Market Sector Update

• The macro headwinds for small cap growth holdings that affected the third quarter persisted in the fourth quarter, although some relief was seen toward the end of the year. The value rotation lost steam as the quarter progressed, but the surge in the biotechnology stocks stretched through year-end.
• As the largest component of the Russell 2000 Growth Index, the Fund’s benchmark, the biotechnology segment of the health care sector alone contributed a third of the index performance for the period. Health care was best performing sector followed by consumer discretionary and materials, which reflected the cyclical bias to the latter half of 2019.
• The smallest market cap companies in the benchmark outperformed during the quarter. The first phase of a trade agreement with China was a key catalyst to these performance dynamics in the quarter.

Portfolio Strategy

• The Fund delivered a positive return, but underperformed the benchmark for the quarter.
• The underperformance for the period is attributed to the Fund’s underweight position to the biotechnology segment. We consistently underweight the biotechnology segment because it does not generally fit our investment process. This is due to the binary risk profile of these companies, usually centered on clinical data or drug approval for typically a single product, as well as the lack of profitability and operational history exhibited in many companies.
• We seek similar growth in other health care industries, such as medical equipment and health care technology. While these segments produced positive returns for the quarter, their performance was nowhere close to biotechnology, which created a weighting issue. We continue to maintain exposure to the shift to more cost-effective settings and procedures, such as ambulatory, in-office and home-based treatments. We continually gravitate toward novel products and services that facilitate the trend away from costly hospitals.
• Information technology remains the largest sector weight in the Fund’s portfolio, which outperformed the benchmark for the period. Performance in three key industries — software, semiconductors and electronic equipment and instruments — accounted for the gains.
• Important contributors included Varonis Systems, Inc., Five9, Inc., Paycom Software, Inc. and Mimecast Ltd. The Fund remains overweight software within the information technology sector.
• Other sectors that contributed positive results for the quarter included financials, communication services, and consumer discretionary. The financial stocks participated in the cyclical rally theme with banks and diversified financials performing well. Seacoast Banking Corporation of Florida, LPL Financial Holdings, Inc. and eHealth, Inc. all contributed in the quarter.
• The consumer discretionary sector was led by a significant rally in Carvana Company, as well as strong gains from Installed Building Products, Inc., SeaWorld Entertainment, Inc. and Malibu Boats, Inc. In addition, Nexstar Media Group, Inc. was the primary winner in the communication services sector.

Outlook

• The case for small-cap holdings is interesting in 2020. Earnings growth should be better than last year, and while absolute valuations are not historically cheap, the high earnings growth companies should be able to perform in line with their growth rate if interest rate levels remain low.
• Small-cap growth stocks have woefully underperformed their large-cap counterparts, but that is due primarily to the amazing success of the mega-cap Big Tech companies. However, our focus in the small-cap universe remains with the emerging franchise leaders in technology, health care, and the consumer and industrial spaces. Favorable macro trends and an uninterrupted innovation environment bode well for 2020.

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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, 2019, 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 equity holdings as a percent of net assets as of 12/31/2019: Teladoc Health, Inc. 3.4, Nexstar Broadcasting Group, Inc. 2.5, Five9, Inc. 2.2. Mercury Computer Systems, Inc. 2.2, Insulet Corp. 2.0, Proofpoint, Inc. 2.0, Clean Harbors, Inc. 1.9, InterXion Holding N.V. 1.9, Monolithic Power Systems 1.9, Woodward, Inc..1.8.

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.