Market Sector Update

• The Russell Midcap Index (the Fund’s benchmark) rose 8.1% in the quarter, continuing a strong ascent. All sectors produced positive absolute returns, but a decisive pro-cyclical undercurrent was present in the quarter. Energy rebounded from dismal performance throughout the majority of 2020. The communications services, financials, consumer discretionary, materials and industrials sectors all bested the benchmark’s strong return. Stability was an area of underperformance for the utilities and consumer staples sectors. Information technology and health care also underperformed as these sectors saw the greatest benefit from the pandemic. Throughout the quarter, long-term interest rates moved decisively higher (almost doubling), increasing 0.80% to end the quarter near 1.7% on the 10-year US Treasury. Dividend payers nicely outperformed during the quarter, reversing a multi-quarter headwind.

Portfolio Strategy

• The Fund returned double-digit performance, outperforming its benchmark for the quarter. Dividend income added slightly to performance in the period. The quarter benefited from both positive sector allocation and security selection, with allocation contributing the lion’s share. While our overweight position in financials lead to the greatest allocation contribution, we benefited across almost every sector allocation position. Our security selection outperformance, highlighted by consumer discretionary, industrials and information technology, was slightly offset by materials and financials. The overall market environment was favorable to our investment strategy that adheres to a level of valuation discipline by focusing on dividend-yielding companies.
• Consumer discretionary was our largest overall contributor in the quarter. We were significantly overweight this outperforming sector and benefited from strong stock selection. Polaris has seen demand for its products remain exceptionally strong. This has driven the need for a significant increase in production for the company. Travel + Leisure also experienced nice appreciation as investors grew more optimistic about travel. It appears there is a lot of pent-up demand for leisure travel and the consumer is flush with significant savings accounts. This environment also benefited Cracker Barrel, a long-term Fund holding. Information technology and health care were areas of relative strength for the Fund. Performance in these sectors was more about significant underweight positions driven by lack of dividend payers in these areas. In addition, our ownership is skewed toward more reasonably priced securities versus those with significant revenue or earnings multiples. The other positive standout in the quarter was industrials. Snap-on, a manufacturer of tools for transportation industries, saw significant growth in its tools division, an area of historic concern for investors. nVent Electric, a supplier of electronic equipment, also contributed to performance as the company saw its valuation discount relative to its peers begin to close. The energy sector was an opportunity cost during the quarter. Our sole holding was unable to keep up with the strong returns seen across the sector as oil prices appreciated.

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 the Fund’s inception and continue to be monitored.
• We have strong confidence in robust economic activity as 2021 unfolds. 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 increase in GDP growth. Given the length and uncertainty of the pandemic, we saw inventory levels decrease across the U.S. economy and as sales have returned, many industries have struggled to rebuild to acceptable safety stock levels. This should also nicely contribute to overall growth. Said differently, we are expecting a very strong domestic economy. While this would normally translate into a more optimistic view of the equity markets, we are more cautious. 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 forward-facing 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 there will be some that are 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 rear-view mirror and we return to some level of normalcy, there is some potential for upward pressure on long-term 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. As time passes, our expectation would be for 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 fixedincome markets over the near to medium term. With expanding production in many end markets, we should see some inflationary pressures, but broadly believe we 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 given inherent pricing power. With major global issues similar to those in the U.S., we expect many of the world’s economies to closely mirror that of ours. 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 should be expected, 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 March 31, 2021, 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 03/31/2021: Snap-On Inc. 3.0, Broadridge Financial Solutions, Inc. 3.0, Tractor Supply Co. 2.9, Stanley Black & Decker, Inc. 2.9, Garmin Ltd. 2.9, Clorox Co. 2.9, Watsco, Inc. 2.9, Cracker Barrel Old Country Store, Inc. 2.9, American Campus Communities, Inc. 2.9 and Packaging Corporation of America, 2.8.

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.