Market Sector Update

• The Russell Midcap Index, the Fund’s benchmark, rose 19.9% in the quarter, continuing a strong ascent. All sectors produced positive absolute returns, but a decisive pro-cyclical undercurrent was present in the period. Energy rebounded from dismal performance throughout the majority of 2020. Communications services, financials, information technology and materials sectors all bested the benchmark’s strong return. Stability was an area of underperformance with utilities and consumer staples generating the worst relative returns. Health care, consumer discretionary, real estate and industrials all produced near benchmark returns. Long-term interest rates crept higher throughout the quarter increasing 0.20% to end the quarter near 0.9% on the 10-year US Treasury. Dividend payers slightly underperformed non-dividend payers. This continued a trend that was quite significant throughout 2020 and a decisive negative to our strategy.

Portfolio Strategy

• The Fund slightly underperformed its benchmark during the quarter. Dividend income added slightly to performance in the quarter. Stock selection explained the negative variance to performance as our allocation to high dividendpaying securities continued to detract from performance. Meanwhile, sector allocation contributed positively to performance as both an overweight position in financials and an underweight position in utilities benefitted performance. Communications services once again produced the worst relative performance in quarter. Early in the pandemic, we allowed ourselves flexibility in the most negatively impacted areas to retain ownership should we expect the company to return to prior levels of dividend payment by the end of 2021. Cinemark was one such company. The sector also saw a handful of very fast growing, large weight, non-dividend paying benchmark constituents produce significant performance in the quarter. Industrials was another area of weakness during the quarter driven entirely by stock selection. CH Robinson generated a negative return as its results have seen near-term margin compression due to spiking spot market truckload pricing, the largest component of the company’s cost structure. We believe this cyclical pressure will ease as the company is able to renegotiate contracts with its customer base at higher price levels. Our remaining industrials exposure generated sector level returns. Information technology was also an area of relative pressure for the Fund. Areas within the sector, particularly software appreciated significantly in the fourth quarter as well as for most of 2020. While we admire many of those business models, very few pay dividends. Our holdings within the information technology sector produced solid returns in the quarter but trailed the areas with faster growth. Financials produced the best relative performance in the Fund. We were significantly overweight this outperforming sector. Discover Financial, our best performing stock, was a new addition to the Fund last quarter. The company has experienced significantly lower-than-expected delinquencies and appears over-reserved for the likely economic outcome. This has provided for positive earnings revisions and the prospect for increased capital return on an undemanding valuation. While the Fund’s financial holdings produced positive returns in the period, we were surprised by the relative weakness in First American Financial. This title insurance company, like Discover, has seen significant positive estimate revisions, appears over-reserved, and has a low valuation. Investors appear worried about the refinancing comparisons the company will face in second quarter 2021; however, it should benefit from higher housing prices, continued growth in housing purchases, and a return in commercial real estate transactions. From an allocation perspective the Fund benefited from having no ownership in the underperforming utilities sector but was almost fully offset by our cash position in the increasing market.

Outlook

• We continue to watch several key variables to determine Fund positioning. These variables (domestic economic growth, change in interest rates, change in commodity prices and foreign economic growth) have remained consistent since Fund inception and continue to be monitored.
• As 2021 unfolds, we have strong confidence in robust domestic economic activity. Following a year spent in our respective cocoons and following the inoculation of much of the population, we believe communities will be ready to party, entertain and travel. While unemployment will likely remain above levels seen in 2019, those that have jobs have built up significant levels of savings, partially supported by government stimulus checks. Just as second quarter 2020 saw a historic decline in year-over-year gross domestic product (GDP) growth, we expect second quarter 2021 to experience a historic level of increased GDP growth. Given the length and uncertainty of the pandemic, we saw inventory levels decrease across the economy during the period. As sales have returned, many industries have struggled to rebuild acceptable inventory levels. We believe this should help to contribute to overall growth. While this would also normally translate into a more optimistic view of the equity markets, we are taking a more cautious tone. We believe, with the strength in overall equities in 2020 despite a difficult economic backdrop, much, if not all, of this strength has been discounted into the market. Multiples have been ever increasing particularly in the more forwardfacing information technology sector. Innovation is robust and business models are enviable; however, we believe much of the future has been discounted in these areas. There are also many companies, in technology as well as other sectors, that saw their sales significantly benefit from the pandemic. The lengths of this benefit are unknown at this point but many of these companies have significant forward expectations implied by their valuations. While some will be able to prove their worth as they deliver results despite more difficult comparisons, it may be more difficult for others and that could create an anchor for the overall market. As the vaccine is distributed globally, the pandemic moves to the rearview mirror and we return to some level of normalcy, there is some potential for upward pressure on long-term interest rates given the significant government spending put in place to combat the economic pressures. We believe many companies that saw a benefit to their business models in 2020 chose not to take advantage of the increased pricing power. As time passes, we would expect many companies to begin raising prices where demand has been strong. While slow to work its way into the economic numbers, we are experiencing significant inflation in the housing market. Our expectation would be for interest rates to move higher off the current low base, but are unlikely to return to pre-virus levels given the anchoring put in place by the Federal Reserve. We anticipate being able to provide investors with a very competitive yield relative to the fixed-income markets over the near to medium term. Commodity prices changes have been relatively tame. With expanding production in many end markets, we should see some inflationary pressures, but broadly remained well supplied. This includes areas like oil where there remains significant excess capacity. While not a specific commodity, we do expect significant inflation from increased logistics costs with curtailed global airline capacity and a tightening truck market. While pressures exist, it is unlikely to pose an issue to corporate profit margins. With COVID-19 and the vaccine rollout major issues globally, we expect many of the world’s economies to closely mirror that of the U.S. We are watchful for what a new administration in the White House brings to foreign relations, particularly with China. Early indications suggest limited economic changes, but rhetoric does appear more supportive toward fostering better relations and potentially better foreign growth.

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 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: Discover Financial Services 3.2, Wyndham Destinations, Inc. 3.2, National Instruments Corp. 3.1, Glacier Bancorp, Inc. 3.0, Broadridge Financial Solutions, Inc. 3.0, Packaging Corporation of America 3.0, Microchip Technology, Inc. 2.9, Stanley Black & Decker, Inc. 2.9, TE Connectivity Ltd. 2.9 and Arthur J. Gallagher & Co. 2.9.

The Russell Midcap Index measures the performance of the mid-cap 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. 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. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 35 to 50). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large 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.