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arthon meekodong/iStock via Getty Images PERFORMANCE SUMMARY Performance Review For the quarter, the fund's Retail Class shares gained 8.48%, slightly outpacing the 8.41% advance of the benchmark Russell 2000 ® Growth Index.
U.S. small-cap growth stocks rose in the third quarter due to resilient corporate profits, the promise of artificial intelligence and the Federal Reserve's long-anticipated pivot to cutting interest rates.
Value stocks led the way, while smaller-cap shares outpaced largecaps in what was a broad rally. Within the Russell 2000 ® Growth Index, real estate (+21%), an interest-rate-sensitive sector, advanced on the potential for lower borrowing costs. Materials (+11%) and industrials (+9%) were lifted by efforts to strengthen the nation's energy and communications infrastructure, while financials (+15%) received a boost from the likelihood of the Fed acting soon.
Meanwhile, energy (-8%) struggled because oil prices dipped on worries about the outlook for global demand. Against this backdrop, security selection drove the fund's modest outperformance of the Russell index, especially in the industrials, materials and health care sectors. Among stocks, the fund's top individual relative contributor was an out-of-index stake in SharkNinja ( SN , +45%).
Shares of the home appliance maker surged in September after the company reported strong second-quarter financial results and raised its full-year sales and earnings guidance ahead of analysts' expectations. Notably, sales of SharkNinja's cooking and beverage appliances rose 91% in Q2, driven by the popularity of its portable blenders and ice cream makers. Conversely, choices in technology hurt the fund's relative result.
Positioning in financials and energy also hurt. From the latter sector, Weatherford International ( WFRD ), an oilfield services company, weighed on the fund's relative performance the most. Weatherford was not a part of the index in the third quarter.
Shares of Weatherford International returned roughly -30% during the past three months, falling along with the energy sector as oil prices declined. We reduced the fund's position in the stock during the quarter. Outlook and Positioning At the end of September, markets have recently experienced favorable momentum and easier financial conditions, though the pace and magnitude of global monetary easing is uncertain.
Market projections signal an expectation of additional Fed interest rate cuts in 2024. Following a year of respectable returns, the valuation backdrop for the small-cap growth universe is slightly less favorable than it was a year ago, with the valuations of profitable companies in the benchmark notably higher. Meanwhile, sales and earnings revisions remain lackluster.
Only about 30% of benchmark companies experienced positive revisions over the past year, as the cumulative effects of inflation caught up with many consumers and the lagged impact of higher interest rates weighed on housing and parts of the industrial economy. Still, we are finding attractive opportunities in almost all sectors. We are excited about the fund's current holdings, and we continue to work alongside our talented analysts to uncover attractive small-cap growth companies.
Together, four sectors – health care, industrials, information technology and consumer discretionary – accounted for nearly 80% of the fund's assets at the end of September. The fund's largest sector overweights at quarter end are in consumer discretionary and materials, whereas our largest underweights are in health care and consumer staples. In terms of changes to the fund this quarter, we established some small positions across sectors, including: Merit Medical Systems ( MMSI , health care); Sunrun ( RUN , industrials); Champion Homes ( SKY , consumer discretionary); OSI Systems ( OSIS, technology), among others.
This quarter, we exited several positions that no longer fit our investment objectives, most notably Super Micro Computer ( SMCI ) and MicroStrategy ( MSTR ) in the tech space. CHARACTERISTICS MARKET-SEGMENT DIVERSIFICATION 10 LARGEST HOLDINGS ASSET ALLOCATION Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor's Note: This article discusses one or more securities that do not trade on a major U.
S. exchange. Please be aware of the risks associated with these stocks.
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