Portfolio Review
During the first quarter the Westport Select Cap Fund’s (“Select Cap Fund”) Class R shares rose 2.58%, compared to a decline of 1.52% for the Russell 2000® Index. Since inception eighteen and a quarter years ago, the Select Cap Fund R shares have outperformed the Index by 2.44 percentage points a year, 9.09% to 6.65% respectively, both compounded annually.
The first quarter of 2016 was one of the most volatile in recent years. In fact, the downdraft that began in December accelerated in January and early February as the usual economic uncertainties were compounded by concerns over Chinese growth, falling commodity prices and fear of further Fed rate increases. These depressing influences seemed to ease by mid-February and the market staged a complete turn-around, essentially recovering the earlier losses.
During this period of extreme volatility, the Select Cap Fund performed very well, finishing 410 basis pointsi better than the Russell 2000® Index. Interestingly, the top five positive contributors came from a variety of industries and two of the five were among the Select Cap Fund’s weakest performers in 2015. Big Lots, Inc., the off-price retailer, contributed 134 basis points as management’s turn-around programs continued to generate above-plan earnings and strong cash flow. Checkpoint Systems, Inc. (CKP, Financial), one of last year’s laggards, announced an agreement to be acquired by CCL Industries (TSX:CCL.A, Financial) at a 53% premium over the then market price for the shares. This position added 91 basis points to performance. Another negative contributor in 2015, Rogers Corp. (ROG, Financial), announced better-than-expected fourth quarter earnings and a positive 2016 outlook. The shares were up over 16% and added 89 basis points. FEI Company (FEIC, Financial) (+89 basis points) and IPG Photonics Corp. (IPGP, Financial) (+61 basis points), companies specializing in high performance electron microscopes and high powered lasers, respectively, both reported better-than-expected fourth quarter earnings and good 2016 outlooks.
I should also mention that another smaller portfolio holding, Rofin-Sinar Technologies, Inc. (RSTI, Financial), a laser products specialist, agreed to be acquired by Coherent Inc. at a 44% premium. This position added 38 basis points.
On the negative side, the same two positions that have hurt performance most over the past year again subtracted the most from performance. DeVry Education Group, Inc. (DV, Financial) cost 137 basis points even though we have reduced the position size. United Rentals, Inc. declined over 14%, costing 111 basis points. The company is using a portion of its considerable free cash flow to buy back $1.5 billion of its stock, representing over 25% of its outstanding shares.
During the quarter we trimmed a number of positions and added to our Yadkin Financial Corp. (YDKN, Financial) holdings.
Investors should consider the investment objectives, risk, and charges and expenses of The Westport Funds carefully before investing; this and other information about the Funds is in the prospectus, or summary prospectus, which can be obtained by calling 1-888-593-7878 or at our website www.westportfunds.com. Read the prospectus or summary prospectus carefully before you invest.
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.
There are special risks associated with small capitalization issues such as market illiquidity and greater market volatility than larger capitalization issues.
i Basis Point is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Portfolio composition is subject to change at any time and should not be considered a recommendation to purchase or sell a particular security. On March 31, 2016, the following securities comprised these respective percentages of the Westport Select Cap Fund: Big Lots, Inc. (9.4%), Checkpoint Systems, Inc. (0.3%), CCL Industries (0.0%), Rogers Corp. (6.5%), FEI Company (8.3%), IPG Photonics Corp. (8.7%), Rofin-Sinar Technologies, Inc. (2.4%), DeVry Education Group, Inc. (2.8%), United Rentals, Inc. (8.0%), Yadkin Financial Corp. (1.1%).
