Shareholder Letter

April 23, 2020

Dear Shareholder,

During the first quarter of 2020, the Osterweis Emerging Opportunity Fund (the Fund) generated a total return of -13.83% while the Russell 2000 Growth Index (the Index) returned -25.76%. The Fund’s annualized total returns over the one-year, five-year and since inception (10/1/2012) periods ending March 31, 2020 were -7.60%, 8.32% and 12.01%, respectively, compared to -18.58%, 1.70% and 7.83% for the Index over the same periods.

Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be higher or lower than the performance quoted. Performance data current to the most recent month end may be obtained by calling (866) 236-0050. An investment should not be made solely on returns. The Adviser has contractually agreed to waive certain fees through June 30, 2021. Performance prior to December 1, 2016 is that of another investment vehicle (the Predecessor Fund) before the commencement of the Fund’s operations. The Predecessor Fund was converted into the Fund on November 30, 2016. The Predecessor Fund’s performance shown includes the deduction of the Predecessor Fund’s actual operating expenses. In addition, the Predecessor Fund’s performance shown has been recalculated using the management fee that applies to the Fund, which has the effect of reducing the Predecessor Fund’s performance. The Predecessor Fund was not a registered mutual fund and so was not subject to the same operating expenses or investment and tax restrictions as the Fund. If it had been, the Predecessor Fund’s performance may have been lower. The Fund’s gross expense ratio was 1.25% and net expense ratio was 1.13% as of June 30, 2019. The net expense ratio is applicable to investors. The Adviser has contractually agreed to waive certain fees through June 30, 2021.

Covid-19 sent shockwaves through the stock market during the first quarter, with every major equity index finishing the period in negative territory. Our portfolio held up quite well under the circumstances – in fact, every sector in which we were invested beat the benchmark during the quarter – which reflects our favorable positioning coming into the selloff and our ability to take advantage of the market dislocation.

As we wrote in our last letter, we strongly believe that growth stocks will outperform value stocks for the foreseeable future, and our thesis proved correct during the correction. The stocks with the fastest revenue growth heading into February maintained their leadership positions through the March lows and the subsequent snap back rally. Information technology and health care were the best performing sectors across the entire market during the quarter, and they are also the two biggest sectors in our portfolio by weight. Collectively they make up about 60% of our portfolio, versus about 50% of the Russell 2000 Growth Index.

Technology is our largest sector and one of our core holdings. Although the coronavirus has devastated many areas of the economy, it has created an acceleration of the inevitable adoption of virtual services. Anecdotally, internet traffic has jumped anywhere from 10%-40%, eCommerce is up 25%, and online grocery shopping has increased 100%. Similarly, demand for cloud-based services has increased 95%, as the number of telecommuters has jumped nearly 400% since social distancing began.

Our technology holdings directly benefitted from the surge in demand. Two of our largest positions, Five9, a leading provider of cloud-based contact center software, and Inphi Corp., a technology infrastructure firm that specializes in moving large quantities of data, both had very strong quarters. We also added Crowdstrike, a cloud-based cybersecurity firm, which posted excellent returns during the period.

Stocks related to health care also performed well in the first quarter, as demand for services increased during the pandemic. eHealth, the online health insurance marketplace, had an exceptional first quarter, as did primary care provider Teladoc, which announced a 50% increase in virtual visits. Iovance Biotherapeutics, which develops a sophisticated cancer treatment that leverages the body’s immune system, also had a strong first quarter.

On the downside, some of our traditional brick and mortar companies struggled during the quarter, including Planet Fitness, which we trimmed due to concerns about declining usage in the near term, and Yeti Holdings, which we liquidated due to its inessential nature and premium prices. We also added to our position in Meta Financial, despite its poor performance, as we still like the business and felt it was selling at a very attractive valuation.

While it remains to be seen how quickly the economy recovers, our view is that a large percentage of the country will be back to work by mid-June. In the meantime, we will continue to look for secular growth trends caused by the virus, and we will invest in those ideas as they evolve. In addition, as the economy returns to form, we expect our core holdings will resume their rapid revenue growth. We have positioned ourselves for long run success by adhering to our disciplined approach to both sector allocation and security selection.

We thank you for your continued confidence in our management, and we welcome any questions or comments you may have.

Regards,

 
Jim Callinan
 

___________________________________

 [45006]

Investment Team

James L. Callinan

Chief Investment Officer – Emerging Growth

James L. Callinan

Chief Investment Officer – Emerging Growth

Jim Callinan graduated from Harvard College (B.A. Economics), New York University (M.S. Accounting) and Harvard Business School (M.B.A.). Mr. Callinan holds the Chartered Financial Analyst designation.

Prior to joining Osterweis Capital Management in 2016, Mr. Callinan managed the Emerging Growth Partnership, LP, a concentrated small cap growth strategy he founded at RS and transitioned to his own firm. Before that, he was Co-Founder & Chief Investment Officer at RS Investments. He also co-founded the RS Growth Group LLC at Robertson Stephens Investment Management in 1996 and managed the RS Emerging Growth Fund from 1996 until 2010.

He began his career at Putnam Investments as an equity research analyst in 1987 and served as portfolio manager for the Putnam OTC Emerging Growth Fund from 1994 to 1996.

Mr. Callinan is an Executive Committee member of the of Weatherbie Capital (an Alger Company) Advisory Board and the Friends of Harvard Football Board.

Mr. Callinan is a principal of the firm and a Portfolio Manager for the emerging growth strategy. He is also a Portfolio Manager for the flexible balanced strategy.

Matthew C. Unger

Vice President & Analyst

Matthew C. Unger

Vice President & Analyst

Matt Unger graduated from Trinity University (B.S. Finance, cum laude) and Southern Methodist University, Cox School of Business (M.B.A.). Mr. Unger holds the Chartered Financial Analyst designation.

Prior to joining Osterweis Capital Management in 2016, Mr. Unger worked at Callinan Asset Management as a Research Analyst covering the health care service, medical technology and industrial sectors. Prior to that, he spent three years at RS Investments as a Research Associate covering small cap growth companies in the medical technology and industrial sectors. Before graduate school, Matt worked at Platte River Capital covering the medical device sector from 2008-2010.

Mr. Unger is a principal of the firm and an Analyst for the emerging growth strategy.

Bryan Wong

Vice President & Analyst

Bryan Wong

Vice President & Analyst

Bryan Wong graduated from Yale University (B.A. in Political Science and International Studies with distinction) and the University of California Berkeley, Haas School of Business (M.B.A., Investment Management Fellow). Mr. Wong holds the Chartered Financial Analyst designation and is a member of the CFA Society of San Francisco.

Prior to joining Osterweis Capital Management in 2014, Mr. Wong was a member of the investment team managing the endowment of the David and Lucile Packard Foundation. Before that, Mr. Wong was an Analyst from 2005 to 2009 at two long/short hedge funds.

Mr. Wong is a principal of the firm and an Analyst for the emerging growth strategy.

This commentary contains the current opinions of the author as of the date above, which are subject to change at any time. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

The Russell 2000 Growth Index is a market capitalization weighted index representing those stocks within the approximately 2000 smallest companies in the universe of U.S. equities that exhibit growth characteristics. It is not possible to invest in an Index.

Holdings and allocations may change at any time due to ongoing portfolio management. References to specific investments should not be construed as a recommendation to buy or sell the securities. Current and future holdings are subject to risk.

The Osterweis Emerging Opportunity Fund’s top 10 holdings may be viewed by clicking here.

The Osterweis Funds are available by prospectus only. The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other important information about the Funds. You may obtain a summary or statutory prospectus by calling toll free at (866) 236-0050, or by visiting www.osterweis.com/statpro. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance.

Mutual fund investing involves risk. Principal loss is possible.

The Osterweis Emerging Opportunity Fund may invest in unseasoned companies, which involve additional risks such as abrupt or erratic price movements. The Fund may invest in small and mid-sized companies, which may involve greater volatility than large-sized companies. The Fund may invest in IPOs and unseasoned companies that are in the early stages of their development and may pose more risk compared to more established companies. The Fund may invest in ETFs, which involve risks that do not apply to conventional funds. Higher turnover rates may result in increased transaction costs, which could impact performance. From time to time, the Fund may have concentrated positions in one or more sectors subjecting the Fund to sector emphasis risk. The Fund may invest in foreign and emerging market securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks may increase for emerging markets.

While the fund is no-load, management fees and other expenses still apply. Please refer to the prospectus for more information.

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC.