Market Sector Update

• U.S. equities finished 2019 much the way they started the year…with a powerful move upward. As a result, the major large-cap equity indices hit fresh all-time highs in the fourth quarter, posting their best year since 2013 despite bitter trade fights and recession jitters. A major source of optimism came from investor confidence that the current, recordlong U.S. economic expansion will continue. Factors contributing to this optimism include the phase one trade agreement between the U.S. and China, anticipation of improved growth in 2020 as a result of the U.S. Federal Reserve’s (Fed) three interest cuts, a resilient job market and tame inflation outlook.
• Stock prices experienced relatively minimal downside volatility throughout the quarter with the markets closing at new highs at the end of each month. The strong and steady rise occurred across the market cap spectrum and favored growth over value to some extent. With respect to performance, the Russell 3000 Growth Index, the Fund’s benchmark, advanced nearly 11% for the period.
• Given the broad-based gains for the quarter, there were no meaningful performance detractors on a sector basis for both the primary benchmark and the Fund. There was noticeable strength within information technology, health care and communication services. All three posted double digit returns, with health care leading the way at 17%. These three areas were responsible for nearly 84% of the benchmark’s performance for the period despite representing just 64% of its weight. This is not an uncommon event given that some of what we believe are the most dynamic and innovative companies reside in these sectors and helps explain why the Fund has significant exposure to these areas.

Portfolio Strategy

• The Fund delivered a postive return, but underperformed its benchmark for the quarter.
• Weak stock selection was the primary cause of the Fund’s underperformance for the period, while sector allocation added slightly to performance in comparison to the benchmark. One sector, information technology, and more specifically one stock, Apple, Inc., was the primary cause of this weakness. The Fund did not hold a position in Apple, resulting in a meaningful drag on performance that offset the positive performance of the financials, materials and industrials sectors. In addition, underweights to consumer staples and consumer discretionary helped during the period given the below-average returns from these segments of the market.
• The biggest impact on performance in the quarter include Dexcom, Inc., Tactile Systems Technology, Inc. and Gardner Denver Holdings, Inc.
• In the case of Dexcom and Tactile Systems, third-quarter earnings revealed both companies continue to operate at a very high level as evidenced by financial results that were once again well above investor expectations. Garner Denver’s oil and gas business has negatively impacted results. However, a strategic acquisition announced in 2019 has buoyed the stock as we believe the deal could have the potential to transform the company in the coming years.
• ServiceMaster Global Holdings, Inc. and the Boeing Company also were detractors from performance. ServiceMaster, best known for owning the pest control brand Terminix, experienced higher than expected damage claims, which had a meaningful negative impact on operating performance. Further due diligence and management meetings revealed the problem may continue to linger. We have eliminated our position in this holding. Boeing’s issues have been well documented. As one of only two global airplane manufacturers, we are of the opinion their issues will be resolved without materially altering the long-term growth profile of the business. We are maintaining our position in the company.

Outlook

• The current investment landscape offers no shortage of worries. Concerns include ongoing U.S-China trade relations, the impeachment proceedings, the 2020 elections, Middle East tensions and the overall health of the economy.
• If the fourth quarter and 2019 has taught us anything it is that the market doesn’t care about yesterday or today. It cares about the future. As we look out to 2020, earnings growth clearly looks better than it did just one year ago. We believe this is why the market rallied so strongly in 2019.
• As fundamental investors we are committed to seeking out the most innovative and dynamic companies, regardless of their size, that have the potential to grow for years to come. Our objective is to proactively prepare for downside volatility and use it to our advantage in order to generate attractive long-term capital appreciation for our shareholders.

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 Dec. 31, 2019, 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.

All information is based on Class I shares.

Effective Feb. 21, 2019, the Fund's benchmark changed from the S&P 500 Index to the Russell 3000 Growth Index.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. The Russell 3000 Growth Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. It is not possible to invest directly in an index.

Top 10 Equity Holdings as a percent of net assets as of 12/31/2019: Microsoft Corp. 7.4, Fiserv, Inc. 3.9, Amazon.com, Inc. 3.6, Walt Disney Co. 3.3, Gardner Denver Holdings, Inc. 3.1, Five9, Inc. 3.0, Boeing Co. 2.8, Mastercard, Inc. – Class A 2.6, GoDaddy, Inc. – Class A 2.3, ServiceNow, Inc. 2.3.

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.