AFG - Headwaters Capital's Q1 2021 Investor Letter

• Headwaters Capital Management is an actively managed, concentrated investment strategy focused on small and mid-capitalization stocks. The strategy seeks to invest in a small number of industry-leading companies with sustainable competitive advantages and the opportunity to generate durable, long-term revenue growth.
• The Headwaters Capital portfolio returned +0.6% gross (+0.4% net) during Q1'21 compared to a +8.1% return in the Russell Mid Cap Index.
• Value stocks outperformed given that many of these stocks were historically cheap at the beginning of the year, especially relative to growth stocks that were trading at stretched valuations (expensive on near-term earnings, not necessarily longer-term earnings).
• Bond yields and commodity prices both rose as investors grew more confident that the combination of a global re-opening, increased fiscal stimulus and continued easy monetary policy would be supportive of strong GDP growth and inflation.

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