Semi-Annual Report
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CROSSMARKGLOBAL.COM October 31, 2020 STEWARD FUNDS SEMI-ANNUAL REPORT Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website at www.crossmarkglobal.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Funds electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank), or you are a direct investor, by calling 1-713-243-6746 or sending an email request to Jim Coppedge, [email protected]. You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Funds, you can call 1-713-243-6746 or send an email request to [email protected] to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all Funds held in your account if you invest through your financial intermediary or all Funds held with the Transfer Agent if you invest directly with the Funds. 1 TABLE OF CONTENTS Letter to Shareholders and Manager Commentaries (Unaudited)............................................................................. 3 Schedules of Portfolio Investments (Unaudited)................................................................................................... 8 Financial Statements (Unaudited) ...................................................................................................................... 51 Notes to Financial Statements (Unaudited).......................................................................................................... 67 General Information (Unaudited)....................................................................................................................... 76 Dear Shareholder: It is our pleasure to present you with the 2020 Steward Funds, Inc. Semi-Annual Report. Within its pages, you will be provided with detailed information regarding all of the Funds, including performance, specific holdings within each Fund, and a summary of the key factors impacting Fund performance for the six months ended October 31, 2020. This past year, while extremely challenging for individuals and businesses alike, has nonetheless yielded some accolades for the Steward Funds and for Crossmark Global Investments (the investment advisory firm that manages the Funds). Most notably, in early 2020 we were notified by Refinitiv that the Steward Global Equity Income Fund (ticker SGISX) was again selected to receive multiple Lipper Fund Awards for its performance. Specifically, the Steward Global Equity Income Fund was named the Best Global Equity Income Fund in the five-year and ten-year performance categories for the period ended November 30, 2019. This marks the sixth consecutive year in which this Fund has received a Lipper Award. We are extraordinarily proud of all of our Funds. Dedicated to widely-held traditional values, the Steward Funds use a proprietary methodology that seeks to identify and screen out companies for material business involvement (through direct participation and/or percentage of revenue) in abortion and abortifacients, adult entertainment, alcohol, embryonic stem cell research, gambling, recreational cannabis, and tobacco. We believe investors do not need to sacrifice investment returns to align their investments with their values. As a firm, we are committed to operating according to the highest levels of excellence within our industry. Our commitment to our core values of integrity, courage, commitment, proficiency, and professionalism is unwavering. Not only do we help investors align their investments with their values, we work hard every day to align our business practices with our values. On behalf of all the professionals at the Steward Funds and Crossmark Global Investments, we sincerely thank you for the trust you have placed in us. We invite you to learn more about the Steward Funds, Crossmark Global Investments, and the various investment options available by visiting our website at www.crossmarkglobal.com. Additionally, if you are ever in the Houston, Texas area, we would love to meet you personally at our office. Feel free to stop by at any time. Again, thank you for choosing to invest in the Steward Funds. Sincerely, Michael L. Kern, III, CFA Chairman of the Board, President and Treasurer of Steward Funds, Inc. President, CEO and Treasurer of Crossmark Global Investments, Inc. 15375 Memorial Drive, Suite 200, Houston, TX 77079 800-262-6631 crossmarkglobal.com/stewardfunds 3 STEWARD COVERED CALL INCOME FUND Paul Townsen, Managing Director, Portfolio Manager Fund Performance For the six months ended October 31, 2020, the Steward Covered Call Income Fund returned 9.65% for the Class A shares and 9.67% for the Institutional Class shares. The return for the CBOE S&P 500 BuyWrite Index was 7.06% and the return for the S&P 500 Index was 13.29% for the same period. Factors Affecting Performance There are three main factors that contributed to the Fund’s relative performance against the benchmarks: stock selection, the performance of the call option overlay, and the Fund’s values-based screening policies. The impact of stock allocation and weighting for the six-month period was neutral. Two overweighted names that contributed to positive performance were once again Apple and Microsoft, which returned 48.87% and 13.56% for the period, respectively. Several other names worth mentioning that had a positive impact on performance were Salesforce, Adobe Systems, United Parcel Service, Danaher Corp and PayPal which were up 43.42%, 26.43%, 68.77%, 40.69% and 51.32%, respectively. Stock allocations that negatively impacted performance were tied to the energy and financial sectors of the S&P 500. Chevron Corp, Exxon Mobil, Citigroup and Wells Fargo returned -22.27%, -27.01%, -11.79% and -24.36%, respectively. When the long-only positions are analyzed in isolation, we estimate that security allocation had a neutral impact. Covered Call Impact Fund performance is also impacted by covered calls written against the underlying equity securities. For the period, volatility saw several spikes resulting from the COVID-19 pandemic, a lack of continued stimulus and the upcoming elections. The CBOE Volatility Index closed above 40 during the period twice, once in June and again in the last week of October and averaged 28.19 during the six-month period. There was a significant increase in income generation during June and July and again in September and October as volatility heightened. When stocks rise (as they did at the beginning of the time period), writing call options caps the upside in exchange for a premium. However, as the markets sold off in September and October, the option overlay was a boost to performance. Thus, short call options are expected to provide positive performance when the market experiences periods of sharp price depreciation. In summary, option writing increases Fund income while providing a boost to performance in down markets. In rising markets, writing call options partially offsets the cap in Fund performance. Impact of Values-Based Screening Policies Performance of the Fund can also be affected by its values-based screening policies. With that said, the Fund was recently able to invest in some previously screened companies due to screening changes approved by the Fund’s Board of Directors. Approved for investment were Amazon, AT&T, Comcast, and Netflix, and since the date of purchase these names have returned 22.72%, -8.12%, 13.49%, and 13.31%, respectively. STEWARD GLOBAL EQUITY INCOME FUND John R. Wolf, Managing Director, Portfolio Manager Fund Performance For the six months ended October 31, 2020, the Steward Global Equity Income Fund returned 11.83% for the Class A shares and 12.02% for the Institutional Class shares. The return for the global market as represented by the S&P Global 1200 Index was 12.51% for the same period. For dividend income comparison purposes, the MSCI World High Dividend Yield Index returned 2.58% for the same period. Allocation and Outperformers The Fund’s allocation at the end of the period was 62% U.S. and 38% international. Domestic stocks outperformed their international counterparts during the period, however, positive relative performance was led by Taiwan Semiconductor Manufacturing Co., Ltd. (up 59%). Shares climbed after the company announced upbeat second quarter results. It also raised full-year revenue guidance to reflect more than 20% growth over the previous year. The company has established technology leadership with accelerating penetration in the 5G smartphone market, featuring robust order flows from Apple for the company’s cutting-edge 5 nanometer (nm) process. Shares of Infosys Ltd. (up 58%) surged on solid second quarterly results backed by growth in several areas of its consulting and software services business segments. During