Market Sector Update

• The Russell Midcap Growth Index (Fund’s benchmark) was up 19.0% for the quarter, capping off a wild 2020 with a total index return for the year of 35.6%. Let’s not forget the first quarter of 2020 saw a -20.0% return for the index, so the recovery rally in the second, third and fourth quarters was certainly significant. All sectors, except consumer staples, posted positive gains in the fourth quarter, as the broad rally continued. For the year, energy was the only sector in the index with negative performance, signaling broader demand issues from the COVID-19 shutdown as well as the scaling up of electric vehicle substitutes into the mainstream. The quarter saw the third wave of COVID-19 hit globally, a hotly contested U.S. presidential election and two vaccine candidates come to market in record time. With such dramatic macro variables to digest, the market didn’t seem to experience any lasting mood changes. The path of least resistance continued to be up, so any positive news helped push the market higher, while negative news only served to pause the climb for short periods. The quarter continued the trend of lower levered, higher margin, faster growing, more expensive stocks in the index continuing to outperform. While there were a couple of notable performance head fakes from more cyclical names, no meaningful change in trend emerged.

Portfolio Strategy

• The Fund outperformed its benchmark for the quarter. All sectors where we had exposure were additive to performance relative to the benchmark for the quarter aside from health care and communication services. Stock selection was the most significant contributor to outperformance. This is the focus of the strategy – buying profitable companies with durable business models for the long term – so we are always pleased with strong, additive stock selection. Sector allocation weights detracted slightly to the outperformance. Information technology was again the largest allocation and the strongest relative contributor within the portfolio. As the sector outperformed within the broad index, our underweight position detracted to relative outperformance while our stock selection more than offset the underweight as the strongest returns to the portfolio. Off-benchmark position II-VI Inc. led all contributors as the company posted a solid earnings per share beat with a strong market leadership position in the growing optical components market. Sizable overweight position Teradyne posted a strong return after shrugging off the absence of Huawei demand. An overweight position in Twilio and sector holding Square, Inc. posted strong gains, outpacing the broader index as well as the overall sector. Health care, the Fund’s second largest sector allocation, was a significant detractor for the quarter. While our slight underweight position helped incrementally, stock selection was the main drag on performance. DexCom, Inc. came under pressure with pricing and competitor concerns. The company experienced a negative return in the quarter while the broader sector was positive. Of the 17 health care holdings within the Fund, all but four had positive returns. However, only four of the 17 Fund holdings outperformed the index. This resulted in an overall detraction from relative performance for the quarter. Industrials, our largest sector overweight position, detracted from performance, but was more than offset by stock selection. This resulted in an overall positive contribution for the quarter. CoStar Group, Inc. posted positive returns, though underperformed relative to both the industrials sector and broad index. Off benchmark holding Middleby Corp. more than made up for the relative underperformance of CoStar, posting a positive return. Middleby, a designer and manufacturer of foodservice equipment, benefitted from positive vaccine news, which provided restaurants using its products a glimmer of hope. Consumer discretionary was a positive to the portfolio, with strong stock selection outweighing the slight negative relative contribution of the overweight to the sector. Nordstrom, Inc. finally caught a significant rebound bid post the initial pandemic drawdown, returning triple digits on the quarter. Ulta Beauty, Inc. also had a positive return as news of a vaccine surged through some of the under loved, yet durable business models in the market. An overweight exposure to financials had a small negative contribution to relative performance. Stock selection, however, more than offset the negative allocation effect. The benchmark is comprised of 23 small allocations in this sector, yet our exposure comes from two off-benchmark holdings and one significant overweight position. Off-benchmark holdings SVB Financial Group and First Republic Bank had positive returns, with both announcing better-than-expected earnings in the middle of the quarter, in addition to the re-opening potential of the vaccine announcement. An overweight position in MarketAxess Holdings Inc. returned double digits for the quarter, outpacing the overall sector but underperforming the broader index. Communication services was again the largest relative detractor for the quarter, more based on what we didn’t own relative to the index than what we did. Materials, cash and equity options were also small detractors on the quarter. Our small underweight position to consumer staples was a positive contributor on the quarter and we continue to have no exposure to real estate, utilities or energy sectors, which netted no effect on overall relative performance.

Outlook

• Outlooks are point-in-time assessments, a look at the future today, and as has been made abundantly clear over the past year, they exist to be challenged, rethought and rewritten. Still, outlooks are a useful tool for organizing thoughts, communicating expectations, and forcing a framework for actions should any need be taken. The abiding principles of our outlook in all that we do all year, every year, and not just at the beginning of the year, are that “well-valued stocks of companies with growing streams of cash flow derived from innovation and strong management execution are key to wealth creation,” “markets go up more than they go down,” and, outside of stock picking, “the outlook that matters most is the one that figures out when the broad corporate profit cycle is determinedly inflecting into or out of a recession.” We witnessed a serious pandemic-wrought corporate profit recession in 2020, one that few would have predicted as it was swiftly and steeply discounted by gob-smacked investors. The recovery, also not well predicted, was almost as swiftly and steeply discounted to a market upside that has broken records, seemingly indicating economic growth and prosperity beyond previous expectations as world economies emerge and heal from the impact of the pandemic, but also carried along by government stimulus and interest rate maneuvering. At the same time, impressive innovation in life sciences, business and consumer technology, green energy, and many other areas has captured the imagination of professional and retail investors alike, driving the valuations of many companies to dizzying levels. So where does this leave us? We offer a series of predictions: 1) World economies will continue to recover and grow as vaccine distributions allow them to emerge from the pandemic lockdowns. 2) The strength of the recovery is overestimated as the underlying economic damage may be deeper than we appreciate. 3) This will be a year where the market takes a breather to digest the spectacular gains and sturdy valuations achieved over the last half of 2020. 4) Return compositions will be such that some stocks perform quite well as many companies regain earnings power in a broad economic recovery, while stocks of companies that over earned during the pandemic struggle to appreciate further or even give up some value. 5) Many technology and health care companies will experience a soft spot in demand in 2021 after a surprisingly robust 2020. Stock valuations could be at risk as a result. 6) Inflation and interest rate expectations will be too low as a result of persistent supply chain disruptions related to the lockdowns and to a strong generational demand for housing in an under-inventoried market. 7) The Federal Reserve will continue to be supportive, but could possibly lag in its response to demand, inflation and interest rate pressures. While stock picking is always key to our process and performance, it will be paramount in this environment as we seek to manage valuation risk in the portfolio, while investing in durable growers, both secularly and cyclically.

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, 2020, 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 12/31/2020: CoStar Group, Inc. 3.4, Chipotle Mexican Grill, Inc. 3.3, MarketAxess Holdings, Inc. 2.9, Twilio, Inc. 2.8, Electronic Arts, Inc. 2.7, Monolithic Power Systems, Inc. 2.7, Teradyne, Inc. 2.5, DocuSign, Inc. 2.5, DexCom, Inc. 2.3 and Fastenal Co. 2.2.

The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. 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. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established 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.