Market Sector Update

• Domestic markets rallied in the third quarter of 2018 after a modest bout of volatility in the first half of the year.
• The S&P 500 Index, the Fund’s equity benchmark, advanced 7.7% for the quarter. This return on performance was led by the health care sector (up by 14%) and followed by information technology (up by 12%) and industrials (up by 10%.) Offsetting this strength were energy, material and financials, which trailed the benchmark, despite posting positive returns.
• Areas that underperformed were either hurt by rising bond yields or fears of a significant slowdown in emerging markets driven by trade war escalation between the U.S. and China. This combination caused both defensive areas of the market (real estate and utilities sectors) as well as economically sensitive areas (energy and materials sectors) to significantly lag market averages.

Portfolio Strategy

• Despite posting positive returns for the quarter, the Fund underperformed the benchmark.
• The top performing sectors were health care, industrials, consumer staples and information technology, industrials, consumer discretionary and financials. Conversely, materials, utilities and communication services. The Fund did not hold positions in real estate.
• Strong performing individual holdings for the quarter included Eli Lilly, Microsoft, Take-Two Interactive, Discovery Holding and Blackstone. The Fund’s largest detractors for individual holdings were Broadcom, Electronic Arts, Applied Matis, Berkshire Hathaway and Johnson & Johnson.

Outlook

• Looking forward, the market environment is at a tricky juncture. The valuation gap between growth and value looks extreme. The market has continued to reward companies with strong growth outlooks thinking that their revenues can continue to grow even in a more difficult economic climate. Companies more sensitive to the economy have seen their stocks suffer as the market continues to worry that the economic good news is nearing an end.
• Our current economic outlook is that growth will decelerate in 2019 but no recession. For the time being, “balance” across both value and growth styles, as well as stability and cyclicality is where we are working to position the portfolio.
• While no major positioning changes are planned in the near term, we are looking to take advantage of the increased volatility we have seen in recent months. This includes not only taking some profits in areas that have outperformed, but trying to find opportunities with companies that have seen recent underperformance.
• How the trade war rhetoric with China is either resolved or continues to escalate is probably most important in determining whether a more significant change in market leadership is ahead. Predicting government politics is not a game we feel very confident playing, which is why we currently don’t have the portfolio tilted towards one side of the debate.
• Regardless of how things unfold, our focus remains finding companies which we think have long-term future earnings power above market expectations.

The opinions expressed are those of the Fund’s managers at Class I shares and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through Sept. 30, 2018, 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 Equity Holdings as a percent of net assets as of 09/30/2018: Microsoft Corp. 6.2, Apple, Inc. 3.9, UnitedHealth Group, Inc. 3.5, JPMorgan Chase & Co. 3.1, Amazon.com, Inc. 3.1, Airbus SE 2.7, Medtronic 2.7, Alphabet, Inc. Class A 2.5, Visa, Inc. Class A 2.5, CME Group, Inc. 2.4.

The S&P 500 Index is an unmanaged index of common stocks. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact than if the Fund were invested in a larger number of securities. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large capitalization companies could trail the returns on investments in securities of smaller companies. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.