Driehaus International Small Cap Growth Fund

Transcription

1 DRIEHAUS CAPITAL MANAGEMENT Growth Fund FOURTH QUARTER 2018 KEY FEATURES Developed and emerging markets small cap exposure mark aware, not benchmark constrained Opportunistic investment approach High active share INCEPTION DATE September 17, 2007 The fund s predecessor limited partnership has an inception date of August 1, FUND ASSETS UNDER MANAGEMENT $217.4 million FIRM ASSETS UNDER MANAGEMENT $6.5 billion INVESTMENT UNIVERSE Developed and emerging markets small cap equity INVESTMENT STYLE Growth equity PORTFOLIO MANAGERS Daniel Burr, CFA Portfolio Manager 18 years of industry experience David Mouser Portfolio Manager 21 years of industry experience Ryan Carpenter Assistant Portfolio Manager 14 years of industry experience This update is not intended to provide investment advice. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment Fund or strategies. You should assess your own investment needs based on your individual financial circumstances and investment objectives. This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC ( Driehaus ) as of January 17, 2019 and are subject to change at any time due to changes in market or economic conditions. The material has not been updated since January 17, 2019 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. MARKET OVERVIEW During the fourth quarter, equity markets seemingly concluded that central bankers had overestimated the strength of the global economy and were underestimating the headwinds from higher interest rates. In addition, fallout from trade wars began to inject itself in the form of actual deterioration in global activity levels. The result was one of the larger price to earnings (P/E) multiple contractions in recent history global equities broadly de-rated 15-20% this year, with most of it occurring in the fourth quarter. PERFORMANCE REVIEW For the fourth quarter, the Driehaus International Small Cap Growth Fund returned %, net of fees, and the MSCI ACWI ex-us Small Cap Growth Index returned %. 1 Despite the difficult environment, the Fund was able to provide relative outperformance for the year, in part driven by stock selection, also helped by underweights to emerging markets, Japan, and the technology sector. From a positioning perspective, emerging markets (EM) exposure was increased during the fourth quarter. Valuations have cheapened relative to the developed market, EM equities are under-owned and should benefit from a weakening dollar. The obvious risk is spillover effects if US-China trade tensions increase. Japan remains an underweight. High valuations and sub-par earnings reports are limiting idea generation, and the government appears ready to implement yet another illtimed consumption tax hike. From a sector perspective, industrials exposure, while still overweight, was reduced given decelerating global growth. 1 Performance Disclosure The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. The Fund will charge a redemption fee of 2.00% on shares held less than 60 days. Performance data represents the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change, while cumulative total return reflects aggregate change. Since Fund performance is subject to change after the month-end, please call (800) or visit for more current performance information. Sources: Driehaus Capital Management LLC, Factset, Reuters and MSCI Indices 1 Communication services is also an overweight which primarily consists of telecom companies taking market share from larger incumbents, or high-quality internet platforms benefitting from network effects. MARKET OUTLOOK Looking into 2019, global growth likely has peaked as the benefits from Chinese stimulus and lower US taxes fade. Other key uncertainties include the path of Federal Reserve (Fed) s interest rate increases, continued fallout from US/China trade wars, and tightening financial conditions in the Eurozone. The good news is that with the diminishment in valuation levels, expectations are lower began with expectations for synchronized global growth. The bar will be lower in On the optimistic side, upside could come from policy actions by the Fed (perhaps flexibility in the pace of policy rate hikes and balance sheet normalization), further easing measures by China, or an easing of trade tensions. In addition, while growth is slowing on margin, the drivers of the business cycle remain well supported. Capital expenditures are not at the point of overheating and consumers are seeing a strong labor market and increasing wages. Earnings globally should grow in the high single digits. On a relative basis, the case for international stocks becomes more appealing as significant US economic outperformance is unlikely to persist through 2019, as the fiscal stimulus wears off. International valuations are also more appealing on a relative basis. We are optimistic that should volatility continue, we will be afforded the opportunity to find high quality investment opportunities at more compelling valuations.

2 PERFORMANCE as of 12/31/18 Annualized Total QTR YTD 1 Year 3 Year 5 Year 10 Year Inception 8/1/02 1 Growth Fund % % % 3.29% 3.49% 11.59% 13.77% MSCI AC World ex USA Small Cap Growth Index (ND) % % % 2.89% 2.26% 10.07% 8.54% ANNUAL FUND OPERATING EXPENSES 3 Gross Expenses: 1.23% Net Expenses: 1.23% SECTOR PERFORMANCE ATTRIBUTION 4th Quarter 9/30/18 to 12/31/18 GICS Sector To MSCI AC World ex USA Small Cap Growth Index 1 () (%) Avg. Total To Allocation Effect Attribution Analysis (%) Selection + Interaction Communication Services Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Other Real Estate Utilities Cash Unassigned* Total Data as of 12/31/18 Sources: Driehaus Capital Management LLC, Factset Research Systems, Inc., evestment Alliance, Morgan Stanley Capital International and Standard & Poor s Global Industry Classification Standard. *Unassigned refers to securities not recognized by Factset. The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. The Fund will charge a redemption fee of 2.00% on shares held less than 60 days. Performance data represents the rate that an investor would have earned (or lost), during the given month, on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change. Since Fund performance is subject to change after the month-end, please call (800) or visit for more current performance information. 1 The average annual total returns of the Growth Fund include the performance of the Fund s predecessor limited partnership, which is calculated from August 1, 2002 before the Fund commenced operations and succeeded to the assets of its predecessor on September 17, The predecessor limited partnership was not registered under the Investment Company Act of 1940, as amended ( 1940 Act ) and thus was not subject to certain investment and operational restrictions that are imposed by the 1940 Act. If the predecessor had been registered under the 1940 Act, the performance may have been adversely affected. The Fund s predecessor performance has been restated to reflect estimated expenses of the Fund. After-tax performance returns are not included for the predecessor limited partnership. The predecessor was not regulated investment companies and therefore did not distribute current or accumulated earnings. 2 The Morgan Stanley Capital International (MSCI) AC World ex USA Small Cap Growth Index is a market capitalization-weighted index designed to measure equity performance in global developed markets and emerging markets, excluding the US and is composed of stocks which are categorized as small capitalization stocks. Data is in US Dollars. The net dividend (ND) index is calculated with net dividend reinvestment. 3 Represents the Annual Fund Operating Expenses as disclosed in the current prospectus dated April 30, 2018 as supplemented July 2, It is important to understand that a decline in the Fund s average net assets due to unprecedented market volatility or other factors could cause the Fund s expense ratio for the current fiscal year to be higher than the expense information presented. A shareholder may be required to pay a commission to their financial intermediary. Per FactSet Research Systems Inc., the attribution report provides an in-depth analysis of relative performance. With this report one can research whether or not a portfolio outperformed a benchmark, and how each group contributed to performance. The performance data shown above is estimated and represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The information presented is intended for informational purposes only. Definitions of the attribution analysis can be found in the notes on page 4. ATTRIBUTION ANALYSIS CATEGORIES ARE DEFINED AS: Allocation Effect - Measures the impact of the decision to allocate assets differently than those in the benchmark. Security Selection Effect - Measures the effect of choosing securities, which may or may not outperform those of the benchmark. Interaction Effect - Jointly measures the effect of allocation and selection decisions. - The for each MSCI/GICS Sector is equal to the sum of the individual Attribution Effects for that MSCI/GICS Sector. 2

3 COUNTRY PERFORMANCE ATTRIBUTION 4th Quarter 9/30/18 to 12/31/18 MSCI Country To Avg. MSCI AC World ex USA Small Cap Growth Index 1 () (%) Total To Australia Austria Belgium Bermuda Brazil British Virgin Islands Cambodia Canada Cayman Islands Chile China Colombia Cyprus Denmark Egypt Finland France Germany Greece Hong Kong Hungary India Indonesia Ireland Isle Of Man Israel Italy Japan Jersey Jordan Kazakhstan (Continues on page 4) Sources: FactSet Research Systems Inc. and Driehaus Capital Management. Per FactSet Research Systems Inc., the Attribution Report provides an in-depth analysis of relative performance. With this report one can research whether a portfolio outperformed a benchmark, and how each group contributed to performance. The performance data shown above is estimated and represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The information presented is intended for informational purposes only. ATTRIBUTION ANALYSIS CATEGORIES ARE DEFINED AS: Allocation Effect - Measures the impact of the decision to allocate assets differently than those in the benchmark. Security Selection Effect - Measures the effect of choosing securities, which may or may not outperform those of the benchmark. Interaction Effect - Jointly measures the effect of allocation and selection decisions. - The for each MSCI/GICS Sector is equal to the sum of the individual Attribution Effects for that MSCI/GICS Sector. 3

4 COUNTRY PERFORMANCE ATTRIBUTION 4th Quarter 9/30/18 to 12/31/18 (Continued) MSCI AC World ex USA Small Cap Growth Index 1 () (%) MSCI Country To Avg. Total To Luxembourg Macau Malaysia Malta Mexico Monaco Netherlands New Zealand Norway Pakistan Peru Philippines Poland Portugal Qatar Russia Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey United Arab Emirates United Kingdom United States Cash Unassigned* Total *Unassigned refers to securities not recognized by Factset. ATTRIBUTION ANALYSIS CATEGORIES ARE DEFINED AS: Allocation Effect - Measures the impact of the decision to allocate assets differently than those in the benchmark. Security Selection Effect - Measures the effect of choosing securities, which may or may not outperform those of the benchmark. Interaction Effect - Jointly measures the effect of allocation and selection decisions. - The for each MSCI/GICS Sector is equal to the sum of the individual Attribution Effects for that MSCI/GICS Sector. 4

5 SECTOR PERFORMANCE ATTRIBUTION 1-Year 12/31/17 to 12/31/18 GICS Sector To MSCI AC World ex USA Small Cap Growth Index 1 () (%) Avg. Total To Allocation Effect Attribution Analysis (%) Selection + Interaction Communication Services Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Other Real Estate Utilities Cash Unassigned* Total Data as of 12/31/18. Preliminary performance data. In US dollars. Sources: Driehaus Capital Management LLC, Factset Research Systems, Inc., evestment Alliance *Unassigned refers to securities not recognized by Factset. 1 The Morgan Stanley Capital International (MSCI) AC World ex USA Small Cap Growth Index is a market capitalization-weighted index designed to measure equity performance in global developed markets and emerging markets, excluding the U.S and is composed of stocks which are categorized as small capitalization stocks. Data is in US Dollars. The net dividend (ND) index is calculated with net dividend reinvestment. The gross dividend (GD) index is calculated with gross dividend reinvestment. The benchmark has changed from the MSCI AC World ex USA Small Cap Growth Index (GD) to the MSCI AC World ex USA Small Cap Growth Index (ND) because the net index is more commonly used industry wide and is a more representative comparison versus the Fund because it is presented net of foreign withholding taxes. Per FactSet Research Systems Inc., the attribution report provides an in-depth analysis of relative performance. With this report one can research whether or not a portfolio outperformed a benchmark, and how each group contributed to performance. The performance data shown above is estimated and represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The information presented is intended for informational purposes only. ATTRIBUTION ANALYSIS CATEGORIES ARE DEFINED AS: Allocation Effect - Measures the impact of the decision to allocate assets differently than those in the benchmark. Security Selection Effect - Measures the effect of choosing securities, which may or may not outperform those of the benchmark. Interaction Effect - Jointly measures the effect of allocation and selection decisions. Currency Effect - The currency effect is the portion of the total effect the portfolio manager can potentially influence by using currency hedging. - The for each MSCI/GICS Sector is equal to the sum of the individual Attribution Effects for that MSCI/GICS Sector. Copyright MSCI All Rights Reserved. Without prior written permission of MSCI, this information and any other MSCI intellectual property may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. This information is provided on an as is basis, and the user of this information assumes the entire risk of any use made of this information. Neither MSCI, each of its affiliates nor any third party involved in or related to the computing, compiling or creating of any MSCI information (collectively, the MSCI Parties ) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, noninfringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages relating to any use of this information. 5

6 DRIEHAUS INTERNATIONAL SMALL CAP GROWTH FUND DECEMBER 2018 COUNTRY PERFORMANCE ATTRIBUTION 1-Year 12/31/17 to 12/31/18 MSCI Country To Avg. MSCI AC World ex USA Small Cap Growth Index 1 () (%) Total To Argentina Australia Austria Belgium Bermuda Brazil British Virgin Islands Cambodia Canada Cayman Islands Chile China Colombia Cyprus Denmark Egypt Finland France Germany Greece Hong Kong Hungary India Indonesia Ireland Isle Of Man Israel Italy Japan Jersey (Continues on page 7) Sources: FactSet Research Systems Inc. and Driehaus Capital Management. Per FactSet Research Systems Inc., the Attribution Report provides an in-depth analysis of relative performance. With this report one can research whether a portfolio outperformed a benchmark, and how each group contributed to performance. The performance data shown above is estimated and represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The information presented is intended for informational purposes only. 6

7 COUNTRY PERFORMANCE ATTRIBUTION 1-Year 12/31/17 to 12/31/18 (Continued) MSCI AC World ex USA Small Cap Growth Index 1 () (%) MSCI Country To Avg. Total To Jordan Kazakhstan Luxembourg Macau Malaysia Malta Mexico Monaco Netherlands New Zealand Norway Pakistan Peru Philippines Poland Portugal Qatar Russia Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey United Arab Emirates United Kingdom United States Cash Unassigned* Total *Unassigned refers to securities not recognized by Factset. 7

8 TICKER: DRIOX DECEMBER 2018 SECTOR WEIGHTS (%) COUNTRY WEIGHTS (%) Fund mark Active s (%) Communication Services Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Utilities Cash Fund mark Australia Brazil Cambodia Canada Denmark France Germany Hong Kong Isle Of Man Israel Italy Japan Luxembourg Malta Fund mark Mexico Netherlands Norway Philippines Poland Russia South Africa South Korea Spain Sweden Switzerland Taiwan United Kingdom Cash TOP 5 HOLDINGS 1 (as of 11/30/18) Company Sector Country % of Fund Parkland Fuel Corporation Energy Canada 2.8 CAE Inc. Industrials Canada 2.4 Croda International Plc Materials United Kingdom 2.3 TFI International Inc. Industrials Canada 2.3 AVEVA Group plc Information Technology United Kingdom 2.2 PORTFOLIO CHARACTERISTICS Fund mark Number of Holdings 90 2,271 ed Avg. Market Cap (M) $3,843 $2,201 Median Market Cap (M) $2,407 $808 Est. 3-5 Year EPS Growth 16.9% 16.1% Active Share (3-year avg.) n/a Market Cap Breakout (%) < $5 billion > $5 billion year period Fund mark Annualized Alpha 1.48 n/a Sharpe Ratio Information Ratio 0.25 n/a Beta Standard Deviation Tracking Error R-squared Sources: Driehaus Capital Management LLC, Factset Research Systems, Inc., evestment Alliance Driehaus Securities LLC, Distributor Data as of 12/31/18. mark: MSCI AC World ex USA Small Cap Growth Index (ND) 1 Holdings subject to change. 2 Data is calculated monthly. The Fund invests in foreign securities, including small and mid cap stocks, which may be subject to greater volatility than other investments. During certain periods, the Fund has benefited from unusually strong market conditions. At times, a significant portion of a Fund s return may be attributable to investments in initial public offerings (IPOs) or concentrations in certain strong performing sectors, such as technology. s from IPOs or sector concentrations may not be repeated or consistently achieved in the future. In addition, participating in IPOs and other investments during favorable market conditions may enhance the performance of a Fund with a smaller asset base, and the Fund may not experience similar performance results as its assets grow. Investments in overseas markets can pose more risks than U.S. investments, and the Fund s share prices are expected to be more volatile than that of a U.S.-only fund. In addition, the Fund s returns will fluctuate with changes in stock market conditions, currency values, interest rates, foreign government regulations, and economic and political conditions in countries in which the Fund invests. These risks are generally greater when investing in emerging markets. These and other risk considerations are discussed in the Fund s prospectus. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (800) or visit Please read the prospectus carefully before investing. TERMS: Active share represents the share of portfolio holdings that differ from the benchmark index holdings. Average drawdown is the arithmetic average of declines in value during a given period of time. Downside risk is a measure of the average deviations of a negative return series. A large downside risk implies that there have been large swings or volatility in the manager s return series. Beta is a measure of a portfolio s volatility. A beta of 1.00 implies perfect historical correlation of movement with the market. A higher beta manager will rise and fall more rapidly than the market, whereas a lower beta manager will rise and fall slower. Standard deviation is a measure of the average deviations of a return series from its mean; often used as a measure of portfolio volatility. A large standard deviation implies that there have been large swings or volatility in the manager s return series. Tracking error measures of the amount of active risk that is being taken by a manager. Tracking error accounts for the deviation away from the benchmark and does not indicate in which direction it occurred, either positive or negative. Source: evestment Alliance. Alpha is the measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund s alpha. Sharpe ratio is calculated by finding the portfolio s excess return and then dividing by the portfolio s standard deviation. Information Ratio (IR) measures a portfolio manager s ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor. This ratio will identify if a manager has beaten the benchmark by a lot in a few months or a little every month. The higher the IR the more consistent a manager is and consistency is an ideal trait. R-squared is a statistical measure that represents the percentage of a fund or security s movements that can be explained by movements in a benchmark index. For fixedincome securities, the benchmark is the T-bill. For equities, the benchmark is the S&P