Market Sector Update

• The new calendar year ushered in a building sense of optimism about the U.S. economic reopening, peaking COVID- 19 cases, vaccine rollout and more government stimulus, which has allowed for equity markets to continue their upward trajectory. The big story for the quarter centered on the continued rotation out of pandemic winners and into more cyclically oriented companies. This led to significant outperformance by value and small-cap stocks.
• After years of outperformance by growth stocks, value stocks trounced their growthier peers, and in some cases, by levels not seen since the fourth quarter of 2000. Additionally, after a strong first quarter 2021, small caps posted their second best trailing 12-month return ever at 94.8%, based on the Russell indexes. Sectors that have lagged for years, such as energy, materials, industrials and financials, posted significant gains while past leaders, information technology and health care, lagged meaningfully. The Russell 3000 Growth Index, the Fund’s benchmark, rose a modest 1.19% for the quarter.
• U.S. economic strength is a welcomed surprise for investors. Pro-cyclical areas of the market are showing signs of an explosive earnings recovery as demand returns faster than expected at the same time corporate operating expenses are much lower due to all the pandemic-induced cost reductions. This situation is leading investors to question how much of a good thing is too much? This concern manifested itself in the first quarter of 2021 with a rapid rise in interest rates and concerns about inflation. Investors are looking for clues as to when the Federal Reserve (Fed) would start to raise interest rates to ward off any systemic inflation risks. The Fed remains very dovish and appears to have a very high threshold toward raising rates.
• Overall, the outlook entering second quarter appears to be positive given the continuation of the trends mentioned above. Rapidly rising interest rates, the frenzy in meme stocks and a resurgence in COVID-19 present potential obstacles to further equity market gains but it appears the positives currently outweigh the negatives.

Portfolio Strategy

• The Fund had a positive return for the quarter, slightly underperforming its benchmark. At the sector level, industrials showed the best performance for the Fund. We attribute this performance to the aforementioned comments about procyclical companies experiencing surging demand as the economy reopens and COVID-19 recedes. With regard to individual holdings in the industrials sector, leaders included Southwest Airlines, Uber Technologies and Kornit Digital. Other sector contributors include communication services and financials.
• Conversely, information technology was the greatest detractor, mainly due to significant holdings in growth-oriented companies such as Apple and Five9. Health care was also a small detractor to overall performance. These two sectors represent more than 60% of the Fund and have generated significant returns over the past year so it is not unexpected to endure some weakness in these areas.
• During the quarter, we identified several pro-cyclical investment opportunities. New holdings include Spirit AeroSystems, Shift4 Payments, Inc. and Ambarella, Inc. Some of the positions sold to fund these purchases were adidas AG, Alcon and NVIDIA Corp.
• Our focus remains on balancing the portfolio with companies we believe will benefit from the economic reopening and those that have robust, long-term structural growth profiles. We think the U.S. recovery will be robust and we are hyper focused on owning companies that will not only be able to capitalize on the rebound, but also thrive in the years to come as we hopefully return to a more normalized environment.

Outlook

• Looking ahead, it’s hard not to be excited about the pace of vaccinations. Defeating the pandemic is elemental to returning to a more normalized U.S. economy. To the extent that current trends continue, the potential for a significant earnings recovery is a very real possibility. This optimism is throttled by the risk of spiking interest rates and inflation, which could truncate the rebound.
• Inflation has been nonexistent for well over a decade but there will undoubtedly be some transitory increases in prices as supply chains adjust to the resurgence in demand. However, we believe the structural suppressants to inflation (technology, globalization and competition) remain firmly in place, and as such, the Fed has set a very high threshold for raising interest rates.
• As always, there will be unexpected surprises as the year progresses. We believe our investment philosophy and process provide a sound framework for dealing with these situations when they arise. We remain optimistic in our outlook and are excited for a return to pre-pandemic normalcy.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2021, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings as a % of net assets as of 03/31/2021: Apple, Inc. 7.2, Microsoft Corp. 6.9, Amazon.com, Inc. 6.5, Mastercard, Inc. 4.0, Five9, Inc. 3.5, PayPal Holdings, Inc. 3.3, Kornit Digital Ltd. 3.3, Twilio, Inc. 3.1, Darden Restaurants, Inc. 3.1 and Facebook, Inc. 3.0.

The Russell 3000 Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. It is not possible to invest directly in an index.

All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. Large-capitalization companies may go in and out of favor based on market and economic conditions. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. The Fund typically holds a limited number of stocks (generally 30 to 50). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund's net asset value than it would if the Fund invested in a larger number of securities. These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/dealers.