Market Sector Update

• Small-cap stocks were the best market performers in the quarter, and small-cap value stocks were the stars. After a four-year drubbing by small-cap growth over small-cap value, first quarter 2021 turned the corner and small value trounced growth for the three-month period, rising 21.2% versus a 4.9% gain for growth, as measured by the Russell 2000 Value Index and Russell 2000 Growth Index, respectively.
• This was just the beginning of the challenge for growth, as the quarter also saw the lowest return on equity companies significantly outperforming the highest, the smallest market caps outperforming the largest, and the information technology sector performing the worst out of all of the major growth sectors.
• The value/cyclical rotation was the most severe through early March, then settled back down through the end of the quarter. The combination of fiscal stimulus, easy money and a reopening of the U.S. economy all contributed to strong cyclical growth expectations and a rising 10-year Treasury Yield that pressured the valuations of high-growth stocks.

Portfolio Strategy

• In spite of all of the headwinds mentioned, the Fund slightly underperformed but stayed in line with its Russell 2000 Growth Index benchmark for the quarter.
• Outperforming sectors, led by health care, included consumer discretionary, financials and communication services. The principal performance drag in the quarter was the aforementioned information technology sector and the industrials sector.
• We have taken small steps over the past six months to lower exposure to the highest valued stocks in the information technology and health care sectors as well as modestly increased portfolio exposure to the consumer discretionary, financials and industrials sectors. These moves helped us to gain exposure to more economically sensitive companies as well as limit the negative impact of valuation adjustments to the most aggressive growth companies. Contributors in the quarter included Marriott Vacations Worldwide Corp., Plug Power, Inc., Lithia Motors, Inc. and Coherent, Inc.

Outlook

• The outlook for the near term will be dependent on the significant macro factors influencing the pace of economic growth and the financial markets. On the favorable side, the most recent stimulus package, the reopening of the economies in many states, the increasing percentage of people vaccinated, and the continued monetary easing of the Federal Reserve should provide significant boost to economic activity. The financial markets’ reaction to all of this growth has been a continued rotation to cyclical/value, but also a sharp rise in interest rates and growing inflation fears, which is creating a headwind for the stock market.
• Small-cap stocks had been leading the charge upward over the past year but have recently stalled with the market. The case for small-cap growth is improving as valuations of the cyclical companies have risen sharply and are no longer as compelling from a historical perspective. The growth opportunities in information technology and health care remain as dynamic as ever, and newer markets in alternative energy, environmental, financial technology and consumer internet provide a host of opportunities for the Fund.

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.

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 03/31/2021: Vericel Corp. 3.3, Five9, Inc. 3.1, Brink’s Company 2.7, CareDx, Inc. 2.5, PetIQ, Inc. 2.3, Varonis Systems, Inc. 2.3, Nextstar Broadcasting Group 2.1, Marriott
Vacations Worldwide 2.0, Shift 4 Payments, Inc. 2.0 and Globant SA 2.0.

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.