Shareholder Letter

January 14, 2019

Dear Shareholders,

During the fourth quarter of 2018, the Osterweis Strategic Income Fund (the Fund) generated a total return of -3.19%, compared to 1.64% for the Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg). The Fund’s annualized total returns over the one year, five year and ten year periods ending December 31, 2018 were -0.66%, 3.22% and 6.86%, respectively, compared to 0.01%, 2.52% and 3.48% for the BC Agg over the same periods.

The performance data quoted above 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 lower or higher 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 the basis of returns. The Fund’s gross expense ratio was 0.88% as of March 31, 2018.

The fourth quarter was a difficult ending to an otherwise good year in the markets. Concerns that had been previously simmering on the back burner, such as the U.S.-China trade war, political dysfunction in Washington, and rising rates, suddenly became top of mind for investors, and the resulting selloff was dramatic. Most major indexes finished the year in negative territory, after being positive through the first three quarters. Please see the attached outlook for a more detailed discussion of the fourth quarter market dynamics as well as our views on where the economy may be heading.

The high yield market was caught in the downdraft, which adversely affected our portfolio as roughly 70% of our holdings are high yield bonds. Fortunately, our losses were primarily the result of unrealized, short-term price changes on positions that we expect to hold to maturity, and we still feel quite confident about the creditworthiness of the issuers in our portfolio. In addition, we used the correction as an opportunity to purchase bonds at a deep discount.

Given the uncertainty facing the markets, we have started adopting a more defensive posture. As such, we have been taking advantage of the flatter yield curve by increasing our holdings in commercial paper, short dated investment grade floating rate notes and some higher rated shorter-term bonds. We also reduced our positions in equity sensitive convertibles on strength earlier in the quarter.

Thank you for your continued support.

Carl Kaufman
Bradley Kane
Craig Manchuck

 

Enclosure

___________________________________

This commentary contains the current opinions of the authors 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 Osterweis Strategic Income Fund may invest in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Small- and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. 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 municipal securities which are subject to the risk of default.

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.

The Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) is an unmanaged index that is widely regarded as a standard for measuring U.S. investment grade bond market performance. This index includes reinvestment of dividends and/or interest income. The index does not incur expenses and is not available for investment.

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

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Investment Team

Account Access

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This commentary contains the current opinions of the authors 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 Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) is an unmanaged index which is widely regarded as the standard for measuring U.S. investment grade bond market performance. This index does not incur expenses and is not available for investment. The index includes reinvestment of dividends and/or interest income.

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 Strategic Income Fund may invest in debt securities that are un-rated or rated below investment grade. Lower-rated securities may present an increased possibility of default, price volatility or illiquidity compared to higher-rated securities. 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Small- and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. 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 municipal securities which are subject to the risk of default.

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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