Taking a closer look at the US equity market during the quarter, performance dispersion by sector was rather significant as the financials, consumer discretionary, and healthcare sectors posted returns in the mid-to-high single digits. Commodity-tied sectors lagged as prices for Brent crude oil (-6%), industrial metals (-10%), and natural gas (-11%) declined. Consequently, energy, materials, and utilities had negative returns during the quarter.
Our search for compelling valuation opportunities requires a bit more exertion than it did at the year's outset. Yet we have continued to find attractive risk/return prospects across an array of sectors, and have maintained an emphasis on financials, technology, and healthcare. Conversely, we have found fewer compelling opportunities in commodity-tied sectors like energy and materials. We also have an aversion to certain market segments that we believe investors have erroneously perceived as bond substitutes. REITs and large US telecommunication stocks, for example, pay considerable dividends but have weak valuation support.
The Hotchkis & Wiley Diversified Value Fund (Class I) outperformed the Russell 1000 Value Index for the quarter. Positive stock selection represented nearly two-thirds of the outperformance. Positive stock selection in financials, healthcare, and industrials were the largest contributors over the quarter. The overweight in technology and underweight in energy were marginally beneficial. The largest individual contributors to performance were Microsoft (NASDAQ:MSFT) (3.0%)*, American International Group (NYSE:AIG) (3.7%)*, and Capital One Financial (NYSE:COF) (2.2%)*. Stock selection in utilities detracted from performance over the quarter along with the small cash position. The largest individual detractors were Cobalt International Energy (NYSE:CIE) (2.2%)*, Exelon (NYSE:EXC) (2.3%)*, and Oracle (NYSE:ORCL) (2.3%)*.
*% of total portfolio as of June 30, 2013.
Mutual fund investing involves risk. Principal loss is possible. The Fund may invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods.
Fund holdings and/or sector allocations are subject to change and are not buy/sell recommendations. Current and future portfolio holdings are subject to risk. The opinions expressed are those of the portfolio managers as of 6/30/13 and may not be accurate reflections of their opinions after that date. There is no guarantee that any forecasts made will come to pass. The Fund may not continue to hold the securities mentioned and the Advisor has no obligation to disclose purchases or sales of these securities. Past performance is no guarantee of future results. Diversification does not assure a profit nor protect against loss in a declining market.
The Fund's total annual operating gross expense ratio as of the most current prospectus is 1.06% for I Shares, 1.31% for A Shares and 2.06% for C Shares. The net expense ratio is 0.95% for I Shares, 1.20% for A Shares and 1.95% for C Shares. The Advisor has contractually agreed to waive advisory fees and/or reimburse expenses through October 31, 2013.
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, access our website at www.hwcm.com.
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before you invest. This and other important information is contained in the Fund's summary prospectus and prospectus, which can be obtained by calling 1-800- 796-5606 or visiting our website at www.hwcm.com. Read carefully before you invest.
(Inception date: I , A and C Shares-8/30/04). Returns shown for A Shares and C Shares without sales charge do not reflect the maximum sales load of 5.25% or the Contingent Deferred Sales Charge (CDSC) of 1.00% for the first year; if reflected, performance would be lower than shown. Returns for A and C shares reflect the deduction of the current maximum initial sales charges of 5.25% and 1.00% CDSC. C Shares convert automatically to A Shares approximately eight years after purchase. A Shares are subject to lower annual expenses than C Shares. Class I shares sold to a limited group of investors. Periods over one year are average annual total return. Average annual total returns include reinvestment of dividends and capital gains. Expense limitations may have increased the Fund's total return.
The Russell 1000® Value Indexmeasures the performance of those Russell 1000® companies with lower price-to-book ratios and lower forecasted growth values. The S&P 500® Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general.. The indices do not reflect the payment of transaction costs, fees and expenses associated with an investment in the Fund. The Fund's value disciplines may prevent or restrict investment in major stocks in the benchmark indices. It is not possible to invest directly in an index. The Fund's returns may not correlate with the returns of their benchmark indices. The 30-day SEC Yield represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the Fund's share price at the end of the 30-day period. The SEC Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the Fund's actual income distribution rate, the income paid to a shareholder's account, or the income reported in the Fund's financial statements.