Shareholder Letter

July 22, 2019

Dear Shareholder,

During the second quarter of 2019, the Osterweis Emerging Opportunity Fund (the Fund) returned 9.78% while the Russell 2000 Growth Index (the Index) returned 2.75%. The Fund’s annualized total returns over the one-year, five-year and since inception (10/1/2012) periods ending June 30, 2019 were 10.67%, 14.21% and 16.37%, respectively, compared to -0.49%, 8.63% and 12.55% 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.

Domestic stock markets continued to perform well during the second quarter, as investors were encouraged by progress in the U.S./China trade negotiations, low unemployment and, perhaps most importantly, dovish positioning from the Federal Reserve (the Fed). Fixed income markets also had a strong second quarter as investors piled into Treasuries in anticipation of a Fed rate cut in July.

Security selection across three sectors drove the majority of the Fund’s performance during the second quarter, and the Fund also fared well overall with every sector in which we invested delivering positive returns on both a relative and absolute basis. The main reason the performance was so strong is that many of the holdings have been simultaneously delivering accelerating revenue growth and increasing profitability, an ideal combination for equity investors.

Information technology (IT) stocks have been doing particularly well, in large part because the software industry has moved towards a subscription model, which has created highly recurring revenues. Not surprisingly, IT was the top contributor this quarter, followed by health care and financials. Our technology stocks returned 16% versus 4% for the benchmark, and we were overweight the sector 28% versus 19%.

Looking forward, we do not expect the second half of the year to be quite as strong as the first half. Markets rarely go up in a straight line, and given the current level of valuations we anticipate some choppiness ahead. Therefore, we have been systematically trimming winners during the quarter, taking profits, locking in gains, and raising cash. The Fund now has approximately 20% cash, which will not only act as a buffer should market volatility increase, but also give us flexibility to add positions should promising companies become available at attractive entry points.

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 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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