Market Sector Update

• The market had the “momentum” in the fourth quarter and small-cap stocks had a record quarter of absolute returns. The broader Russell 2000 Index was up over 31% for the quarter, with the value component of the index outperforming the growth component.
• During the quarter, small caps outperformed both mid and large caps as the market sentiment shifted to a risk-on, economic recovery mode. The successful trials of the two leading COVID-19 vaccines provided a catalyst for the economic-sensitive stocks that had been lagging in the previous nine months.
• Within the Russell 2000 Growth Index (the Fund’s benchmark), sector winners in the quarter were energy, information technology, industrials and health care. Information technology gains were led by the more cyclical hardware and semiconductor stocks, while biotechnology companies had another quarter of strong performance to boost the health care sector.

Portfolio Strategy

• While the Fund had strong performance in the quarter, slightly lagging the benchmark, its performance remained well ahead of the index for the 12-month period.
• The difficulty in the quarter was matching the strong gains coming out of the cyclical component of the index combined with some spectacular gains in a few “concept” areas like solar and green energy stocks. The Fund participated to some extent in the latter boom, with positions in Enphase Energy and Plug Power both rising more than 100% in the quarter. Significant gains came from several holdings’ (CareDx, Inc., Vericel Corp. and Veracyte, Inc.) participation in the biotech frenzy during the quarter.
• In the more cyclical growth areas of the Fund, Brink’s Company and Shift4Payments were winners along with Visteon and Seacoast Banking of Florida. At the sector level, the Fund squeezed out gains in industrials and financial services but fell short a bit in information technology, health care and consumer discretionary. The powerful bounce off the bottom in the economic-sensitive areas of the latter three sectors was the primary cause of the modest shortfall in performance.
• The Fund has made a few incremental changes to increase exposure in these areas with new positions in financial services and industrials while harvesting some long-term contributors, like Hubspot, that have moved out of our strategy’s market-cap range.

Outlook

• As unpredictable as 2020 was, the lesson learned was to maintain the Fund’s core stock selection discipline, which has proven over the years to be a successful strategy. We believe the market ultimately rewards the small-cap growth companies that deliver sales and earnings growth and returns on capital that merit the high valuations often achieved.
• The pandemic in some cases validated and accelerated the adoption of the innovative growth models that the Fund is always pursuing. The outlook for 2021 seems brighter with the rollout of the vaccine but there will undoubtedly be the unexpected turn of events that lead to market volatility. Innovation is in full stride; however, which we think is an ideal environment to invest in small-cap growth companies.

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.

All information is based on Class I shares.

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.

Top 10 holdings as a % of net assets as of 12/31/2020: Biotech Swap 7/1/21 4.1, Five9, Inc. 3.5, CareDx, Inc. 3.0, Varonis Systems, Inc. 2.7, PetIQ, Inc. 2.3, Monolithic Power Systems, Inc. 2.2, Brink’s Company 2.1, Mercury Systems, Inc. 2.1, Globant SA 2.1 and Vericel Corp. 2.1.

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 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.