Portfolio Review
In early 2016 domestic equity markets fell on concerns over the health of major economies (China, Europe and Japan), weak commodity prices and an indication that the Federal Reserve (“Fed”) would tighten monetary policy in 2016 with as many as four increases, of 25 basis pointsi each. The Fed postponed the timing of rate increases. The global economic outlook improved, commodity prices recovered, and equity markets rebounded. From the start of 2016 through the Brexit vote on June 23, 2016, the returns from the Westport Fund Class R shares (“Westport Fund”) were slightly ahead of its benchmark, the Russell Midcap® Index.
Investors viewed the vote in the United Kingdom (“UK”) to leave the European Union (“EU”) as a negative shock to the UK’s economy, with negative implications for the EU’s economy. Investors reacted by pushing the dollar higher, selling economically sensitive companies and investing the proceeds in fixed income securities and higher yielding equity securities such as utilities and REITs. The absence of these two industry sectors in the Westport Fund’s portfolio decreased performance relative to the benchmark by 169 basis points and 127 basis points, respectively, for a total of 296 basis points for the first half of 2016. Much of the impact occurred in the final seven days of the first half, with the Westport Fund return at -2.77% versus -1.13% for the Russell Midcap® Index during that period, leaving returns for the first half at 3.90% for the Westport Fund and 5.50% for its benchmark.
The Westport Fund’s industry sector with the best first half performance was Technology with a positive contribution of 130 basis points and 132 basis points above the return of this sector in the Russell Midcap® Index. Synopsys, Inc. (SNPS, Financial) (design software) led with a contribution of 106 basis points. The second largest relative industry contribution was from Healthcare at 86 basis points which had an actual return of 47 basis points. Universal Health Services, Inc. (UHS, Financial), Class B shares, provided 94 basis points for the half to this sector. Other individual contributors to the Fund performance in the first half were FEI Company (electron microscopes), at 55 basis points with a significant proportion of that return from the announcement of its acquisition by Thermo Fisher Scientific, Inc. Finally Time Warner Inc. (TWX, Financial) (entertainment and media content) added 50 basis points to the Fund’s performance. The largest individual detractor from the Fund’s performance was Master Card, Inc. (MA, Financial), Class A shares (credit and debit payment networks), subtracting 52 basis points as investors remain concerned about the strength of the global economy and company specific litigation. The other significant negative contributor was Zebra Technologies Corp., Class A shares, which fell 28.1% and reduced Fund performance by 41 basis points.
Since this will likely be the last quarterly report, I would like to thank shareholders for their support over 18 ½ years. The Westport Fund’s proposed reorganizationii into the Hennessy Cornerstone Mid Cap 30 Fund offers Westport Fund shareholders a fund with strong historical performance and a lower cost structure.
The views expressed and any forward-looking statements are as of the date of the publication and are those of the portfolio managers and/or the Advisor. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments.
