Shareholder Letter

April 18, 2018

Dear Shareholder,

During the first quarter of 2018, the Osterweis Emerging Opportunity Fund (the Fund) significantly outperformed the Russell 2000 Growth Index (the Index). The Fund returned 9.22% while the Index returned 2.30%. The Fund’s annualized total returns over the one year, five year and since inception (10/1/2012) periods ending March 31, 2018 were 31.21%, 16.44% and 16.18%, respectively, compared to 18.63%, 12.90% and 14.26% 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 November 30, 2018. 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 1.63% and net expense ratio was 1.28% as of March 31, 2017. The net expense ratio is applicable to investors.

During the quarter, our security selection in technology, health care and financial services drove most of the Fund’s performance. Our technology companies returned approximately 17% compared to 10% for the benchmark. In health care, our holdings returned 14%, versus 6% for the benchmark. Our financial services holdings also returned 14%, versus just 2.3% for the benchmark. On the downside, we held one energy positon in the first quarter that was a minor drag on performance, mostly because the entire sector had a tough quarter given concerns about oil price sustainability, but we think the company will rebound this year.

Despite the recent volatility, we believe the market fundamentals are favorable, and we expect the economic expansion will continue. Our core focus remains positioning the Fund into new and exciting emerging companies. We trim or sell positions where we believe the potential valuation has been recognized by the market or we lose faith in the company’s ability to reach a stretch goal.

We sold Square this quarter despite strong returns because its market cap had grown to over $20 billion, which we felt was a bit too big for the Fund. We also trimmed our positions in LendingTree, BofI Holdings, iRhythm Technologies and GTT Communications – all companies that still meet our requirements but whose potential has been fully recognized by the market. New and relatively undiscovered ideas were Collegium Pharmaceuticals, Enova International, Everbridge, Medifast, Pure Storage, Solaris Oilfield Infrastructure and Tabula Rasa Healthcare. As always, we are committed to keeping the portfolio fresh with new ideas and taking advantage of price dislocations created by sector moves in negative directions.

Regards,

 
Jim Callinan
 

___________________________________

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 including the health care sector, which may be affected by government regulation, restrictions, pricing and other market developments and the technology sector, which tends to be more volatile than the overall market. 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.

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

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.

As of 3/31/2018, the Fund’s top ten holdings as a percentage of total assets were:

Holding  % of Total Portfolio
Bio-Techne Corp. 4.5
Ligand Pharmaceuticals 4.0
Planet Fitness Inc. - Class A 3.6
Nutanix Inc. - Class A 3.5
GTT Communications 3.4
Zillow Group Inc. - Class A 3.3
Inogen Inc. 3.1
Rapid7 Inc. 3.1
Etsy Inc. 3.0
PetIQ Inc. 2.9

Holdings 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.

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. 

Osterweis Capital Management is the adviser to the Osterweis Funds, which are distributed by Quasar Distributors, LLC. [32267]

Investment Team

Account Access

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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.

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 including the health care sector, which may be affected by government regulation, restrictions, pricing and other market developments and the technology sector, which tends to be more volatile than the overall market. 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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