Shareholder Letter

April 24, 2018

Dear Shareholder,

During the first quarter of 2018, the Osterweis Strategic Investment Fund (the Fund) generated a total return of -2.43%, underperforming the -0.97% return of the blended benchmark of 60% S&P 500 Index/40% Bloomberg Barclays U.S. Aggregate Bond Index (the Blended Benchmark). 

Returns as of March 31, 2018

  QTD YTD 1
Year
5
Year
Since Inception
(8/31/2010)
Osterweis Strategic Investment Fund -2.43% -2.43% 5.86% 6.39% 9.26%
60% S&P 500 Index/40% Bloomberg Barclays
U.S. Aggregate Bond Index
-0.97% -0.97% 8.81% 8.72% 10.27%
S&P 500 Index -0.76% -0.76% 13.99% 13.31% 15.35%
Bloomberg Barclays U.S. Aggregate Bond Index -1.46% -1.46% 1.20% 1.82% 2.59%

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 the original investment. 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 returns. The Fund’s gross expense ratio was 1.15% as of March 31, 2017.

Following the persistent growth and steady returns of 2017, volatility returned to the financial markets with a vengeance in the first quarter. Investor optimism swelled early on and stocks rallied 7%, but the market (as measured by the S&P 500 Index) then experienced its first 10% pullback since 2016. Despite the volatility, when all was said and done, the S&P 500 was down a fairly modest -0.8% for the quarter.

Our recent equity performance has trailed the overall market. As often happens in the later stages of a bull market, the stock market leadership becomes increasingly concentrated in fewer and fewer stocks. It will continue to be difficult to perform as well as the averages until these popular leaders ultimately reverse and subsequently lead the market down. Meanwhile we have been positioning portfolios somewhat conservatively in very high quality companies in an effort to avoid these big losses when we inevitably enter a bear market.

On the other hand, our fixed income investments were a buffer to the volatility experienced in the equity markets, as they substantially outperformed the Bloomberg Barclays U.S. Aggregate Bond Index.

We are now nine years into the bull market, and economic growth remains robust. Public spending plans and the U.S. tax overhauls could drive faster growth and earnings momentum. Risks include rising U.S. protectionism and a potential acceleration in inflation, which would motivate the Fed to increase interest rates more aggressively.

In the attached Investment Outlook , we discuss our near-to-mid term expectations for the markets and we also explore an important secular trend – technology’s expanding role across the economy and its contribution to a “winner-take-all” aspect of the business landscape.

At the end of the quarter the Fund held 60% in equities and 40% in fixed income and cash. As discussed in an earlier missive, we increasingly favor dominant companies with growing earnings, cash flows and dividends. We especially favor companies where growth in some or all of those metrics is accelerating. On the fixed income side, we continue to have a defensive interest rate posture and are looking for attractive investments in the high yield and convertible bond markets, especially during periods of market volatility. We thank you for your continued confidence in our management.

Sincerely,

John Osterweis
Carl Kaufman

 

Enclosure

___________________________________

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 Osterweis Strategic Investment Fund may invest in small- and mid-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies. 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 Fund may invest in Master Limited Partnerships, which involve risk related to energy prices, demand and changes in tax code. The 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. 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 also make investments in derivatives that may involve certain costs and risks such as those related to liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Leverage may cause an increase or decrease in the value of the portfolio securities to be magnified and the Fund to be more volatile than if leverage was not used. Investments in preferred securities typically have an inverse relationship with changes in the prevailing interest rate. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.

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 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.

These indices do not incur expenses and are not available for investment. These indices include reinvestment of dividends and/or interest income.

Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax 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 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. [32464]

Investment Team

Account Access

Email Update

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.

Duration measures the sensitivity of a bond’s price (or the aggregate market value of a portfolio of bonds) to changes in interest rates. Bonds with longer durations generally have more volatile prices than bonds of comparable quality with shorter durations. Effective Duration is a duration calculation for bonds with embedded options and takes into account that expected cash flows will fluctuate as interest rates change. Effective duration is calculated only on the Fund’s fixed income holdings and cash.

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.

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.

These indices do not incur expenses and are not available for investment. These indices include reinvestment of dividends and/or interest income.

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 Strategic Investment Fund may invest in small- and mid-capitalization companies, which tend to have limited liquidity and greater price volatility than large-capitalization companies. 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 Fund may invest in Master Limited Partnerships, which involve risk related to energy prices, demand and changes in tax code. The 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. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. 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 also make investments in derivatives that may involve certain costs and risks such as those related to liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Leverage may cause an increase or decrease in the value of the portfolio securities to be magnified and the Fund to be more volatile than if leverage was not used. Investments in preferred securities typically have an inverse relationship with changes in the prevailing interest rate. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.

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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