Market Sector Update

• As a whole, 2018 has been a boon for small-capitalization companies given the asset class has been one of the biggest beneficiaries of corporate tax reform and stronger domestic growth relative to the rest of the world.
• Building on a strong second quarter, the Russell 2000 Index, the Fund’s benchmark, continued to deliver solid performance, returning 3.58% for the third quarter. After a sluggish start to the year, the Russell 2000 has returned 11.49% year to date.
• As has been the case for most of the year, growth-oriented sectors such as health care, information technology, and consumer discretionary were among the biggest contributors to return during the quarter. These three sectors were responsible for roughly 75% of the index’s total return while most other sectors underperformed the total index return.
• Looking ahead to the near term, we believe a more tempered expectation for total market return might be appropriate. Economic growth and ultimately, earnings growth, stand to decelerate as we lap the benefits of tax stimulus. Taken in combination of with geopolitical concerns, the U.S. Federal Reserve continuing to raise interest rates, and the fact that we are late in this economic cycle, it is unlikely to be multiple enhancing.

Portfolio Strategy

• The Fund outperformed its benchmark for the quarter, based on Class I shares, continuing to build on our year-todate lead.
• Stock selection was the key factor of the Fund’s outperformance, yet sector allocation was also a slight contributor. Uncharacteristically, performance was not driven at the top of the portfolio, which is often the case due to our higher concentration in our top 20 holdings. Across our top 20 average weights we batted 50%, with a majority of the winners in the second half, which caused the top of the portfolio to be roughly a 75 basis point (bps) headwind.
• Across the 11 sectors in our benchmark, we had positive performance attribution in seven with technology, consumer staples and industrials performing the best, and negative attribution in four as consumer discretionary performed the worst, followed by communication services and energy.
• In terms of individual stock performance during the quarter, nine holdings contributed to performance attribution greater than 25 bps, and four greater than 50 bps. From a negative performance perspective, six holdings detracted greater than 25 bps, with four holding detracting greater than 50 bps.
• Keeping in line with our more tempered view of the overall market, we took a slightly more defensive posturing with our positioning during the period and increased the quality of the portfolio. This includes transitioning out of some more volatile names into more stable, consistent holdings. In addition we trimmed some names that have had substantial gains in short periods while increasing weightings in some more defensive sectors like utilities and consumer staples.

Outlook

• If we are correct in our assumption that we are in the later innings of this current business cycle, this should be tremendous news for active managers as a whole. Often during these later periods, dispersion and volatility rise, which could allow stock pickers a greater opportunity to add value.
• Regardless of how the market performs in the remainder of 2018, we remain committed to the Fund’s process of identifying quality underappreciated companies, and believe the construction of the portfolio is well balanced so as to perform well versus our peers and benchmark, regardless of the environment over time.

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 Sept. 30, 2018, 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.

Scott Sullivan served as a portfolio manager on the Fund until May 8, 2018.

he Russell 2000 Index is an index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. It is not possible to invest directly in an index.

Top 10 holdings as of 09/30/2018: Webster Financial Corp. 4.2, Vonage Holdings Corp. 4.1, Cabot Corp. 3.8, Gran Canyon Education, Inc. 3.2, Green Dot Corp-Class A 3.2, Insulet Corp. 3.0, Red Rocks Resorts-Class A 2.8, Evolent Health, Inc.-A 2.7, Rexnord Corp. 2.4

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap growth and value stocks may carry more risk than investing in stocks of larger, more well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. Value stocks are stocks of companies that may have experienced adverse developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Fund’s manager, undervalued. Such security may never reach what the manager believes to be its full value, or such security’s value may decrease. The Fund typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger 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.