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Commentary iMGP Small Company Fund First Quarter 2024 Commentary

For the first quarter of 2024, the iMGP Small Company Fund portfolio gained 7.66%, strongly outperforming the 2.90% gain for the Russell 2000 Value benchmark. The Fund outperformed the Morningstar Small Value category’s 4.64% return in the quarter.

Performance quoted represents past performance and 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 funds may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund.To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit Returns less than one year are not annualized.  The Advisor has contractually agreed to limit the expenses of the fund through April 30, 2025.  Without this limit the fund’s net expenses would be higher the return would be lower.

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Market Overview and Strategy Performance

As the quarter progressed, the market slowly realized that the Federal Reserve was not going to lower interest rates at the speed once anticipated. Many of the factors that made relative performance more challenging (extremely high short interest, zombie companies, and negative earnings) turned on the anticipation of lower rates. As these expectations faded, our relative performance improved. Performance was driven by companies with a strong return on invested capital (ROIC) culture supported by megatrends such as data centers, infrastructure spending, onshoring/reshoring, and the Inflation Reduction Act (IRA) demand. We view such fiscal spending as a tool to stimulate the economy, thus allowing the labor market to stay strong. We are carefully watching for the potential re-emergence of inflation due to strong demand and geopolitical risks. As always, our focus is on management teams that have significant opportunity to drive an inflection in ROIC, regardless of the operating environment by employing self-help strategies such as 80/20, LEAN approach, continuous improvement, and simplification.

Contributors to Return

The three sectors that contributed most to the portfolio’s performance relative to its benchmark in the quarter were Industrials (driven by selection), Consumer Discretionary (driven by selection), and Materials (driven by allocation and selection). Within Industrials, REV Group was a top performer in the quarter. REV has executed on increasing manufacturing throughput to drive higher margins while simplifying its overall business by announcing divestments that were being commoditized and carried a lower margin profile. REV has a backlog, stretching out nearly three years, in its largest business, Fire and Emergency, positioning it to continue to deliver strong ROIC improvement in the years ahead. Within Consumer Discretionary, Modine Manufacturing was the top performer. Modine has pivoted the business into fast-growing verticals such as data center cooling. The ability to service the data center cooling market was the direct result of the management team deploying the 80/20 simplification culture, which directed investment to higher margin and growth end-markets. We believe Modine still has a long runway of opportunities within many of its businesses given demand from data centers and funding for indoor air quality at schools across the country.


Detractors from Return

The three sectors that detracted most from the portfolio’s performance relative to its benchmark in the quarter were Health Care (driven by allocation), Consumer Staples (driven by selection), and Energy (driven by allocation). Consumer Staples holding Hain Celestial was a top detractor within the sector. The underperformance was due primarily to the inability to show sustainable growth across the North American region and to having leverage on the balance sheet that has taken longer to drive lower. Inflation is also a concern, as pricing power within Hain’s products has not been strong enough to recapture higher costs and this has impacted overall earnings performance. V.F. Corporation was the top detractor within Consumer Discretionary. The company is in the very early innings of a major turnaround under a new CEO. V.F. Corp. has begun to simplify its portfolio of brands by monetizing non-core assets to pay down debt, which has reached an undesirable level due to past leadership decisions. The turnaround at the company will take time; however, the new CEO, leveraging his previous company experience, has hit the ground running by recruiting better talent and putting resources behind a value creation strategy. We are optimistic about the value that can be created at V.F. Corp. but we also understand it will take time to see the momentum unfold.

Market Outlook

One trend we are thinking about is the return of targeted fiscal activity as a meaningful policy tool after many years of fiscal policy being in the doldrums. The portfolio has benefited from greater targeted fiscal activity. The focus on returning business operations to the U.S. (reshoring) as a strategic domestic policy has provided significant tailwinds to the portfolio’s Industrials holdings. These tailwinds coupled with a focus on managements that emphasize self-help and improving ROIC have been our biggest positive contributors for over two years. The election in November could play an important role in continuing this trend, and it will be fascinating (and challenging!) to see how the government will handle deficits and taxation questions over the next year. While none of this can be known now, we can navigate such uncertainties by investing with management teams that are well-equipped to handle a wide range of circumstances due to a focus on capital allocation and incentives to ensure the importance of ROIC. As the cost of capital has risen, at least for now, and could rise further if persistent inflationary dynamics continue, we believe that the focus on ROIC, capital structure, and capital allocation has become an absolute necessity. Despite a considerable amount of trimming during the quarter of companies starting to reflect investor appreciation for ROIC improvements, we successfully identified ample new and existing companies with significant self-help opportunities. While our team is focused on ROIC improvement opportunities, we are also committed to working on improving our internal team and culture dynamics. After all, what we expect from our management teams and companies we must also expect of ourselves. While we may not frequently discuss such things, we recognize these are of great importance to the sustainable, long-term success of any team. We are excited about 2024 and look forward to navigating the ever-changing macro and micro landscape.

Changes to the Fund

Effective April 29, 2024, the Fund changed its name to the iMGP Small Company Fund  and modified its principal investment strategies to no longer invest primarily in value companies.

Portfolio Breakdown as of 3/31/2024

By SectorPFSVX Russell 2000 Value
Consumer Discretionary14.8%11.0%
Information Technology8.1%5.9%
Communication Services0.0%2.3%
Health Care & Pharmaceuticals1.5%9.3%
Industrials 28.5%14.9%
Consumer Staples 1.8%2.2%
Real Estate 4.7%9.7%

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The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting Read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Past performance does not guarantee future results. 

Investing in small companies subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies. Though not an international fund, the fund may invest in foreign securities. Investing in foreign securities exposes investors to economic, political and market risks and fluctuations in foreign currencies. These risks are greater for investments in emerging markets. 

basis point (bps) is a value equalling one one-hundredth of a percent (1/100 of 1%)

Return on Invested Capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. Return on invested capital gives a sense of how well a company is using its money to generate returns.

The Russell 2000 Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

Each Morningstar Category Average represents a universe of Funds with similar investment objectives.

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the IMGP  due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

The iMGP Funds are Distributed by ALPS Distributors, Inc