Cities and Communities
Goal 12: Responsible Consumption and Production
Goal 13: Climate Action
Goal 15: Life on Land

Thematic Spotlight: Circular Economy

We are excited to be expressing the Circular Economy theme in our portfolio. The term “circular economy” means an economy that is designed to be restorative and regenerative, one where items are refurbished, reused, and recycled to reduce or eliminate waste generation. This theme is still emerging – indeed, we are not aware of any public equity managers with funds 100% focused on the circular economy. However, given the increased public focus on the impact of waste on our environment, and the innovative work being done by companies to address the challenge, we believe Circular Economy will be an expanding and enduring theme.

We see two potentially investable subgroups within the broader theme. The first is companies that are providing solutions to the problems created through the non-circular economy. These include such investable areas as recycling, upcycling, and waste reduction. Such companies map to GICS sectors that include Technology, Materials, and Industrials. The second group includes consumer products companies that are actively looking to solve the circular economy challenges. These include Consumer Staples and Consumer Discretionary companies within the portfolio.

While none of our subadvisors’ strategies is solely focused on the Circular Economy, Green Alpha and Schroders both incorporate these types of companies into their broader thesis, while KBI’s water focus is also linked to improved wastewater treatment and reuse. Investments in the current portfolio that fit within this theme include recycling company TOMRA Systems and consumer goods company Unilever.

In terms of the UN SDGs, the Circular Economy theme touches on the following goals:

Goal 3: Good Health and Well-Being
Goal 7: Affordable and Clean Energy
Goal 11: Sustainable Cities and Communities

Learn more about the circular economy here.

Learn More: Media & Resources

Impact Investing

Cornerstone Capital Group CEO Erika Karp, portfolio co-manager for CCIIX, visited Davos during the recent World Economic Forum. View some of her key takeaways from the week:



Circular Economy

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Investing involves risk, including loss of principal. There is no guarantee that this, or any, investing strategy will be successful. Applying ESG and sustainability criteria to the investment process may exclude securities of certain issuers for both investment and non-investment reasons and therefore the Fund may forgo some market opportunities available to funds that do not use ESG or sustainability criteria. Securities of companies with certain focused ESG practices may shift into and out of favor depending on market and economic conditions, and the Fund’s performance may at times be better or worse than the performance of funds that do not use ESG or sustainability criteria. Investments in foreign securities involve risks that may be different from those of U.S. securities. Foreign securities are subject to individual country risk, less favorable reporting and disclosure risks, currency exchange risk, greater volatility, and potential for higher liquidity risk than U.S. - registered securities. Diversification does not ensure a profit or guarantee against loss. You should carefully consider the Fund’s investment objectives, risks and charges and expenses before investing. This and other important information is contained in the Fund’s prospectus and summary prospectus, which should be read carefully before investing. To obtain a Fund prospectus or summary prospectus, call 1-800-986-6187. The Fund is distributed by Ultimus Fund Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC and the other firm referenced in this material. 9518566-UFD-2/11/2020


Contact your advisor or broker to purchase shares of The Cornerstone Capital Access Impact Fund. If you wish to buy the Access Impact Fund and it is not currently available for purchase through your advisor or broker, please following the instructions below.

You can open an account and purchase shares directly through Cornerstone the following ways:

  1. Download and complete the appropriate Fund Application form, then submit by fax or mail. Please see below for forms and account application instructions. Questions? Call us at 800-986-6187

  2. To complete the forms digitally, please email fundinfo@cornerstonecapinc.com with your preferred email address, cell phone number and application type (general, IRA, or Roth IRA), and our service team will send you the forms for online completion.

Once you have completed the application, please mail it along with supporting documentation (if indicated) to:

Cornerstone Capital Access Impact Fund
c/o Ultimus Fund Solutions, LLC
P.O. Box 46707
Cincinnati, OH 45246

Cornerstone Capital Access Impact Fund
c/o Ultimus Fund Solutions, LLC
225 Pictoria Drive, Suite 450
Cincinnati, OH 45246