Small Cap Fund

(As of 6/30/21) — Equity markets moved higher for the fifth consecutive quarter, as the S&P 500 Index returned 8.55%, raising the year-to-date return to 15.25%. The COVID-19 vaccine rollout has helped fuel an economic comeback while corporate earnings are improving. The vaccine adoption around the world is encouraging, and over 50% of the U.S. population is now vaccinated. Capital markets continued to be supported by significant spending from Congress and aggressive monetary policy from the Federal Reserve (the Fed). The 2nd quarter was marked by outperformance of growth stocks, overcoming investor concerns of rising inflation and potential interest rate hikes in the prior quarter. Hawkish comments from the Fed replaced inflation worries with concerns about the magnitude and duration of the economic recovery. Long duration growth companies were beneficiaries as yields on the 10-Year and 30-Year Treasuries declined during the period after climbing for the previous four months.

The broad market Russell 3000 Index advanced 8.24% in the quarter. Growth stocks outperformed Value stocks, as the Russell 3000 Growth Index surged 11.38% compared to the Russell 3000 Value Index gain of 5.16%. Relative performance was correlated with market cap size in the quarter, as the large cap Russell 1000 Index returned 8.54%, the Russell Midcap Index advanced 7.50%, the small cap Russell 2000 Index returned 4.29%, and the Russell Microcap Index finished 4.14% higher.

All economic sectors produced positive returns during the period with the exception of Telecom Services. Real Estate, Information Technology, and Energy led the advance followed by Financials and Health Care. More defensive areas, such as Telecom Services, Utilities, and Consumer Staples, trailed on a relative basis.

(As of 6/30/21) — Looking forward into the 2nd half of 2021, we remain optimistic about small cap growth stocks but recognize the potential for volatility. As vaccination rates continue to improve, COVID restrictions have been lifted, and economic growth is beginning to accelerate, as pent-up demand is being realized. To complicate the improving economic picture, the country is experiencing a labor shortage, a highly infectious COVID delta variant, and supply chain issues, which could negatively-impact the growth narrative. Furthermore, higher input costs are increasing the threat of inflation, and there is an ongoing debate over its duration and economic impact leading to uncertainty over the timing of the removal of bond purchases and future interest rate increases. All of this has produced angst among investors, creating a rotation back into growth out of more cyclically-sensitive sectors. At this time, we are evaluating the impact of all of these factors on each company we hold in the portfolio.

Regarding the Fund positioning, we believe we have a good balance of growth and cyclical stocks with a tilt toward growth. We continue to manage the portfolio using valuation to both buy and sell stocks that we believe have the best risk/reward tradeoff. Furthermore, we will sell positions that have traded above a market cap that we believe no longer represents a small cap company. As always, we continue to invest in premier companies that could benefit from the long-term trends we have identified and establish positions only when the risk/reward is attractive. Thank you for your continued support as shareholders.