Market Sector Update

• For the second quarter of 2019, the S&P 500 Index, the Fund’s benchmark, returned a respectable 4.3%. The second quarter’s strongest market sectors were financials, materials, and information technology, while energy, real estate and utilities performed the worst. Year-to-date performance favors information technology, consumer discretionary and industrials. However, the defensive sectors have held their own despite the market gains over the past six months.
• The strong equity market move on a year-to-date basis must be taken in context with an unusually low starting point following fourth quarter 2018. As of June 30, the S&P 500 Index is essentially in line with levels at the end of last September, making it a highly volatile nine months for equities.
• One of the catalysts to the market rally earlier this year was rising optimism that the U.S. and China would make solid progress toward a trade deal. That optimism faded in May when President Donald Trump announced the U.S. would increase the tariff rate on $200 billion in Chinese imports from 10% to 25%. Discussions between Trump and China President Xi Jinping at the G20 Summit in June were more hopeful, with the U.S. essentially announcing a trade cease-fire and lessening restrictions on Huawei Technologies Co. Ltd,, China’s crown jewel technology company.

Portfolio Strategy

• The Fund delivered a positive return and slightly outperformed its benchmark for the quarter.
• Individual stock selection, primarily within the information technology and financials sectors, drove performance while stock selection within the consumer discretionary sector and a modest allocation to cash slightly detracted from relative performance.
• With regard to individual holdings, top contributors to relative performance included Blackstone Group, Inc., TE Connectivity, Qualcomm, Inc., Lockheed Martin Corporation and Take-Two Interactive Software, Inc. Holdings that were detractors to relative performance included Marathon Petroleum Corp., Philip Morris International, GoDaddy, Inc,. Facebook, Inc. and Boeing Company.
• During the period, we reduced or eliminated positions in several names that benefitted from strong secular growth, but that also increased to questionable valuation levels. Names eliminated entirely include Procter & Gamble Company, Paypal Holdings, Inc., Intuit, Inc., Home Depot, Inc. and Eli Lilly and Company.
• It should be noted that over the past few quarters we have materially decreased the portfolio’s weighting of highgrowth holdings as their valuation levels have increased relative to the broad market.

Outlook

• The continual back-and-forth between China and the U.S. has served to increase the level of macro uncertainty. Business leaders have responded by becoming more guarded in their outlook and capital expenditure plans, leading to reduced industrial activity. This reduction may not hurt the overall U.S. economy which is driven primarily by consumer-led activity, but industrial ups and downs are consequential to S&P 500 Index earnings growth.
• During the U.S. Federal Reserve’s (Fed) June meeting it became increasingly obvious the Fed has shifted to a more dovish tilt. Futures markets have priced in a cut to the federal funds rate at the July meeting. In addition, probabilities built into market pricing suggest that investors believe the Fed will cut a total of 75 basis points from the current target rate of 2.5%.
• Policy makers elsewhere have also become more dovish, with central banks in Europe stuck on a ”lower for longer” interest rate policy and China introducing both monetary and fiscal easing. Given such widespread global easing, it would not be surprising for growth rates to improve in many parts of the world by year-end.
• Any movement higher in global economic momentum, we believe, could serve as a catalyst for many areas of the market that have been left behind in 2019’s stock market rally. We are increasingly searching for more “value” oriented ideas within that market while keeping core positions in many long-term winners that benefit from secular/sustainable business drivers.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 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.

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 of 6/30/2019: Microsoft Corp. 6.0, TE Connectivity, Ltd. 3.5, The Boeing Co. 3.4, Citigroup, Inc. 3.1, JPMorgan Chase & Co. 3.0, Wal-Mart Stores, Inc. 3.0, Amazon.com, Inc. 2.9, AutoZone, Inc. 2.6, The Blackstone Group 2.6, MasterCard, 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.