Shareholder Letter

October 18, 2019

Dear Shareholder,

During the third quarter of 2019, the Osterweis Emerging Opportunity Fund (the Fund) returned -7.78% while the Russell 2000 Growth Index (the Index) returned -4.17%. The Fund’s annualized total returns over the one-year, five-year and since inception (10/1/2012) periods ending September 30, 2019 were -8.61%, 12.84% and 14.40%, respectively, compared to -9.63%, 9.08% and 11.39% 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.

During the third quarter, large cap stocks, as measured by the S&P 500 Index (S&P 500), posted a modest 1.70% gain. But small cap stocks, as measured by the Russell 2000, finished in negative territory, returning -2.40%. It was a particularly volatile stretch for small cap growth stocks, as concerns about the economy caused investors to rotate out of growth and into value. During the third quarter the Russell 2000 Growth Index fell 4.17% while the Russell 2000 Value Index only lost 0.57%.

Although a number of our best performing stocks were affected by the selloff, we remain invested as we believe the change in sentiment was rooted in fear rather than genuinely deteriorating fundamentals. In fact, we used the opportunity to purchase several new securities, as we found valuations quite compelling.

Several positions in the Fund did well during the quarter, but only one sector delivered both positive absolute and relative returns – industrials. However, the Fund’s lack of exposure to energy and materials also boosted its relative performance, as both of those sectors delivered negative returns for the benchmark. During the quarter the worst performing sector relative to the index was information technology, followed by financials and health care. All three posted negative relative and absolute returns.

Looking forward, we feel now is an excellent time to add to small cap growth exposure as we are currently in the midst of what we believe is a period of price consolidation within the Russell 2000 Growth Index. This is the third such consolidation since the crash of 2008, each of which has lasted an average of 16-20 months. All three started with a 25-30% selloff, and following the return to pre-correction prices, the first resulted in a gain of 62% and the second resulted in a gain of 38%. Given that we have not yet reached pre-correction prices since the last major drawdown (in fall of 2018), we believe this should be a good opportunity to generate favorable returns.

We thank you for your continued support.

Regards,

 
Jim Callinan
 

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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.

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.

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.

The Russell 2000 Value 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 value characteristics.

The S&P 500 Index is an unmanaged index that is widely regarded as the standard for measuring large-cap U.S. stock market performance. One cannot invest directly in an index.

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 osterweis.com. Please read the prospectus carefully before investing to ensure the Fund is appropriate for your goals and risk tolerance. 

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [40521]

Investment Team

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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 S&P 500 Index is an unmanaged index that is widely regarded as the standard for measuring large-cap U.S. stock market performance. The index does not incur expenses, is not available for investment, and includes the reinvestment of dividends.

Fund holdings are subject to change and should not be considered a recommendation to buy or sell any security.

Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain and expand the company’s asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.

Price-to-Sales Ratio (P/S) is the ratio of the stock price to the sales per share for a 12 month period.

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.

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