On the hedged side of the portfolio, sub-advisor Broad-mark Asset Management begins their investment process with an assessment of the fundamental economic environment through Valuation, Monetary Policy, and Investor Sentiment. They then validate these qualitative factors with a more quantitative assessment through their Volume/Breadth Momentum Model. With respect to valuation, despite the strength in the equity markets year-to-date, valuations are slightly elevated, but not at extreme levels on a historical basis, and overall they consider them neutral. Monetary conditions are currently mixed as central bank policies continue to be accommodative while credit spreads began to widen. They also have identified poor behavior and lagging performance from interest rate sensitive sectors and financial stocks, which historically has preceded market tops. With t hat said, the hallmark of every big cyclical peak is tightening of monetary policy, which has not occurred yet and due to the recent charade in Washington is unlikely to occur in the near future. The August correction improved investor sentiment which had become overly optimistic. Due to the Federal Reserve's decision to not "taper", the market rallied strongly into mid-September, causing their sentiment models to again move into negative territory. These levels were not extreme enough to trigger any major shifts in the portfolio. Other factors with respect to sentiment include insider activity, which is moving in a bearish direction, and activity in the VIX, which has picked up notably due to the headlines generated in Washington. Although they are mindful of the concerns listed above, altogether they rate sentiment currently as neutral.
Their short-term momentum models are shaky at the moment as volatility spiked on debt ceiling fears. Intermediate-term models are beginning to deteriorate but the long-term models are holding up well as the over-all health of the market is in stark contrast to the difficult environment in 2011.
Due to the challenges in August, Broadmark entered September with a 60 percent hedge. This hedge was quickly reduced by 10 percent early in the month, and reduced by another 20 percent once sentiment and momentum improved further. The portfolio ended the quarter with a 40 percent hedge as sentiment began to roll over later in the month. Overall, the portfolio was able to capture the majority of the long-side of the port- folio's strong absolute and relative results. However, because the fund was not 100 percent exposed to the markets for the reasons mentioned earlier, the fund was not able to capture all of the market's positive returns and slightly lagged the S&P 500 Index and t he Russell 2500 Value Index.
Overall, we have not wavered in our belief that the current environment is favorable for equities. The U.S. economy remains in a "muddle through" environment that we believe should grow in the low single digits. Although we remain confident in the outlook for equities, Broadmark's ability to hedge some or all of t he portfolio continues to be an advantage should down-side volatility return to the markets. Thank you for your support of the Alternative Value Fund.
Stocks of smaller cap companies tend to be more volatile and less liquid than those of large cap companies.
Performance attribution is commonly used to measure the quality of the separate decisions that go into the management of an investment portfolio compared to a benchmark index. This analysis tries to isolate the effect an d measure the return contribution of market allocation, which analyzes t he positive/negative impact of a portfolio's allocation to groupings such as geographic regions or market sectors, and stock selection, which analyzes the positive/negative imp act of the portfolio manager's security ownership and weighting decision s within a wider grouping. The performance attribution data in this quarterly commentary was prepared by Keeley Asset Management Corp. ("KAMCO") using the following constraints: (1) Fund portfolio holdings are as of the beginning of each day; index constituents are as of the end of t he day. That means that the Fund's holdings are not included until the day after acquisition (when it is included in the portfolio as of the beginning of the next business day), and a portfolio holding that is sold is included in the analysis through the end of the day on which it is sold, and that the values at which securities are included in the analysis are the values as of the beginning of the day. For the index, securities are included at their values at the end of the day. (2) The securities values used in the analysis are the prices used by KAMCO in its internal records for the Fund and the prices used by the index provider for the benchmark index. If a price from either of those sources is unavailable, pricing information from FactSet is used. Pricing information from the index provider or from FactSet may differ from the pricing information used by KAMCO. (3) For the purpose of assigning portfolio security holding s to a particular sector and/or industry, KAMCO assigns the securities in accordance with the sector and industry classifications of the Global Industry Classification Standard (GICS) developed by MSCI and Standard and Poor's (to the extent available) as a primary source and FactSet (to the extent available) as a secondary source for this information. In the event KAMCO securities information vendors do not classify a security's issuer to a particular sector or industry or if the published classification appears to be incorrect, KAMCO may classify the security's issuer according to its own judgment, using other securities information vendors, the company description and other publicly available information about the company's peer group. Sector and/or industry classifications may change over time. The attribution information provided in this commentary includes summaries of attribution by market sector. Attribution is not precise and should be considered to be an approximation of the relative contribution of each of the sectors considered. The information on performance by sector reflects the aggregated gross return of the Fund's securities. Contributions to the Fund's performance by sector ( computed as described above) were compared against the contributions to the aggregate return of the stocks comprising the index, by sector, as reported by FactSet Databases.
GICS was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Stand ard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by KAMCO. Neither MSCI, S& P nor any third party involved in making or compiling the GICS or a ny GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchant ability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any o ther damages (including lost profits) even if notified of the possibility of such damages.
Data provided for performance attribution are estimates based on unaudited portfolio results. Performance contributors and detractors were not realized gains or losses for the Fund during the quarter. The S&P 500 Index is designed to act as a barometer for the overall U.S. stock market. The index is unmanaged, consisting of 500 stocks that a re chosen on the basis of market size, liquidity, and industry grouping. The S&P 500 is a market value weighted index with each stock's weight in the index proportionate to its market value. The Russell 2500 Value Index is an unmanaged index that measures the performance of those Russell 2500 companies wit h lower price-to-book ratios and lower forecasted growth rates. The Index figures do not reflect any deduction for fees , expenses or taxes, and are not available for dire ct investment. Securities in the Fund may not match those in the indexes and performance of the Fund will differ. The KEELEY All Cap Value Fund, KEELEY Mid Cap Value Fund, KEELEY Small-Mid Cap Value Fund, KEELEY Small Cap Value Fund, KEELEY Small Cap Dividend Value Fund, KEELEY Mid Cap Dividend Value Fund, and KEELEY Alternative Value Fund a re distributed by Keeley Investment Corp.
The top ten long holdings of KALVX as of September 30, 2013 include Energen Corp (1.34%), Oasis Petrol eum, Inc. (1.25%), Synergy Resources Corp. (1.24%), Bonanza C reek Energy (1.23%), Dril-Quip, Inc. (1.23%), AFC Enterprises, Inc. (1.22%), Starz (1.22%), Tennant Co. (1.22%), W alter Investment Management Corp. (1.21%), and Protective Life Corp. (1.19%).
The performance reflected herein is for the Class A shares without load. "Without load" does not reflect the deduction of the maximum 4.50% sales fee (load), which reduces the performance quoted. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Current to most recent month-end performance data may be obtained at www.KeeleyFunds.com This summary represents the views of the portfolio managers as of 09/30/13. Those views may change, and the Fund disclaims any obligation to advise investors of such changes. For the purpose of determining the Fund's holdings, securities of the same issuer are aggregated to determine the weight in the Fund. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual securities.
The performance reflected herein is for the Class A shares without load. "Without load" does not reflect the deduction of the maximum 4.50% sales fee (load), which reduces the performance quoted. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Current to most recent month-end performance data may be obtained at www.KeeleyFunds.com.
**The Fund's adviser has contractually agreed to waive a portion of its management fee or reimburse the Fund if total ordinary operating expenses during the current fiscal year as a percentage of the Fund's average net assets exceed 1.89% for Class A Shares and 1.64% for Class I Shares. The waiver excludes expenses related to taxes, interest charges, dividend expenses incurred on securities that a Fund sells short, litigation and other extraordinary expenses, brokerage commissions and other charges relating to the purchase and sale of portfolio securities. The waiver is in effect through January 31, 2014.
*The Fund's Inception date is April 1, 2010.
Prior to investing, investors should carefully consider the Fund's investment objective, risks and charges and expenses contained in the prospectus. Risks of investing in the Fund include the risks of investing in small and medium-sized company stocks, put and call options, futures, short selling, ETFs and ETNs.
To obtain an additional prospectus, which contains that information and other information about the Fund, please call us at 800.533.5344 or visit www.keeleyfunds.com. Please read the prospectus