Market Sector Update

• The S&P 500 Index, the Fund’s equity benchmark, advanced nearly 2% in the third quarter of 2019. Sector leadership was overwhelmingly defensive as utilities, real estate and consumer staples meaningfully outperformed the overall market.
• Declines in certain economic indicators were evident for the period, primarily those tied to the industrial sector of the U.S. economy, which has weakened with slower areas like the eurozone and China. The ongoing trade disputes with key trading partners have diminished business confidence and caused a pause in business investment.
• Yields on the 10-year U.S. Treasury note declined from more than 2% near the start of the period to around 1.65% at quarter-end, as market participants reacted to weaker growth readings and the expectation that inflation indicators would weaken.

Portfolio Strategy

• The Fund delivered a positive return and slightly outperformed its benchmark for the quarter.
• The Fund’s top-performing sectors were materials, consumer staples and information technology. Conversely, health care, consumer discretionary and industrials were the biggest sector detractors from performance. In addition, the Fund’s lack of exposure to real estate also was a drag on performance.
• With regard to individual holdings, our positions in Sherwin Williams Co., Blackstone Group and First Data Corp. contributed to performance. Detractors included Amazon.com, Inc. and two health care holdings: UnitedHealth Group, Inc. and Anthem, Inc.
• Throughout 2019, we have continued to shift the portfolio toward more value-oriented names by selling full or partial positions in many of our high-growth stocks. This continued in the third quarter with our exit from positions in Charter Communications, Inc. and Elanco Animal Health, Inc. We also reduced positions in Mastercard, Inc. and Visa, Inc.
• We added holdings with attractive valuations, including holdings labeled as volatile, cyclical or saddled by controversy. These include Alibaba Group Holding, Ltd., Phillips 66, Texas Instruments, Inc. and Cisco Systems, Inc.
• Despite these moves, the portfolio is still structured moderately towards growth and our risk characteristics are wellcontrolled during a highly uncertain period in the market. We will look to future signs of bottoming in economic activity to make more significant changes toward value/cyclical holdings.

Outlook

• The broader equity market – as measured by the S&P 500 Index– is up nearly 20% year to date. However, the market has digested slowing in overseas markets, notably Europe and China, significant trade disruption caused by tariff increases, political turmoil in the U.S. that includes an impeachment inquiry and lingering Middle East tensions, including the attack on a key Saudi Arabia oil facility.
• U.S. economic weakness appears primarily manifest in multinational businesses exposed to capital spending and consumption patterns outside our borders. This segment of the economy represents approximately 20% of economic activity, but constitutes a higher percentage of corporate profits, which we have repeatedly discussed as being the most fundamental driver for stock prices.
• Fully 10 years into the current economic cycle, underlying jobs and wage data remains healthy and indicative of an expansionary economy despite a high degree of uncertainty elsewhere.
• Against a backdrop of strong wage and employment figures, it may seem odd the Federal Reserve (Fed) has embarked on a series of interest rate reductions in response to signs of economic softness as an “insurance policy” against a stronger slowdown or even recession. This more favorable interest rate environment is providing the housing sector a boost as new home sales and housing starts have reached cycle highs.

All information is based on Class I shares.

Gus C. Zinn, CFA, served as a portfolio manager on the Fund until Dec. 3, 2018.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest directly in an index.

Top 10 holdings as a percent as of 9/30/2019: Microsoft Corp. 6.2, Boeing Co. 3.5, TE Connectivity Ltd. 3.4, Walmart, Inc. 3.4, JPMorgan Chase & Co. 3.3, Apple, Inc. 3.2, Citigroup, Inc. 3.1, Comcast Corp. Class A 3.0, Amazon.com, Inc. 2.7, Nextera Energy, Inc. 2.5.

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. 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.