Market Sector Update

• Market volatility rose in the quarter as stock price sentiment was impacted by rising interest rates, concerns over a trade war with China and regulatory fears lingering over the FAANG stocks (Facebook, Apple, Amazon, Netflix and Alphabet’s Google).
• This volatility actually affected large-cap stocks more than small-cap stocks. Small caps outperformed for the quarter and small-cap growth outperformed small-cap value as measured by leading stock market indices.

Portfolio Strategy

• For the quarter, the Fund outperformed the Russell 2000 Growth Index (its benchmark) and its peer group, before the effects of sales charges.
• Leading sector outperformers were technology, health care and consumer discretionary. The Fund’s overweight position in a variety of software-as-a-service (SAAS) companies led the technology sector charge, with Paycom, Zendesk, Hubspot and Proofpoint all generating strong gains for the period. The secular migration of enterprise and small- and mid-sized companies to Cloud-based operating systems continues to provide exceptional growth opportunities for these rising software stars.
• In the health care sector, the Fund experienced nice gains among service providers, medical device companies and medical technology providers. Top performers included AMN Healthcare and HealthEquity. Biotechnology performance moderated from the torrid pace of 2017.
• The consumer discretionary sector was led by Wingstop, Texas Roadhouse and Pool Corp. The consumer spending environment for 2018 looks promising and the Fund moderately shifted exposure to this sector, navigating away from companies that might be feeling the effects of Amazon competition.
• The industrials sector should also benefit from an improving economic environment as long as the trade battle doesn’t escalate. Fund underperformance in this sector during the quarter was mainly due to corrections in Mercury Systems and Beacon Roofing.
• Energy stocks continued to stubbornly underperform in spite of the strength of the commodity. Energy remains a small weight in the portfolio.
• The Fund remains disciplined with its growth stock selection process and is currently favoring companies in the software and services industry, retail and hotel/restaurant industry, and a diversified group of companies in the industrials growth sector. These remain the largest weights in the portfolio, closely followed by health care (including the biotech swap).

Outlook

• While the economic data and outlook remain positive, the market showed some jitters in the quarter over issues such as the trade war, rising interest rates and political turmoil.
• The Fund’s recent performance reflects the quality and fundamental attractiveness of the companies in the portfolio as well as the balance in the Fund – both sector and industry balance are part of the risk management process of the portfolio.
• Small-cap stocks are also proving to be less vulnerable to the swings in electronic funds transfer flows that are impacting the market. The economic tailwinds appear to be a boost for small company growth and we remain focused on seeking to identify the companies best positioned to deliver sustainable performance.

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, 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. 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.