Market Sector Update

• The markets overall and small cap in particular continued to rally in the second quarter, moving up nicely out of the gate in April only to be torpedoed in early May when the Trump administration raised the tariff rate to 25% on $200 billion of imports from China. The market had been hoping for a trade deal, so the rally stalled and markets fell sharply in May, compounded by another tariff threat against Mexico.
• However, sentiment changed again in June, spurred by a resolution of the U.S.-Mexico standoff and a Federal Reserve (Fed) swing to a more dovish posture. The markets ended the quarter up, with large and mid-caps leading the way and small caps lagging.
• Growth equities continued outperform value for the quarter. The Russell 2000 Growth Index, the Fund’s benchmark, advanced modestly with sector leadership from an odd combination of information technology, utilities, financials and industrials.

Portfolio Strategy

• The Fund posted a positive return for the quarter and outperformed its benchmark before the effect of sales charges.
• The four top-weighted sectors – information technology, health care, consumer discretionary and industrials – all were the key contributors to total positive performance. Conversely, energy and communication services were a drag on performance.
• In terms of individual stock performance during the quarter, information technology winners were led by IT service companies Globant, InterXion Holding and Booz Allen Hamilton Holding Corp. as well as with another strong quarter by HR software provider Paycom Software, Inc. Health care contributors were driven by large gains from Teledoc Health, Inc., Insulet Corp., iRhythm Technologies, Inc. and CareDx, Inc. The consumer discretionary sector contributors were Wingstop, Inc., SeaWorld Entertainment, Inc., IBP Corp. and Pool Corp. Finally, the Industrial sector had a late quarter rally driven by John Bean Technologies Corp., RBC Bearings, Inc. and Woodward, In.
• Our position in the financials sector was a key detractor, due in part to poor performance of the Fund’s bank holdings, which we attribute to the continued flattening of the yield curve. In addition, a sizable correction at Green Dot Corporation was mitigated by our small weighting in the Fund. However, we ultimately eliminated our position of this holding during the period.
• Other holdings eliminated during the quarter due to poor performance include At Home Group, Inc., Texas Roadhouse, Inc. and Urban Outfitters, Inc. The portfolio team continues to review holdings and cull those whose market cap has migrated to the mid-cap category and where we have found smaller and suitable alternatives.

Outlook

• In the midst of all of the sentiment swings driven by trade, tariff and Fed policy, the economic data continues to be healthy and growth stocks continue to outperform. Small cap growth has lagged mid-cap and large cap growth for the past year which leaves valuations at relatively attractive levels.
• In addition, it now appears that the low interest environment that has been supportive of growth stocks will remain in place for the foreseeable future. Hence, the Fund strategy is not deviating from the process that has worked over the past few years.
• The premium for high quality fast growing small cap companies, mostly in the technology and health care sectors, could be sustained in the forthcoming quarters. A cyclical rally will likely depend on Fed policy changes and the timing of those moves. The sectors that could benefit from a reduction in Fed policy rates would be the consumer discretionary, financials and industrials. The Fund is adequately positioned in these sectors, with an emphasis on industrials and consumer discretionary holdings.

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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 June 30, 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.

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.