Market Sector Update

• A volatile environment of trade tensions, political uncertainty in Europe and immigration fallout was overpowered by strong company earnings as well as the continued improvement in economic conditions, especially in the U.S. relative to most rest of the world. As a result, the Russell 2000 Growth Index (Fund’s benchmark) produced a strong 7.2% return for the second quarter.
• Consumer and business confidence remained at high levels despite the daily government in-fighting and rhetoric. Domestic economic data remained robust including personal consumption, unemployment and corporate capital spending.
• The Federal Reserve (Fed) conducted its seventh rate hike since 2015 and indicated possibly two more coming this year, signaling growing comfort with the strength of the economy.

Portfolio Strategy

• For the quarter, the Fund slightly outperformed its benchmark, based on Class I shares. The small-cap growth segment was one of the strongest investment classes in the market.
• The Fund benefited most through gains in healthcare and technology. Our materials underweight in biotechnology, which had a negative quarterly return, was a significant benefit along with strong stock selection in medical devices and health providers. Technology gained from strong stocks in services and software.
• Results were moderated by weakness in industrials. Fears of trade wars along with tightened raw materials generated fears of inflation and slower demand, compressing valuation multiples across the group. Although the Fund was underweight the sector, weak stock selection in the sector hurt relative performance.
• During the quarter, strong gains from information technology were reinvested in consumer discretionary and health care.
• The Fund remains overweight technology and consumer discretionary due to attractive business models within the sectors and a continued improvement in consumer and corporate spending. Healthcare is an underweight position primarily due to the limited exposure to biotechnology and pharmaceutical industries.

Outlook

• The Fund remains positioned to potentially benefit from broadening economic strength connected to improvements in earnings growth. While our enthusiasm for significant fiscal reform remains tempered, we are encouraged by positive consumer sentiment, manageable inflation and improvement in corporate outlooks.
• We are closely monitoring the Fed’s rate hike cycles and remain positioned for modestly rising interest rates should they occur and a pro-cyclical backdrop.
• Consistent with our process, we are focused on owning companies with improving growth and earnings prospects managed by proven leadership – characteristics we believe will contribute to portfolio performance over time.

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, 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.

The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap stocks may carry more risk than investing in stocks of larger more well-established companies. The Fund may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Fund’s performance that may not be replicated in the future. 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.