UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-08194

 

FINANCIAL INVESTORS TRUST

(Exact name of Registrant as specified in charter)

 

1290 Broadway, Suite 1000, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

 

Karen Gilomen, Esq., Secretary

Financial Investors Trust

1290 Broadway, Suite 1000

Denver, Colorado 80203

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 303-623-2577

 

Date of fiscal year end: April 30

 

Date of reporting period: October 31, 2019

 

 

 

 

Item 1. Reports to Stockholders.

 

 

 

 

 

  

TABLE OF CONTENTS

 

 

SEMI-ANNUAL REPORT

 

 

SHAREHOLDER LETTER 1
PERFORMANCE UPDATE 4
DISCLOSURE OF FUND EXPENSES 6
PORTFOLIO OF INVESTMENTS 7
STATEMENT OF ASSETS AND LIABILITIES 18
STATEMENT OF OPERATIONS 19
STATEMENTS OF CHANGES IN NET ASSETS 20
FINANCIAL HIGHLIGHTS 22
NOTES TO FINANCIAL STATEMENTS 24
ADDITIONAL INFORMATION 30
PRIVACY POLICY 31

 

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website at www.dgifund.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

You may, notwithstanding the availability of shareholder reports online, elect to receive all future shareholder reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call 1.855.DGI. FUND (1-855-344-3863) to let the Fund know you wish to continue receiving paper copies of your shareholder reports.

 

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by enrolling at www.dgifund.com.

 

Disciplined Growth Investors’ goal is to communicate clearly and transparently with our clients and mutual fund shareholders. It is mutually beneficial when our shareholders understand how we invest, what we are currently thinking and forecasting, and the specific investment decisions we have made. Our views and opinions regarding the investment prospects of our portfolio holdings and the Fund are “forward looking statements” which may or may not be accurate over the long term. While we believe we have a reasonable basis for these forecasts and have confidence in our investment team’s views, actual results may differ materially from those we anticipate. Information provided in this report should not be considered a recommendation to purchase or sell any particular security.

 

You can identify forward looking statements as those including words such as “believe”, “expect”, “anticipate”, “forecast”, and similar statement. We cannot assure future performance. These forward-looking statements are made only as-of the date of this report. Following the publication of this report, we will not update any of the forward-looking statements included here.

 

This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing.

 

OCTOBER 31, 2019 DGINV.COM

 

 

 

The Disciplined Growth Investors Fund Shareholder Letter

 

October 31, 2019 (Unaudited)

 

Fund Performance and Asset Mix:

The Disciplined Growth Investors Fund's (the "DGI Fund") fiscal year runs from May 1st to April 30th. For the 2019 fiscal year-to-date (5/1/19-10/31/19), The DGI Fund returned 0.95%. Stocks in the Fund decreased by 0.53% and bonds increased 5.52%.

 

Stocks in The DGI Fund underperformed the S&P 500® index, which increased 4.16%. The DGI Fund held 21 stocks that increased in value and 32 stocks that declined in value. The ten largest equity holdings in The DGI Fund combined to add 0.53% to the Fund’s total performance.

 

The Fund’s bond portfolio also underperformed the Barclays Intermediate Government & Corporate Credit index1, which gained 6.50% during the fiscal year-to-date.

 

Looking at different time periods, especially in the short term, can make market growth and Fund performance appear to vary wildly. 2019 is a good example. For the calendar year-to-date (January 1st through October 31st), The DGI Fund has increased 18.86% and the S&P 500 has increased 23.16%. Most of that increase took place in the first four months of the year. That leaves the fiscal year-to-date returns reflected in this report to be much more modest, especially considering the month of May was the worst performing month of the year so far.

 

We point this out as an example of the fickle manner with which the market can treat investors in the short term. We do not believe anyone can invest around these short term fluctuations or predict them accurately and repeatedly. We are focused on the long term ability of the companies in the portfolio to execute and the potential of those companies’ stocks for long term performance. With 69.4% stocks and 30.6% bonds & cash as of 10/31/19, we have positioned the Fund to reflect this long-term view and research, which shows expected returns for the Fund’s stocks materially in excess of expected returns for bonds.

 

You can find additional performance information and a full list of the Fund’s holdings in this Semi Annual report and at www.dgifund.com.

 

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please call 1.855.DGI.FUND.

 

Portfolio Activity:

Since we last wrote to you last (April 30th), we added three new stocks to The DGI Fund, sold the remaining position in one, and one portfolio holding was acquired by another company.

 

New Stocks:

Pure Storage (PSTG) has pioneered the development of innovative computer storage for larger organizations. These storage systems are made of solid-state arrays, a new technology that has important advantages over existing disk-based storage solutions. Pure Storage’s systems provides customers with not only a simple solution and superior performance, but offers it at a lower overall cost and provides industry-leading customer service. The stock price has come under pressure recently on fears of competition, allowing us to buy into the company at what we see as an attractive price.

 

 

Semi-Annual Report | October 31, 2019 1

 

 

 

The Disciplined Growth Investors Fund Shareholder Letter

 

October 31, 2019 (Unaudited)

 

Cabot Oil & Gas (COG) is an exploration and production (E&P) company with all of its focus on the most productive and economic natural gas region in the United States: The Marcellus Shale in Northeast Pennsylvania. Cabot is currently the fourth largest producer of natural gas in the U.S. and one of the few energy companies that currently generates positive free cash flow2 & pays a dividend (despite historically low natural gas prices). We were given an opportunity to take an initial position in Cabot because the company decided to make a long-term strategic decision at the expense of short-term results, which Wall Street did not like because the decision delayed this year’s expected gas production totals.

 

Deluxe Corporation (DLX) is known for its very profitable, but declining, legacy check business. Over the last several years, the company has been adding new digital capabilities which it expects to be able to sell to its existing customer base of 4.8 million small businesses and 4600 financial institutions. We see this customer base as a strategic competitive advantage for Deluxe given the trusted partnerships the company forms with its clients. Deluxe also recently hired a new CEO who has extensive experience developing and growing businesses in these markets.

 

Complete Sales:

L Brands (LB) is the business behind the well-known Victoria’s Secret and Bath & Body Works brands. While it had a history of successfully developing these brands, recent missteps by management, significant market share losses at Victoria’s Secret, and evidence of a deteriorating internal culture ultimately caused us to sell our entire position in the company.

 

Acquisitions:

Medidata Solutions (MDSO) was acquired by the French technology company Dassault Systemes in June for $5.8 billion ($92.25 per share). While the acquisition will officially close later this calendar year, the two sides have agreed to all the terms, and we do not anticipate any regulatory or legal issues to prevent completion of the acquisition. The purchase price represents a 23% premium to Medidata’s valuation a few days prior to announcement of the acquisition.

 

Portfolio Construction Update:

We have updated the market cap range we consider to be Mid Cap equities to $1 billion to $15 billion. The previous upper limit we employed was $10 billion. This reflects what we believe to be a long-term increase in the upper limit of market cap size for companies that otherwise have the characteristics we look for in Mid Cap growth companies. This market cap range limitation applies only to the size of companies we typically consider to be new investment candidates for the Fund. We will continue to hold a position in companies whose market cap has exceeded $15 billion (or falls below $1 billion) based on our ongoing assessment of those companies’ individual risk profiles and expected returns. Prior to this change, we had not made a change to our definition of a Mid Cap company since the Fund’s inception.

 

Sincerely,

 

 

 

Portfolio Manager

Disciplined Growth Investors, Inc.

 

1The Barclay’s Government & Corporate Credit index includes both corporate (publicly-issued, fixed-rate, nonconvertible, investment grade, dollar-denominated, SEC-registered, corporate

 

 

2 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

 

The Disciplined Growth Investors Fund Shareholder Letter

 

October 31, 2019 (Unaudited)

 

    dept.) and government (Treasury Bond index, Agency Bond index, 1-3 Year Government index, and the 20+-Year treasury) indexes, including bonds with maturities up to ten years.

 

2For our purposes, defined here as operating cash flow less capital expenditures (CapEx). Operating Cash Flow is a measure of the amount of cash generated by a company's normal business operations. CapEx comprises money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

 

Asset class-specific performance is before fees. The Fund’s single fee – the management fee – is paid from the Fund’s holding of cash. Total Fund net-of-fees performance is presented in this letter, later in this annual report, and is updated monthly on the Fund’s website, www.dgifund.com.

 

The views of Disciplined Growth Investors, Inc. and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writers’ current views.

 

The views expressed are those of the Fund’s adviser only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither Disciplined Growth Investors, Inc. nor the Fund accepts any liability for losses either direct or consequential caused by the use of this information.

 

The Fund is distributed by ALPS Distributors, Inc.

 

The Fund is subject to investment risks, including possible loss of the principal amount invested and therefore is not suitable for all investors. The Fund may not achieve its objectives.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

Fred Martin is a registered representative of ALPS Distributors, Inc. CFA Institute Marks are trademarks owned by the CFA Institute.

 

The S&P 500® Total Return Index is an unmanaged index of 500 common stocks chosen for market size, liquidity and industry group representation. It is a market-value weighted index. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly in the Index.

 

 

Semi-Annual Report | October 31, 2019 3

 

 

 

The Disciplined Growth Investors Fund Performance Update

 

October 31, 2019 (Unaudited)

 

Annualized Total Return Performance (for the period ended October 31, 2019)

 

  6 month Calendar YTD 1 Year 3 Year 5 Year Since Inception*
The Disciplined Growth Investors Fund 0.95% 18.86% 12.31% 11.41% 8.42% 11.71%
S&P 500® Total Return Index(1) 4.16% 23.16% 14.33% 14.91% 10.78% 14.58%

 

Performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance data may be higher or lower than actual data quoted. For the most current month-end performance data please call 1.855.DGI.FUND.

 

The table does not reflect the deductions of taxes a shareholder would pay on Fund distributions or redemptions of Fund shares.

 

Subject to investment risks, including possible loss of the principal amount invested.

 

Returns for periods less than 1 year are cumulative.

 

*Fund Inception date of August 12, 2011.

 

(1)The S&P 500® Total Return Index is an unmanaged index of 500 common stocks chosen for market size, liquidity and industry group representation. It is a market-value weighted index. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly in the Index.

 

 

4 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

 

The Disciplined Growth Investors Fund Performance Update

 

October 31, 2019 (Unaudited)

 

Growth of $10,000 Investment in the Fund (for the period ended October 31, 2019)

 

 

 

The chart above represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Investing in the Fund is subject to investment risks, including possible loss of the principal amount invested.

 

Industry Sector Allocation

(as a % of Net Assets)*

 

Technology   31.54%
Consumer Discretionary   13.88%
Health Care   11.61%
Industrials   7.09%
Energy   1.73%
Communications   1.55%
Financials   1.40%
Consumer, Cyclical   0.61%
Corporate Bonds   21.74%
Foreign Corporate Bonds   0.64%
Foreign Government Bonds   0.31%
Government & Agency Obligations   6.83%
Other Assets in Excess of Liabilities   1.07%

 

Top Ten Holdings

(as a % of Net Assets)*

 

Edwards Lifesciences Corp.   3.85%
TJX Cos., Inc.   3.73%
Intuit, Inc.   3.04%
Ubiquiti, Inc.   2.69%
Align Technology, Inc.   2.65%
Plexus Corp.   2.50%
Intuitive Surgical, Inc.   2.44%
Open Text Corp.   2.26%
Middleby Corp.   2.21%
FactSet Research Systems, Inc.   1.96%
Top Ten Holdings   27.33%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

 

 

Semi-Annual Report | October 31, 2019 5

 

 

 

The Disciplined Growth Investors Fund Disclosure of Fund Expenses

 

October 31, 2019 (Unaudited)

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund operating expenses. This example is intended to help you understand your ongoing costs (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

 

This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of May 1, 2019 through October 31, 2019.

 

Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

  Beginning Account Value 5/1/2019 Ending Account Value 10/31/2019 Expense Ratio(a) Expenses Paid During period 5/1/2019 - 10/31/2019(b)
Actual $1,000.00 $1,009.50 0.78% $ 3.94
Hypothetical (5% return before expenses) $1,000.00 $1,021.22 0.78% $ 3.96

 

(a)The Fund's expense ratios have been annualized based on the Fund's most recent fiscal half-year expenses.
(b)Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184)/366 (to reflect the half-year period).

 

 

6 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Shares   Value (Note 2) 
COMMON STOCKS (69.41%)          
COMMUNICATIONS (1.55%)          
Media (1.55%)          
Stamps.com, Inc. (a)   36,943   $3,119,098 
TripAdvisor, Inc. (a)   16,505    666,802 
         3,785,900 
           
TOTAL COMMUNICATIONS        3,785,900 
           
CONSUMER DISCRETIONARY (13.88%)          
Apparel & Textile Products (1.15%)          
Ralph Lauren Corp.   12,934    1,242,440 
Under Armour, Inc. , Class A(a)   75,054    1,549,865 
         2,792,305 
           
Automotive Manufacturing (2.24%)          
Gentex Corp.   141,545    3,970,337 
Gentherm, Inc. (a)   35,826    1,496,452 
         5,466,789 
           
Gaming, Lodging & Restaurants (1.93%)          
Cheesecake Factory, Inc.   22,470    939,021 
Royal Caribbean Cruises, Ltd.   34,698    3,776,184 
         4,715,205 
           
Passenger Transportation (1.77%)          
JetBlue Airways Corp. (a)   222,898    4,301,931 
           
Retail - Consumer Discretionary (6.79%)          
Nordstrom, Inc.   71,346    2,561,321 
Sleep Number Corp. (a)   83,681    4,026,730 
TJX Cos., Inc.   157,601    9,085,698 
Urban Outfitters, Inc. (a)   30,431    873,370 
         16,547,119 
           
TOTAL CONSUMER DISCRETIONARY        33,823,349 
           
CONSUMER, CYCLICAL (0.62%)          
Retail (0.62%)          
MSC Industrial Direct Co., Inc. , Class A   20,443    1,496,632 
           
TOTAL CONSUMER, CYCLICAL        1,496,632 

 

 

Semi-Annual Report | October 31, 2019 7

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Shares   Value (Note 2) 
ENERGY (1.73%)        
Oil, Gas & Coal (1.73%)        
Cabot Oil & Gas Corp.   96,226   $1,793,653 
Core Laboratories NV   28,475    1,254,039 
Southwestern Energy Co. (a)   535,154    1,097,066 
Ultra Petroleum Corp. (a)   337,188    67,437 
         4,212,195 
           
TOTAL ENERGY        4,212,195 
           
FINANCIALS (1.40%)          
Banking (0.46%)          
TCF Financial Corp.   28,375    1,123,366 
           
Specialty Finance (0.94%)          
Deluxe Corp.   44,206    2,291,197 
           
TOTAL FINANCIALS        3,414,563 
           
HEALTH CARE (11.61%)          
Medical Equipment & Devices Manufacturing (11.61%)          
Align Technology, Inc. (a)   25,576    6,452,569 
Edwards Lifesciences Corp. (a)   39,356    9,381,683 
Intuitive Surgical, Inc. (a)   10,754    5,946,424 
Myriad Genetics, Inc. (a)   102,968    3,466,933 
Varian Medical Systems, Inc. (a)   25,305    3,057,097 
         28,304,706 
           
TOTAL HEALTH CARE        28,304,706 
           
INDUSTRIALS (7.08%)          
Electrical Equipment Manufacturing (1.59%)          
Cognex Corp.   75,310    3,877,712 
           
Machinery Manufacturing (3.01%)          
Graco, Inc.   43,386    1,961,047 
Middleby Corp. (a)   44,439    5,374,897 
         7,335,944 
Manufactured Goods (1.04%)          
Proto Labs, Inc. (a)   26,215    2,542,068 

 

 

8 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Shares   Value (Note 2) 
INDUSTRIALS (continued)        
Transportation & Logistics (1.44%)        
Landstar System, Inc.   30,964   $3,503,577 
           
TOTAL INDUSTRIALS        17,259,301 
           
TECHNOLOGY (31.54%)          
Design, Manufacturing & Distribution (2.50%)          
Plexus Corp. (a)   82,562    6,104,634 
           
Hardware (10.64%)          
Dolby Laboratories, Inc. , Class A   67,768    4,359,515 
Garmin, Ltd.   49,173    4,609,969 
Plantronics, Inc.   59,136    2,331,141 
Pure Storage, Inc. , Class A(a)   113,655    2,211,726 
Super Micro Computer, Inc. (a)   144,011    2,978,148 
Ubiquiti, Inc.   51,883    6,567,869 
ViaSat, Inc. (a)   41,592    2,863,193 
         25,921,561 
           
Semiconductors (3.80%)          
IPG Photonics Corp. (a)   12,927    1,735,837 
Microchip Technology, Inc.   31,555    2,975,321 
Power Integrations, Inc.   49,825    4,539,556 
         9,250,714 
           
Software (11.17%)          
Akamai Technologies, Inc. (a)   54,292    4,696,258 
Autodesk, Inc. (a)   30,216    4,452,630 
Intuit, Inc.   28,810    7,418,575 
Manhattan Associates, Inc. (a)   20,701    1,551,540 
Open Text Corp.   137,000    5,515,620 
RealPage, Inc. (a)   59,502    3,602,846 
         27,237,469 

 

 

Semi-Annual Report | October 31, 2019 9

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Shares   Value (Note 2) 
TECHNOLOGY (continued)        
Technology Services (3.43%)        
FactSet Research Systems, Inc.   18,888   $4,788,486 
IHS Markit, Ltd. (a)   27,705    1,939,904 
Paychex, Inc.   19,487    1,629,893 
         8,358,283 
           
TOTAL TECHNOLOGY        76,872,661 
           
TOTAL COMMON STOCKS          
(Cost $105,224,871)        169,169,307 

 

   Principal Amount   Value (Note 2) 
CORPORATE BONDS (21.74%)        
COMMUNICATIONS (1.33%)        
Cable & Satellite (0.35%)        
Comcast Corp.        
3.375% 08/15/2025  $810,000    863,657 
           
Entertainment Content (0.32%)          
CBS Corp.          
4.000% 01/15/2026   726,000    778,811 
           
Wireless Telecommunications Services (0.66%)          
AT&T, Inc.          
4.250% 03/01/2027   741,000    814,495 
4.450% 04/01/2024   4,000    4,339 
Verizon Communications, Inc.          
4.125% 03/16/2027   698,000    778,438 
         1,597,272 
           
TOTAL COMMUNICATIONS        3,239,740 
           
CONSUMER DISCRETIONARY (2.34%)          
Airlines (0.32%)          
Southwest Airlines Co.          
3.000% 11/15/2026   756,000    775,874 
           
Automobiles Manufacturing (0.31%)          
General Motors Financial Co., Inc.          
5.250% 03/01/2026   695,000    754,563 

 

 

10 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
CONSUMER DISCRETIONARY (continued)        
Consumer Services (0.32%)        
Cintas Corp. No 2        
3.700% 04/01/2027  $710,000   $777,075 
           
Restaurants (0.33%)          
McDonald's Corp., Series MTN          
6.300% 03/01/2038   604,000    824,184 
           
Retail - Consumer Discretionary (1.06%)          
Advance Auto Parts, Inc.          
4.500% 12/01/2023   685,000    739,203 
Amazon.com, Inc.          
5.200% 12/03/2025   885,000    1,042,117 
Lowe's Cos., Inc.          
3.650% 04/05/2029   742,000    799,089 
         2,580,409 
           
TOTAL CONSUMER DISCRETIONARY        5,712,105 
           
CONSUMER STAPLES (0.32%)          
Mass Merchants (0.32%)          
Costco Wholesale Corp.          
2.750% 05/18/2024   760,000    789,558 
           
TOTAL CONSUMER STAPLES        789,558 
           
CONSUMER, NON-CYCLICAL (0.62%)          
Pharmaceuticals (0.62%)          
AbbVie, Inc.          
4.250% 11/14/2028   695,000    755,988 
CVS Health Corp.          
4.300% 03/25/2028   685,000    744,198 
         1,500,186 
           
TOTAL CONSUMER, NON-CYCLICAL        1,500,186 
           
ENERGY (2.19%)          
Exploration & Production (0.32%)          
Conoco Funding Co.          
7.250% 10/15/2031   551,000    784,064 

 

 

Semi-Annual Report | October 31, 2019 11

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
ENERGY (continued)        
Pipeline (1.87%)        
Boardwalk Pipelines LP        
5.950% 06/01/2026  $670,000   $751,656 
Enbridge Energy Partners LP          
4.200% 09/15/2021   4,000    4,137 
5.875% 10/15/2025   643,000    748,627 
Enterprise Products Operating LLC          
3.950% 02/15/2027   710,000    768,379 
MPLX LP          
4.125% 03/01/2027   748,000    786,182 
ONEOK, Inc.          
4.550% 07/15/2028   694,000    755,996 
Williams Cos., Inc.          
3.750% 06/15/2027   718,000    748,185 
         4,563,162 
           
TOTAL ENERGY        5,347,226 
           
FINANCIALS (4.08%)          
Banks (0.95%)          
BB&T Corp., Series MTN          
3.875% 03/19/2029   695,000    757,302 
US Bancorp, Series MTN          
3.100% 04/27/2026   739,000    774,606 
Wells Fargo & Co., Series GMTN          
4.300% 07/22/2027   710,000    777,024 
         2,308,932 
           
Consumer Finance (0.31%)          
American Express Co.          
3.625% 12/05/2024   708,000    751,901 
           
Diversified Banks (0.95%)          
Bank of America Corp., Series L          
4.183% 11/25/2027   715,000    775,097 
Citigroup, Inc.          
4.300% 11/20/2026   720,000    781,306 
JPMorgan Chase & Co.          
4.125% 12/15/2026   690,000    754,331 
         2,310,734 
           
Financial Services (0.61%)          
Morgan Stanley, Series GMTN          
3.700% 10/23/2024   690,000    734,148 

 

 

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The Disciplined Growth Investors Fund Portfolio of Investments

 

 October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
FINANCIALS (continued)          
Financial Services (continued)          
Northern Trust Corp.          
3.950% 10/30/2025  $693,000   $758,773 
         1,492,921 
Life Insurance (0.31%)          
Principal Financial Group, Inc.          
3.100% 11/15/2026   726,000    753,881 
           
Property & Casualty Insurance (0.32%)          
American International Group, Inc.          
4.250% 03/15/2029   700,000    775,865 
           
Real Estate (0.63%)          
Simon Property Group LP          
3.250% 11/30/2026   728,000    767,545 
Welltower, Inc.          
4.250% 04/01/2026   712,000    778,728 
         1,546,273 
           
TOTAL FINANCIALS        9,940,507 
           
HEALTH CARE (0.96%)          
Managed Care (0.62%)          
Anthem, Inc.          
3.650% 12/01/2027   731,000    773,919 
UnitedHealth Group, Inc.          
3.750% 07/15/2025   691,000    750,032 
         1,523,951 
           
Pharmaceuticals (0.34%)          
Johnson & Johnson          
5.850% 07/15/2038   572,000    817,638 
           
TOTAL HEALTH CARE        2,341,589 
           
INDUSTRIALS (3.52%)          
Aerospace & Defense (0.92%)          
Lockheed Martin Corp.          
3.100% 01/15/2023   680,000    705,038 
Rockwell Collins, Inc.          
3.500% 03/15/2027   730,000    781,542 

 

 

Semi-Annual Report | October 31, 2019 13

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
INDUSTRIALS (continued)        
Aerospace & Defense (continued)        
United Technologies Corp.        
3.950% 08/16/2025  $680,000   $744,967 
         2,231,547 
           
Electrical Equipment Manufacturing (0.32%)          
General Electric Co., Series MTN          
5.875% 01/14/2038   653,000    782,218 
           
Engineering & Construction (0.29%)          
Fluor Corp.          
4.250% 09/15/2028   725,000    718,883 
           
Railroad (0.70%)          
Burlington Northern Santa Fe LLC          
3.000% 03/15/2023   2,000    2,065 
3.400% 09/01/2024   875,000    931,692 
Union Pacific Corp.          
3.250% 08/15/2025   735,000    775,831 
         1,709,588 
           
Transportation & Logistics (0.64%)          
FedEx Corp.          
3.300% 03/15/2027   756,000    782,013 
United Parcel Service, Inc.          
6.200% 01/15/2038   558,000    777,633 
         1,559,646 
           
Waste & Environment Services & Equipment (0.65%)          
Republic Services, Inc.          
3.375% 11/15/2027   735,000    784,962 
Waste Management, Inc.          
3.150% 11/15/2027   745,000    787,309 
         1,572,271 
           
TOTAL INDUSTRIALS        8,574,153 

 

 

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The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
MATERIALS (0.31%)        
Chemicals (0.31%)        
DuPont de Nemours, Inc.        
4.725% 11/15/2028  $666,000   $760,008 
           
TOTAL MATERIALS        760,008 
           
TECHNOLOGY (0.32%)          
Semiconductors (0.32%)          
Analog Devices, Inc.          
3.900% 12/15/2025   711,000    767,885 
           
TOTAL TECHNOLOGY        767,885 
           
UTILITIES (5.75%)          
Utilities (5.75%)          
Ameren Corp.          
2.500% 09/15/2024   690,000    695,497 
American Electric Power Co., Inc.          
3.200% 11/13/2027   731,000    770,107 
Black Hills Corp.          
3.150% 01/15/2027   700,000    710,669 
CenterPoint Energy, Inc.          
3.850% 02/01/2024   700,000    741,945 
CMS Energy Corp.          
3.000% 05/15/2026   760,000    782,612 
Dominion Energy, Inc., Series B          
2.750% 09/15/2022   695,000    707,190 
DTE Energy Co., Series C          
3.500% 06/01/2024   715,000    748,101 
Duke Energy Corp.          
3.950% 10/15/2023   690,000    733,506 
Edison International          
2.400% 09/15/2022   745,000    728,307 
Interstate Power & Light Co.          
3.400% 08/15/2025   723,000    758,632 
ITC Holdings Corp.          
4.050% 07/01/2023   540,000    568,257 
NiSource, Inc.          
3.850% 02/15/2023   695,000    724,790 
Potomac Electric Power Co.          
3.600% 03/15/2024   698,000    741,956 
PPL Capital Funding, Inc.          
3.100% 05/15/2026   820,000    840,870 

 

 

Semi-Annual Report | October 31, 2019 15

 

 

 

The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
UTILITIES (continued)        
Utilities (continued)        
PSEG Power LLC        
4.300% 11/15/2023  $675,000   $718,326 
Puget Energy, Inc.          
3.650% 05/15/2025   725,000    755,061 
Sempra Energy          
2.875% 10/01/2022   720,000    734,774 
Virginia Electric & Power Co., Series A          
3.800% 04/01/2028   710,000    782,154 
Wisconsin Electric Power Co.          
3.100% 06/01/2025   735,000    768,230 
         14,010,984 
           
TOTAL UTILITIES        14,010,984 
           
TOTAL CORPORATE BONDS         
(Cost $49,954,468)        52,983,941 
           
FOREIGN CORPORATE BONDS (0.64%)          
ENERGY (0.33%)          
Pipeline (0.33%)          
TransCanada PipeLines, Ltd.          
7.250% 08/15/2038   572,000    813,285 
           
TOTAL ENERGY        813,285 
           
FINANCIALS (0.31%)          
Diversified Banks (0.31%)          
Royal Bank of Canada, Series GMTN          
2.550% 07/16/2024   746,000    757,571 
           
TOTAL FINANCIALS        757,571 
           
TOTAL FOREIGN CORPORATE BONDS         
(Cost $1,488,801)        1,570,856 
           
FOREIGN GOVERNMENT BONDS (0.31%)          
Corp Andina de Fomento          
4.375% 06/15/2022   712,000    751,018 
           
TOTAL FOREIGN GOVERNMENT BONDS          
(Cost $742,930)        751,018 

 

 

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The Disciplined Growth Investors Fund Portfolio of Investments

 

October 31, 2019 (Unaudited)

 

   Principal Amount   Value (Note 2) 
GOVERNMENT & AGENCY OBLIGATIONS (6.82%)        
U.S. Treasury Bonds        
1.500% 08/15/2026  $689,000   $684,452 
2.875% 05/15/2028   2,000,000    2,194,219 
6.500% 11/15/2026   77,000    102,129 
U.S. Treasury Notes          
1.250% 01/31/2020   4,500,000    4,496,748 
1.375% 09/15/2020   1,150,000    1,148,001 
1.375% 01/31/2021   3,550,000    3,541,125 
1.500% 04/15/2020   4,470,000    4,468,865 
           
TOTAL GOVERNMENT & AGENCY OBLIGATIONS          
(Cost $16,375,447)        16,635,539 

 

   Yield   Shares   Value (Note 2) 
SHORT TERM INVESTMENTS (0.89%)               
(0.89%)               
Fidelity Investments Money Market Government Portfolio - Class I   1.736%(b)   2,163,609    2,163,609 
                
TOTAL SHORT TERM INVESTMENTS              
(Cost $2,163,609)             2,163,609 
                
TOTAL INVESTMENTS (99.81%)               
(Cost $175,950,126)            $243,274,270 
                
Other Assets In Excess Of Liabilities (0.19%)             456,266 
                
NET ASSETS (100.00%)            $243,730,536 

 

(a)Non-Income Producing Security.
(b)Represents the 7-day yield.

 

For Fund compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percent of net assets.

 

See Notes to Financial Statements.

 

 

Semi-Annual Report | October 31, 2019 17

 

 

 

The Disciplined Growth Investors Fund Statement of Assets and Liabilities

 

October 31, 2019 (Unaudited)

 

ASSETS    
Investments, at value  $243,274,270 
Receivable for shares sold   25 
Dividends and interest receivable   627,373 
Total assets   243,901,668 
      
LIABILITIES     
Payable for shares redeemed   14,000 
Payable to adviser   157,132 
Total liabilities   171,132 
NET ASSETS  $243,730,536 
      
NET ASSETS CONSIST OF     
Paid-in capital (Note 5)  $169,592,852 
Distributable Earnings   74,137,684 
NET ASSETS  $243,730,536 
      
INVESTMENTS, AT COST  $175,950,126 
      
PRICING OF SHARES     
Net Asset Value, offering and redemption price per share  $21.27 
Shares of beneficial interest outstanding   11,460,248 

 

See Notes to Financial Statements.

 

 

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The Disciplined Growth Investors Fund Statement of Operations

 

 

   For the Six Months Ended October 31, 2019 (Unaudited) 
INVESTMENT INCOME    
Dividends  $705,638 
Foreign taxes withheld   (11,874)
Interest   1,152,822 
Total investment income   1,846,586 
      
EXPENSES     
Investment advisory fees (Note 6)   920,281 
Total expenses   920,281 
NET INVESTMENT INCOME   926,305 
      
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS     
Net realized gain on investments   3,701,404 
Net change in unrealized depreciation on investments   (2,380,663)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS   1,320,741 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $2,247,046 

 

See Notes to Financial Statements.

 

 

Semi-Annual Report | October 31, 2019 19

 

 

The Disciplined Growth Investors Fund Statements of Changes in Net Assets

 

 

   For the Six Months Ended October 31, 2019 (Unaudited)   For the Year Ended April 30, 2019 
OPERATIONS        
Net investment income  $926,305   $1,766,931 
Net realized gain   3,701,404    7,977,814 
Net change in unrealized appreciation/(depreciation)   (2,380,663)   21,055,807 
Net increase in net assets resulting from operations   2,247,046    30,800,552 
           
DISTRIBUTIONS (Note 3)          
Total distributions to shareholders   (883,844)   (7,508,119)
Net decrease in net assets from distributions   (883,844)   (7,508,119)
           
CAPITAL SHARE TRANSACTIONS (Note 5)          
Proceeds from sales of shares   5,316,088    20,768,296 
Issued to shareholders in reinvestment of distributions   876,683    7,471,582 
Cost of shares redeemed   (3,996,961)   (15,429,264)
Net increase from capital share transactions   2,195,810    12,810,614 
           
Net increase in net assets   3,559,012    36,103,047 
           
NET ASSETS          
Beginning of period   240,171,524    204,068,477 
End of period  $243,730,536   $240,171,524 
           
OTHER INFORMATION          
Share Transactions          
Issued   258,705    1,042,174 
Issued to shareholders in reinvestment of distributions   42,628    410,272 
Redeemed   (194,439)   (770,890)
Net increase in share transactions   106,894    681,556 

 

See Notes to Financial Statements.

 

 

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Page Intentionally Left Blank

 

 

 

The Disciplined Growth Investors Fund

 

 

NET ASSET VALUE, BEGINNING OF PERIOD 
  
INCOME FROM OPERATIONS 
Net investment income(a) 
Net realized and unrealized gain/(loss) on investments 
Total from investment operations 
  
DISTRIBUTIONS 
From net investment income 
From net realized gain on investments 
Total distributions 
  
REDEMPTION FEES ADDED TO PAID-IN CAPITAL 
INCREASE/(DECREASE) IN NET ASSET VALUE 
NET ASSET VALUE, END OF PERIOD 
  
TOTAL RETURN 
  
RATIOS AND SUPPLEMENTAL DATA 
Net assets, end of period (000's) 
  
RATIOS TO AVERAGE NET ASSETS 
Expenses 
Net investment income 
  
PORTFOLIO TURNOVER RATE 

 

(a)Per share numbers have been calculated using the average shares method.
(b)Not annualized.
(c)In 2018 the Fund's total return consists of a voluntary reimbursement by the advisor for a realized investment loss. Excluding this item, total return would not have been impacted.
(d)Annualized.

 

See Notes to Financial Statements.

 

 

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Financial Highlights

For a share outstanding during the periods presented

 

For the Six Months Ended October 31, 2019 (Unaudited)   For the Year Ended April 30, 2019   For the Year Ended April 30, 2018   For the Year Ended April 30, 2017   For the Year Ended April 30, 2016   For the Year Ended April 30, 2015 
$21.15   $19.12   $18.20   $15.96   $16.75   $15.02 
                            
 0.08    0.16    0.12    0.09    0.09    0.10 
 0.12    2.55    1.64    2.29    (0.44)   1.83 
 0.20    2.71    1.76    2.38    (0.35)   1.93 
                            
 (0.08)   (0.12)   (0.12)   (0.09)   (0.10)   (0.09)
     (0.56)   (0.72)   (0.05)   (0.34)   (0.11)
 (0.08)   (0.68)   (0.84)   (0.14)   (0.44)   (0.20)
                            
                      
 0.12    2.03    0.92    2.24    (0.79)   1.73 
$21.27   $21.15   $19.12   $18.20   $15.96   $16.75 
                            
 0.95%(b)   14.74%   9.75%(c)   14.96%   (2.05%)   12.87%
                            
$243,731   $240,172   $204,068   $159,774   $119,857   $113,342 
                            
 0.78%(d)   0.78%   0.78%   0.78%   0.78%   0.78%
 0.79%(d)   0.80%   0.64%   0.50%   0.59%   0.61%
                            
 10%(b)   22%   18%   16%   13%   14%

 

 

Semi-Annual Report | October 31, 2019 23

 

 

The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

1. ORGANIZATION

 

 

Financial Investors Trust (the “Trust”), a Delaware statutory trust, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Trust consists of multiple separate portfolios or series. This semi-annual report describes The Disciplined Growth Investors Fund (the “Fund”). The Fund seeks long-term capital growth and as a secondary objective, modest income with reasonable risk.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

 

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. The Fund is considered an investment company for financial reporting purposes under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies in the Financial Accounting Standards Board Accounting Standards Codification Topic 946. The following is a summary of significant accounting policies consistently followed by the Fund in preparation of its financial statements.

 

Investment Valuation: The Fund generally values its securities based on market prices determined at the close of regular trading on the New York Stock Exchange (“NYSE”), normally 4:00 p.m. Eastern Time, on each day the NYSE is open for trading.

 

For equity securities and mutual funds that are traded on an exchange, the market price is usually the closing sale or official closing price on that exchange. In the case of equity securities not traded on an exchange, or if such closing prices are not otherwise available, the securities are valued at the mean of the most recent bid and ask prices on such day. Redeemable securities issued by open-end registered investment companies are valued at the investment company’s applicable net asset value, with the exception of exchange-traded open-end investment companies, which are priced as equity securities.

 

The market price for debt obligations is generally the price supplied by an independent third-party pricing service approved by the Board of Trustees of the Trust (the “Board” or the “Trustees”), which may use a matrix, formula or other objective method that takes into consideration quotations from dealers, market transactions in comparable investments, market indices and yield curves. If vendors are unable to supply a price, or if the price supplied is deemed to be unreliable, the market price may be determined using quotations received from one or more broker–dealers that make a market in the security. Fixed-income obligations, excluding municipal securities, having a remaining maturity of greater than 60 days, are typically valued at the mean between the evaluated bid and ask prices formulated by an independent pricing service. Corporate Bonds, U.S. Government & Agency, and U.S. Treasury Bonds & Notes are valued using market models that consider trade data, quotations from dealers and active market makers, relevant yield curve and spread data, creditworthiness, trade data or market information on comparable securities, and other relevant security specific information. Publicly traded Foreign Government Debt securities and Foreign Corporate Bonds are

 

 

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The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

typically traded internationally in the over-the-counter market and are valued at the mean between the bid and asked prices as of the close of business of that market. Mortgage-related and asset-backed securities are valued based on models that consider trade data, prepayment and default projections, benchmark yield and spread data and estimated cash flows of each tranche of the issuer. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market and are valued at the mean between the bid and asked prices as of the close of business of that market.

 

When such prices or quotations are not available, or when Disciplined Growth Investors, Inc. (the “Adviser”) believes that they are unreliable, securities may be priced using fair value procedures approved by the Board.

 

Fair Value Measurements: The Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

 

Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

Level 1 –Unadjusted quoted prices in active markets for identical investments, unrestricted assets or liabilities that the Fund has the ability to access at the measurement date;

 

Level 2 –Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

 

Level 3 –Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

 

 

Semi-Annual Report | October 31, 2019 25

 

 

The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

The following is a summary of each input used to value the Fund as of October 31, 2019:

 

Investments in Securities at Value  Level 1 - Unadjusted Quoted Prices   Level 2 - Other Significant Observable Inputs   Level 3 - Significant Unobservable Inputs   Total 
Common Stocks(a)  $169,169,307   $   $   $169,169,307 
Corporate Bonds(a)       52,983,941        52,983,941 
Foreign Corporate Bonds(a)       1,570,856        1,570,856 
Foreign Government Bonds       751,018        751,018 
Government & Agency Obligations       16,635,539        16,635,539 
Short Term Investments   2,163,609            2,163,609 
TOTAL  $171,332,916   $71,941,354   $   $243,274,270 

 

(a)For detailed descriptions of the underlying industries, see the accompanying Portfolio of Investments.

 

For the six months ended October 31, 2019, the Fund did not have any securities that used significant unobservable inputs (Level 3) in determining fair value.

 

Investment Transactions and Investment Income: Investment transactions are accounted for on the date the investments are purchased or sold (trade date). Realized gains and losses from investment transactions are reported on an identified cost basis, which is the same basis the Fund uses for federal income tax purposes. Interest income, which includes accretion of discounts, is accrued and recorded as earned. Dividend income is recognized on the ex-dividend date or for certain foreign securities, as soon as information is available to the Fund.

 

Trust Expenses: Some expenses of the Trust can be directly attributed to the Fund. Expenses which cannot be directly attributed to the Fund are apportioned among all funds in the Trust based on average net assets of each fund.

 

Fund Expenses: Expenses that are specific to the Fund are charged directly to the Fund.

 

Federal Income Taxes: The Fund complies with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and intends to distribute substantially all of their net taxable income and net capital gains, if any, each year so that it will not be subject to excise tax on undistributed income and gains. The Fund is not subject to income taxes to the extent such distributions are made.

 

As of and during the six months ended October 31, 2019, the Fund did not have a liability for any unrecognized tax benefits. The Fund files U.S. federal, state, and local tax returns as required. The Fund’s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return for federal purposes and four years for most state returns. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

 

 

26 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

Distributions to Shareholders: The Fund normally pays dividends, if any, quarterly and distributes capital gains, if any, on an annual basis. Income dividend distributions are derived from dividends and other income the Fund receives from its investments, including short term capital gains. Long term capital gain distributions are derived from gains realized when the Fund sells a security it has owned for more than a year. The Fund may make additional distributions and dividends at other times if the portfolio manager believes doing so may be necessary for the Fund to avoid or reduce taxes.

 

3. TAX BASIS INFORMATION

 

 

Tax Basis of Investments: As of October 31, 2019, the aggregate cost of investments, gross unrealized appreciation/ (depreciation) and net unrealized appreciation for Federal tax purposes was as follows:

 

   The Disciplined Growth Investors Fund 
Gross appreciation (excess of value over tax cost)  $74,661,020 
Gross depreciation (excess of tax cost over value)   (7,336,876)
Net unrealized appreciation  $67,324,144 
Cost of investments for income tax purposes  $175,950,126 

 

Tax Basis of Distributions to Shareholders: The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

 

The tax character of distributions paid during the year ended April 30, 2019, were as follows:

 

   Ordinary Income   Long-Term Capital Gain 
The Disciplined Growth Investors Fund  $1,871,972   $5,636,147 

 

The amounts and characteristics of tax basis distributions and composition of distributable earnings/(accumulated losses) are finalized at fiscal year-end. Accordingly, tax basis balances have not been determined as of October 31, 2019.

 

 

Semi-Annual Report | October 31, 2019 27

 

 

The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

4. SECURITIES TRANSACTIONS

 

 

The Fund utilizes transfer in-kind transactions with the intent of saving on equity transaction costs for new shareholders at the institution they transferred from and for the Fund on the addition of assets. During the six months ended October 31, 2019, no assets were transferred in-kind.

 

The cost of purchases and proceeds from sales of securities (excluding short-term securities, transfers-in-kind, and U.S. Government Obligations) during the six months ended October 31, 2019, were as follows:

 

Fund  Purchases of Securities   Proceeds From Sales of Securities 
The Disciplined Growth Investors Fund  $19,426,355   $16,859,291 

 

Investment transactions in U.S. Government Obligations (excluding transfers-in-kind) during the six months ended October 31, 2019 were as follows:

 

Fund  Purchases of Securities   Proceeds From Sales of Securities 
The Disciplined Growth Investors Fund  $4,685,748   $6,092,934 

 

5. SHARES OF BENEFICIAL INTEREST

 

 

The capitalization of the Trust consists of an unlimited number of shares of beneficial interest with no par value per share. Holders of the shares of the Fund of the Trust have one vote for each share held and a proportionate fraction of a vote for each fractional share. All shares issued and outstanding are fully paid and are transferable and redeemable at the option of the shareholder. Purchasers of the shares do not have any obligation to make payments to the Trust or its creditors (other than the purchase price for the shares or make contributions to the Trust or its creditors solely by reason of the purchasers’ ownership of the shares. Shares have no pre-emptive rights.

 

6. MANAGEMENT AND RELATED-PARTY TRANSACTIONS

 

 

The Adviser, subject to the authority of the Board, is responsible for the overall management and administration of the Fund’s business affairs. The Adviser manages the investments of the Fund in accordance with the Fund’s investment objective, policies and limitations and investment guidelines established jointly by the Adviser and the Trustees. Pursuant to the Advisory Agreement, the Fund pays the Adviser a unitary management fee for the services and facilities it provides payable on a monthly basis at the annual rate of 0.78% of the Fund’s average daily net assets. The management fee is paid on a monthly basis.

 

Out of the unitary management fee, the Adviser pays substantially all expenses of the Fund, including the cost of transfer agency, custody, fund administration, bookkeeping and pricing services, legal, audit and other services, except for interest expenses, brokerage expenses, taxes and extraordinary expenses not incurred in the ordinary course of the Fund’s business. Also included are Trustee fees which were $4,375 for the six months ended October 31, 2019.

 

 

28 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

The Disciplined Growth Investors Fund Notes to Financial Statements

 

October 31, 2019 (Unaudited)

 

Fund Administrator Fees and Expenses

ALPS Fund Services, Inc. (“ALPS”) serves as administrator to the Fund. Pursuant to an Administration Agreement, ALPS provides operational services to the Fund including, but not limited to, fund accounting and fund administration and generally assists in the Fund’s operations. Officers of the Trust are employees of ALPS. The Fund’s administration fee is accrued on a daily basis and paid monthly. The Administrator is also reimbursed for certain out-of-pocket expenses. The administrative fee and out-of-pocket expenses are included in the unitary management fee paid to the Adviser.

 

Transfer Agent

ALPS serves as transfer, dividend paying and shareholder servicing agent for the Fund. ALPS receives an annual minimum fee, a fee based upon the number of shareholder accounts, and is also reimbursed for certain out-of-pocket expenses. The fee and out-of-pocket expenses are included in the unitary management fee paid to the Adviser.

 

Compliance Services

ALPS provides services that assist the Trust’s chief compliance officer in monitoring and testing the policies and procedures of the Trust in conjunction with requirements under Rule 38a-1 under the 1940 Act and receives an annual base fee. ALPS is reimbursed for certain out-of-pocket expenses. The fee and out-of-pocket expenses are included in the unitary management fee paid to the Adviser.

 

Principal Financial Officer

ALPS receives an annual fee for providing principal financial officer services to the Fund. The fee is included in the unitary management fee paid to the Adviser.

 

Distributor

ALPS Distributors, Inc. (“ADI” or the “Distributor”) (an affiliate of ALPS) acts as the distributor of the Fund’s shares pursuant to a Distribution Agreement with the Trust. Shares are sold on a continuous basis by ADI as agent for the Fund, and ADI has agreed to use its best efforts to solicit orders for the sale of the Fund’s shares, although it is not obliged to sell any particular amount of shares. ADI is not entitled to any compensation for its services as Distributor. ADI is registered as a broker-dealer with the Securities and Exchange Commission.

 

7. INDEMNIFICATIONS

 

 

Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that may contain general indemnification clauses, which may permit indemnification to the extent permissible under applicable law. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred.

 

8. SUBSEQUENT EVENTS

 

 

Subsequent events after the date of the Statement of Assets and Liabilities have been evaluated through the date the financial statements were issued.

 

 

Semi-Annual Report | October 31, 2019 29

 

 

The Disciplined Growth Investors Fund Additional Information

 

October 31, 2019 (Unaudited)

 

1. FUND HOLDINGS

 

 

The Fund’s portfolio holdings are made available semi-annually in shareholder reports within 60 days after the close of the period for which the report is being made, as required by federal securities laws. The Fund also files monthly portfolio holdings on Form N-PORT on a quarterly basis, with the schedule of portfolio holdings filed on Form N-PORT for the third month of the Fund’s fiscal quarter made publicly available 60 days after the end of the Fund’s fiscal quarter.

 

2. FUND PROXY VOTING POLICIES, PROCEDURES AND SUMMARIES

 

 

The Fund’s policies and procedures used in determining how to vote proxies and information regarding how the Fund voted proxies relating to portfolio securities during the most recent prior 12-month period ending June 30 are available without charge, (1) upon request, by calling (toll-free) 855-DGI-Fund and (2) on the SEC’s website at http://www.sec.gov.

 

 

30 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

The Disciplined Growth Investors Fund Privacy Policy

 

 

WHO WE ARE  
Who is providing this notice? The Disciplined Growth Investors Fund
WHAT WE DO  
How does the Fund protect my personal information? To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

 

 

How does the Fund collect my personal information?

We collect your personal information, for example, when you  

 

     open an account

     provide account information or give us your contact information

     make a wire transfer or deposit money

 

 

Why can’t I limit all sharing?

Federal law gives you the right to limit only

 

     sharing for affiliates’ everyday business purposes-information about your creditworthiness

     affiliates from using your information to market to you

     sharing for non-affiliates to market to you

 

State laws and individual companies may give you additional rights to limit sharing.

DEFINITIONS  
Affiliates Companies related by common ownership or control. They can be financial and nonfinancial companies.

 

Non-affiliates 

Companies not related by common ownership or control. They can be financial and nonfinancial companies.

 

     The Fund does not share with non-affiliates so they can market to you.

Joint marketing 

A formal agreement between non-affiliated financial companies that together market financial products or services to you. 

 

     The Fund does not jointly market.

 

 

Semi-Annual Report | October 31, 2019 31

 

 

The Disciplined Growth Investors Fund Privacy Policy

 

 

FACTS WHAT DOES THE FUND DO WITH YOUR PERSONAL INFORMATION?
WHY? Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do.
WHAT? The types of personal information we collect and share depend on the product or service you have with us. This information can include:
 

     Social Security number and account transactions

     Account balances and transaction history

     Wire transfer instructions

HOW? All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons the Fund chooses to share; and whether you can limit this sharing.

 

REASONS WE CAN SHARE YOUR PERSONAL INFORMATION DOES THE FUND SHARE: CAN YOU LIMIT THIS SHARING?
For our everyday business purposes –
such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus
Yes No
For our marketing purposes –
to offer our products and services to you
No We do not share.
For joint marketing with other financial companies No We do not share.
For our affiliates’ everyday business purposes –
information about your transactions and experiences
Yes No
For our affiliates’ everyday business purposes –
information about your creditworthiness
No We do not share.
For non-affiliates to market to you No We do not share.

 

 

32 1-855-DGI-FUND (344-3863) | www.DGIfund.com

 

 

The Disciplined Growth Investors Fund Privacy Policy

 

 

OTHER IMPORTANT INFORMATION
California Residents If your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.
Vermont Residents The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with affiliated companies and nonaffiliated third parties other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or other affiliated companies unless you provide us with your written consent to share such information.

 

 

Semi-Annual Report | October 31, 2019 33

 

 

 

 

THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.

THE DISCIPLINED GROWTH INVESTORS FUND IS DISTRIBUTED BY ALPS DISTRIBUTORS, INC.

 

 

 

 

TABLE OF CONTENTS

 

Manager Commentary  
Emerald Growth Fund 1
Emerald Small Cap Value Fund 6
Emerald Insights Fund 12
Emerald Banking and Finance Fund 17
Disclosure of Fund Expenses 23
Schedule of Investments  
Emerald Growth Fund 25
Emerald Small Cap Value Fund 27
Emerald Insights Fund 29
Emerald Banking and Finance Fund 31
Statements of Assets and Liabilities 33
Statements of Operations 34
Statements of Changes in Net Assets  
Emerald Growth Fund 35
Emerald Small Cap Value Fund 37
Emerald Insights Fund 39
Emerald Banking and Finance Fund 41
Financial Highlights  
Emerald Growth Fund 43
Emerald Small Cap Value Fund 47
Emerald Insights Fund 51
Emerald Banking and Finance Fund 55
Notes to Financial Statements 59
Additional Information 67
Privacy Policy 68

 

 

 

Emerald Growth Fund Manager Commentary

 

  October 31, 2019 (Unaudited)

 

October 31, 2019

 

Dear Shareholders:

 

Investment Results:

The performance of the Emerald Growth Fund’s Class A shares (without sales load), for the six months ended October 31, 2019, declined by -4.23%, trailing the Russell 2000® Growth Index which declined by -1.73%.

 

Performance data quoted represents past performance. Past performance does not guarantee future results.

 

The market had a lot to contend with during the course of the last six months as trade tensions with China escalated, bond yields rallied, then retreated and rallied again, the 2yr-10yr yield curve inverted then steepened, downward revisions to global and domestic economic and earnings growth, fluctuating opinions on the pace at which the Federal Reserve (the “Fed”) will lower interest rates and the necessity of the cuts, ongoing social unrest in Hong Kong and last but not least the late September announcement of a Democratic led impeachment inquiry of President Trump.

 

The fall-out of all of the aforementioned was a meaningful late period style rotation which pressured growth stocks and drove meaningful outperformance by value stocks. After lagging throughout the first eight months of 2019, value stocks gained significant ground on their growth counterparts during the third calendar quarter. Value stocks surged driven by a meaningful factor rotation in the marketplace that took place during the month of September in which investors aggressively sold growth/momentum stocks and rotated to areas of the market that have underperformed and were more value in orientation. The shift occurred in tandem with a significant rally in treasury yields which was reflective of what we believe was a string of steadying global economic growth statistics, which appeared to indicate some level of stabilization in the global economic outlook. The abruptness and velocity of the shift was notable in its magnitude particularly during the month of September, with the Russell 2000® Growth underperforming the Russell 2000® Value by 596 basis points (bps) for the month.

 

The Value rotation was particularly painful for the fastest growing companies within the Russell 2000® Growth benchmark. According to a recent report from Steve DeSanctis of Jeffries, the top quartile of companies measured by sales growth declined by -10.09% for the third quarter, underperforming the Russell 2000® Growth Index total return of -4.17%. This underperformance represented a meaningful shift in trend from the first half of calendar 2019 where the top quartile of companies measured by sales growth appreciated by +19.47% on a year-to-date basis through September 30, 2019 and substantially outperformed the aggregate Russell 2000® Growth Index which returned +15.34% for the same period.

 

Investment Analysis:

The headwinds to growth and challenging stock selection within the Emerald Growth Fund led to the portfolio’s relative underperformance to the benchmark for the trailing period. At the sector level, underperformance within the Technology, Producer Durables, Consumer Discretionary and Financial Services sectors offset relative outperformance within the Healthcare, Consumer Staples and Energy sectors.

 

Relative underperformance within the Technology sector was the most significant detractor to return for the period driven by challenging stock selection within the software, electronic entertainment and telecommunications industries. Performance within the Producer Durables, Consumer Discretionary, and Financial Services sectors also detracted from performance for the period driven largely by relative underperformance within the air transport, machinery, back office, specialty retail, and education services industries.

 

Relative underperformance in the aforementioned sectors was partially offset by relative outperformance within the Healthcare, Consumer Staples and Energy sectors. The Healthcare sector was the largest positive contributor to return for the period driven by stock selection within the biotechnology, pharmaceuticals and healthcare services industries. Also contributing was performance within the Consumer Staples and Energy sectors, and specifically, holdings within the foods, energy equipment and alternative energy industries.

 

Exiting October 2019, the portfolio held the largest active exposure to the Consumer Discretionary, Consumer Staples and Financial Services sectors. Thoughts on those sectors and other areas of notable opportunity/ portfolio exposure are highlighted below:

 

The overweight position in the Consumer Discretionary sector is comprised of a diverse subset of companies within the casino & gambling, specialty retail, education services, home building, leisure time, diversified retail, apparel & shoes, and restaurant industries. Emerald Mutual Fund Advisers Trust (“Emerald” or the “Adviser”) believes that even amidst a more moderate consumer spending backdrop, these companies are positioned to benefit from company-specific initiatives to capture market-share and drive growth.

 

Similarly, the overweight to the Consumer Staples sector is comprised largely of a select group of niche high growth opportunities within the foods industry, which are poised to benefit from the addition of new retail outlets, expansion of shelf space within those outlets, market share gains, and further acquisition activity to build-out their individual stable of brands.

 

The Fund also held a relative overweight position to the Financial Services sector. Emerald continues to find opportunities in the sector, specifically within the banking, consumer lending and multi-line insurance industries. Within the banking industry, we believe that lower

 

 

Semi-Annual Report | October 31, 2019 1

 

 

Emerald Growth Fund Manager Commentary

 

  October 31, 2019 (Unaudited)

 

net interest margin and Earnings Per Share (EPS) expectations have already been factored into small capitalization bank stocks with banks in the Russell 2000 trading 23% below their 20 year median on a Price-to-Earnings (P/E) basis and 11% below their 20 year median on a Price to Tangible Book Value (P/TBV) basis. Further, we believe that net interest margins are poised to move higher over next several quarters as loan yields are starting to hit floors, and thus we believe there will be less pressure on earning asset yields in the 2H’19 and 2020. Lastly, our longer-term consolidation theme continues to playout as expected, with 81 deals announced during the third calendar quarter of 2019, which when annualized translates to 5.93% of all Federal Deposit Insurance Corporation (FDIC) insured banks being acquired. In fact, according to an October 1, 2019 industry brief from Raymond James, calendar year 2019 is on track to be the strongest year for mergers and acquisitions (M&A) activity since 1991.

 

The Healthcare sector, while underweight relative to the benchmark, also remains an area of meaningful exposure within the portfolio. At the industry level, the biotechnology industry remains the largest aggregate exposure. We continue to look for innovative therapeutics that can command premium pricing, though we note that competition for small niche patient populations is becoming a challenge. That being said, there continues to be a high-level of successful innovation in the marketplace. There were 14 drugs approved by the U.S. Food and Drug Administration (FDA) during the third quarter bringing the year-to-date total to 27 approvals. As a point of reference, on average the FDA has approved approximately 10.8 drugs per quarter from 2015-2018. Further, we also believe there is a developing opportunity in companies that have launched drugs in the past 2-3 years, as it often takes small companies several quarters to get their commercial organization running efficiently. Rounding out the portfolio’s Healthcare sector exposure are niche opportunities within the healthcare services, medical equipment, medical & dental instruments and pharmaceutical industries. While we continue to see select opportunities within the Healthcare sector, our enthusiasm for the broader sector remains guarded as we expect healthcare policy to remain a key point of debate and source of heightened sector volatility over the course of the 2020 Presidential Election Cycle.

 

Market Outlook:

As we look to the balance of 2019, recession fears appear to be subsiding and confidence increasing as both global manufacturing and global economic growth are showing signs of stabilization. From an earnings perspective, third quarter EPS for the S&P 500 are tracking toward a (-1%) year over year decline. While this is better than the (-3 to -4%) decline expected at the beginning of earnings season, the third quarter decline in earnings marks the first decline since the 2015-2016 manufacturing recession, according to a November 11, 2019 report from Savita Subramanian of Bank of America Merrill Lynch. According to the same report, forward estimates for the fourth quarter have continued to be revised downward as well with EPS for the S&P 500 now expected to be approximately flat, as compared to +3% growth expected on October 1. The market, however, appears to be looking through the weak absolute growth rates and is focused on a reacceleration in global economic growth and earnings growth in 2020. Therefore, in the near-term as long as incoming economic data and progress on trade continue to support the narrative of a 2020 global economic and earnings growth reacceleration, we believe the market is likely to be stable to higher through year-end. With that said, any deviation from that narrative whether from incoming economic data points, trade developments with China or perceived implications from changes in the political landscape (impeachment/2020 election) is likely to result in heightened market volatility.

 

Moving beyond 2019, the pace at which global growth can accelerate however, remains a significant point of uncertainty as the twin headwinds to business investment: China Trade Policy and Brexit remain unresolved. As a consequence, we do not believe the Federal Reserve’s (Fed) efforts to lower rates is likely to result in a meaningful uptick in economic growth until there is visible path to resolution with China. Even then, we question how quickly global growth can accelerate if growth in China continues to stagnate as we believe the lingering impact from the tariff driven shift of manufacturing to locations outside of China is likely to remain a headwind to growth. Under this scenario, and as we look around the globe, we believe the U.S. economy, thanks to the U.S. consumer, will remain the strongest of the developed market economies. Within this backdrop of a slowing but still growing U.S. economy, we believe small capitalization stocks which on a relative P/E of small vs. large capitalization stocks (at 0.9x) trade at a 17-year low to their large capitalization peers (according to a recent report from Jill Carey Hall of Bank of America Merrill Lynch), as well as growth stocks, given the ongoing scarcity of growth in the market, remain particularly well positioned.

 

Emerald as always remains focused on utilizing our fundamental bottom up research process to identify the most attractive growth opportunities within the small capitalization universe.

 

Top Contributors Top Detractors  
Reata Pharmaceuticals ForeScout Technologies Inc.  
Trex Company Green Dot Corporation  
Karyopharm Therapeutics Inc. Pluralsight Inc.  
Churchill Downs Inc. Glu Mobile Inc.  
Tetra Tech Inc. Chegg Inc.  
     
Kenneth G. Mertz II, CFA Stacey L. Sears Joseph W. Garner
Chief Investment Officer Portfolio Manager Portfolio Manager
Portfolio Manager  

 

Emerald Mutual Fund Advisers Trust

 

 

2 www.emeraldmutualfunds.com

 

 

Emerald Growth Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Past performance does not guarantee future results. Fund prices fluctuate as the underlying assets have exposure to market fluctuations and other risks, as described in the Fund’s prospectus. Please visit www.emeraldmutualfunds.com to obtain current performance information and for the current prospectus and statement of additional information. This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing.

 

The views of Emerald Mutual Fund Advisers Trust and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed are those of the author only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the Fund or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither Emerald Mutual Fund Advisers Trust nor the Fund accepts any liability for losses either direct or consequential caused by the use of this information.

 

The Emerald Growth Fund is distributed by ALPS Distributors, Inc.

 

The Fund is subject to investment risks, including possible loss of the principal amount invested and therefore is not suitable for all investors. The Fund may not achieve its objectives.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000® Index companies with higher price-to-value ratios and higher forecasted growth values. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

The Russell 2000® Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios (A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.) and lower forecasted growth values. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

 

Basis points refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points and 0.01% = 1 basis point.

 

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.

 

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).

 

The price to tangible book value (PTBV) is a valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company's balance sheet. The tangible book value number is equal to the company's total book value less than the value of any intangible assets.

 

The S&P 500® Total Return Index is an unmanaged index of 500 common stocks chosen for market size, liquidity and industry group representation. It is a market-value weighted index. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly in the Index.

 

 

Semi-Annual Report | October 31, 2019 3

 

 

Emerald Growth Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

TOP TEN HOLDINGS

(as a % of Net Assets)*

 

Trex Co., Inc.   2.72%
Chegg, Inc.   2.55%
Reata Pharmaceuticals, Inc.   2.22%
Five Below, Inc.   2.11%
Freshpet, Inc.   1.95%
NeoGenomics, Inc.   1.91%
Planet Fitness, Inc.   1.90%
Churchill Downs, Inc.   1.86%
Ciena Corp.   1.85%
LendingTree, Inc.   1.76%
Top Ten Holdings   20.83%

 

INDUSTRY SECTOR ALLOCATION

(as a % of Net Assets)

 

Health Care   27.11%
Consumer Discretionary   20.90%
Technology   16.35%
Financial Services   12.85%
Producer Durables   10.38%
Consumer Staples   5.14%
Materials & Processing   3.66%
Utilities   2.45%
Energy   0.89%
Cash, Cash Equivalents, & Other Net Assets   0.27%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

ANNUALIZED TOTAL RETURN (for the period ended October 31, 2019)

 

 

            Since Expense Ratio
  6 Month 1 Year 3 Year 5 Year 10 Year Inception(1) Gross(2) Net(2)
Class A (NAV) -4.23% 6.98% 14.49% 9.70% 14.94% 11.01% 1.01% 1.01%
Class A (MOP) -8.79% 1.89% 12.66% 8.64% 14.37% 10.81% 1.01% 1.01%
Russell 2000® Growth Index(3) -1.73% 6.40% 13.22% 8.38% 13.38% 8.19%    
Class C (NAV) -4.59% 6.28% 13.73% 8.98% 14.18% 6.22% 1.66% 1.66%
Class C (CDSC) -5.54% 5.34% 13.73% 8.98% 14.18% 6.22% 1.66% 1.66%
Russell 2000® Growth Index(3) -1.73% 6.40% 13.22% 8.38% 13.38% 8.19%    
Investor Class -4.29% 6.93% 14.44% 9.66% 10.73% 1.06% 1.06%
Russell 2000® Growth Index(3) -1.73% 6.40% 13.22% 8.38% 13.38% 8.19%    
Institutional Class -4.09% 7.35% 14.85% 10.05% 15.29% 14.22% 0.71% 0.71%
Russell 2000® Growth Index(3) -1.73% 6.40% 13.22% 8.38% 13.38% 8.19%    

 

Performance quoted represents past performance, does not guarantee future results and current performance may be lower or higher than the data quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month end may be obtained at www.emeraldmutualfunds.com.

 

Performance shown for periods prior to March 16, 2012, reflects the performance of the Forward Growth Fund, a series of Forward Funds (as a result of a reorganization of the Forward Growth Fund into the Emerald Growth Fund).

 

Returns for periods less than 1 year are cumulative.

 

The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Subject to investment risks, including possible loss of the principal amount invested.

 

Maximum Offering Price (MOP) for Class A shares includes the Fund's maximum sales charge of 4.75%. Performance shown at NAV does not include these sales charges and would have been lower had it been taken into account.

 

A Contingent Deferred Sales Charge (CDSC) of 1.00% may apply to Class C shares redeemed within the first 12 months after a purchase.

 

(1)Inception Dates - Class A: 10/01/1992, Class C: 07/01/2000, Institutional Class: 10/21/2008, Investor Class: 05/01/2011
(2)Emerald Mutual Fund Advisers Trust ("Emerald" or the "Adviser") has agreed contractually to waive a portion of its fees and reimburse other expenses until August 31, 2020 in amounts necessary to limit the Fund's operating expenses (exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expenses, taxes and extraordinary expense) for Class A, Class C, Institutional Class, and Investor Class shares to an annual rate (as percentage of the Fund's average daily net assets) of 1.29%, 1.94%, 0.99% and 1.34% respectively. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the agreement described above to the extent that the Fund's expenses in later periods fall below the annual rates set forth in the relevant agreement. The Fund will not be obligated to pay any such deferred fees and expenses more than three years after the year(s) in which the fees and expense were incurred. The Adviser may not discontinue this waiver prior to August 31, 2020, without the approval by the Fund's Board of Trustees. Ratios as of the Prospectus dated August 31, 2019 and may differ from the ratios presented in the Financial Highlights.
(3)The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000® Index companies with higher price-to-value ratios and higher forecasted growth values. The Index is not actively managed and does not reflect any deduction for fees, expenses or taxes. An investor may not invest directly into the Index.

 

 

4 www.emeraldmutualfunds.com

 

 

Emerald Growth Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

GROWTH OF $10,000 INVESTMENT IN THE FUND (for the period ended October 31, 2019)

 

Comparison of change in value of a $10,000 investment (includes applicable sales loads)

 

 

  

The chart represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Investing in the Fund is subject to investment risks, including possible loss of the principal amount invested.

 

 

Semi-Annual Report | October 31, 2019 5

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

October 31, 2019

 

Dear Shareholders:

 

Investment Results:

The performance of the Emerald Small Cap Value Fund Investor Class, for the six months ended October 31, 2018, reflected a gain of +2.18% (without sales load) outperforming the Russell 2000® Value Index which was down (-0.53%).

 

Performance data quoted represents past performance. Past performance does not guarantee future results.

 

At the end of August, we saw a shift in investors’ sentiment away from momentum and expensive stocks, and at the same time crowding into low valuation companies. This was a positive for small cap value stocks. However, will it last given weaker domestic economic data, lackluster earnings growth, and geopolitical concerns? (See our thoughts below)

 

Investment Analysis:

The Emerald Small Cap Value Fund (the “Small Cap Value Fund”) (without sales load) outperformed its benchmark for the 6-month period ended October 31, 2019. At the sector level, relative outperformance was driven by stock selection within the Materials & Processing, Energy, Financials, and Healthcare sectors. Relative underperformance was observed within Consumer Technology and Technology sectors, and a relative underweight to the benchmark’s Utilities sector.

 

As we mentioned in the past, banks are very important part of our benchmark and The Small Cap Value Fund’s portfolio. Banks and thrifts represent over 20% of the Russell 2000® Value holdings by weight. With recent changes to Fed policy and its impact on the yield curve, we anticipate headwinds for banks as we move into the third quarter 2019 earnings season. These headwinds will be driven by margin pressure due to the recent movement in London Interbank Offered Rate (LIBOR) rates and the most recent rate cut and the expectation for a third rate cut in December of 2019.

 

We anticipate continued downward pressure on net interest margins as banks report earnings given that the cost of deposits for banks have not moved down as fast as yields on adjustable/variable rate loans have adjusted downward after the most recent rate cuts. In fact, we expect the average net interest margin to be down 2 to 4 bps when banks report. During our most recent meetings with bank management teams, our takeaway has been that while rate cards for Certificates of Deposit (CDs) have moved lower and certainly, money market rates have reduced, these rates did not move by 25 basis points after the Fed cut in July. Our expectation is for cost of deposits to further reduce in 4Q19 and 1Q20 but net interest margin pressure will not subside until 1Q20.

 

While management teams have done a good job reducing expenses via branch closures and renegotiating contracts with core providers as well as reducing their labor force, we believe that expense reductions and share buybacks will not be enough to offset lower loan yields, slowing loan growth and stubborn deposit costs. As a result, our expectations are for an increased number of downward earnings revisions when banks report their third quarter results.

 

However, we believe the lower Net Interest Margin (NIM) and Earnings Per Share (EPS) expectations for 3Q19 are priced into the small cap bank stocks. In fact, we think the sector has been oversold. Banks in the Russell 2000 are trading 23% below their 20-year median on a Price-to-Earnings (P/E) basis and 11% below their 20-year median on a Price to Tangible Book Value (P/TBV) basis. To get back to their median relative P/TBV of past 10 years, small banks would have to write off 36% of their book value(1).

 

Additionally, we see an improving net interest margin scenario on the horizon as loan yields are starting to hit floors and thus we believe there will be less pressure on earning asset yields in the 2H19 and 2020. As a result, we believe that net interest margins for community banks as a group will be down 2-4 bps for the second half of 2019 but will stabilize and rise into the first half of 2020. Therefore, during the quarter, we reduced our exposure to banks, but we are still equal-weight to the industry within our benchmark.

 

We continue to believe that the Small Cap Value Fund’s portfolio is well positioned to benefit from a slowing, yet growing, domestic economy and the eventual turnaround in domestically focused industries. We continue to search for and invest in high quality companies that generate prodigious amounts of free cash flow, as well as financial services enterprises that trade significantly below their terminal value.

 

Market Outlook:

The economic data in the past few months have been telling us that the US economy is slowing down. While the overall economy seems okay, there is a material slowdown in manufacturing. In 3Q19, the Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) averaged 49.4 for the quarter, down from 52.2 in 2Q19, and 58.7 for all 2018, the best year since 2004. The September ISM reading of 47.8

 

 

6 www.emeraldmutualfunds.com

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

represented the 2nd consecutive monthly decline after 30 months of manufacturing growth since the sector emerged from recession in autumn of 2016, and the weakest report in more than 10 years (since June 2009). ISM metrics have deteriorated every month this year (save March). However, Industrial production and capacity utilization remained at high levels through August 2019, with the data showing little to no moderation from levels in 2Q19. The fear is that the manufacturing sector’s problems, while not as big as it was in the past, will spillover to healthier parts of the economy.

 

There are many other worries on investors’ minds: We are in the 11th year of economic expansion, trade wars, yield curve inversion, slowing global economies (China 3Q19 Gross Domestic Product (GDP) lowest in three decades), Brexit, impeachment, etc. These headwinds have also shaken US CEOs’ confidence, with the latest reading (survey by the Conference Board) plunging into recession territory, thus explaining slowdowns in capital spending. While employment data continues to be strong, with unemployment claims remaining close to a five-decade low, the unemployment rate is a lagging indicator, and can worsen as trade wars protract and/or the US consumer would show signs of spending fatigue.

 

We believe that these concerns about a looming recession (timing uncertain), as well as lackluster earnings growth for small cap companies, are the causes for small caps underperformance by almost 600 bps relative to large caps year to date. Despite a strong performance in September for small cap value stocks, the Russell 2000® Value (R2V) is trailing the Russell 2000® Growth (R2G) by over 300 bps year to date, but growth’s edge over the last 12 months has almost entirely disappeared. Recently, valuations started to matter, and investors were not willing to buy growth at any price. The big question is, can the value rally continue?

 

We say: Value is cheap! On a P/E basis the R2V trades at 14.7X vs. the R2G at 24.8X, whereas, 41% of the companies in the growth benchmark are loss making vs. 27% in value benchmark. The R2V is also historically significantly cheaper relative to the R2G for the following valuation metrics: Price to Cash Flow, Price to Sales, and P/E to Growth(2). In addition, if the Fed continues to lower rates and facilitate easing monetary policy, the dollar should weaken and it would favor longer duration equities more prevalent within small-caps. If there would not be a recession next year, 2020 earnings growth would re-accelerate. 2020 earnings growth for small caps are expected to be 18.5% vs. 9% for large caps, and 18.7% for small cap value vs. 12.6% for small cap growth(3). With broadening earnings growth, the premium for growth companies should diminish.

 

We believe that the backdrop is positive for small cap value stocks to continue to outperform other asset classes. However, we have two concerns about our thesis: 1. Since banks make up over 20% of our benchmark, without their leadership, it would be hard to beat growth. Moreover, with the Fed lowering rates, banks will have tough time showing earnings growth in the near term. However, as stated above, we believe that conditions will improve in 1H20, and currently banks are trading at trough valuations; 2. If plunging rates mean that the global economy is heading into a recession, then large caps will have the upper hand, as investors will shy away from riskier small cap companies.

 

As always, we will continue to seek attractive investment opportunities for our clients by focusing on high-quality companies identified and evaluated by our fundamental research and active portfolio management.

 

Top Contributors Top Detractors
Kirkland Lake Gold Ltd. Whiting Petroleum Corporation
Aaron’s, Inc. Gray Television, Inc.
Reata Pharmaceuticals, Inc. Blucora, Inc.
Rexford Industrial Realty, Inc. PlayAGS, Inc.
Universal Forest Products, Inc. Magnolia Oil & Gas Corp.
   
Sincerely,  
   
Ori Elan Steven E. Russell, Esq.
Vice President Vice President
Portfolio Manager Portfolio Manager

 

Emerald Mutual Fund Advisers Trust

 

 

Semi-Annual Report | October 31, 2019 7

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Past performance does not guarantee future results. Fund prices fluctuate as the underlying assets have exposure to market fluctuations and other risks, as described in the Fund’s prospectus. Please visit www.emeraldmutualfunds.com to obtain current performance information and for the current prospectus and statement of additional information. This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing.

 

The views of Emerald Mutual Fund Advisers Trust and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed are those of the author only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the Fund or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither Emerald Mutual Fund Advisers Trust nor the Fund accepts any liability for losses either direct or consequential caused by the use of this information.

 

The Emerald Small Cap Value Fund is distributed by ALPS Distributors, Inc.

 

The Fund is subject to investment risks, including possible loss of the principal amount invested and therefore is not suitable for all investors. The Fund may not achieve its objectives.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

The term Russell 2000® Value Index refers to a composite of small cap companies located in the United States that also exhibit a value probability. The Russell 2000® Value is published does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

 

(1)Raymond James, Institutional Equity Strategy, 04 September, 2019
(2)Jefferies, JEF's Valuation Handbook—Despite Shifts Last Month, No Change in Rel Valuations, 03 October, 2019
(3)Jefferies, JEF's SMID-Cap Strategy—Q3 '19 Recap & Outlook, 02 October, 2019

 

Tangible book value (TBV) is a valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company's balance sheet. The tangible book value number is equal to the company's total book value less the value of any intangible assets.

 

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.

 

Net interest margin is a metric that examines how successful a firm's investment decisions are compared to its debt situations.

 

The ISM Manufacturing Index is a widely-watched indicator of recent U.S. economic activity. The index is often referred to as the Purchasing Manager's Index (PMI).

 

 

8 www.emeraldmutualfunds.com

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

TOP TEN HOLDINGS

(as a % of Net Assets)*

 

Rexford Industrial Realty, Inc.   2.96%
Aaron's, Inc.   2.73%
Photronics, Inc.   2.53%
Kirkland Lake Gold, Ltd.   2.51%
Universal Forest Products, Inc.   2.50%
Meta Financial Group, Inc.   2.37%
ICF International, Inc.   2.21%
Delek US Holdings, Inc.   2.21%
Cubic Corp.   2.05%
OSI Systems, Inc.   2.01%
Top Ten Holdings   24.08%

 

INDUSTRY SECTOR ALLOCATION

(as a % of Net Assets)

 

Financial Services   41.49%
Producer Durables   16.89%
Consumer Discretionary   12.80%
Technology   11.54%
Materials & Processing   6.28%
Energy   5.79%
Health Care   2.97%
Utilities   1.17%
Cash, Cash Equivalents, & Other Net Assets   1.07%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

ANNUALIZED TOTAL RETURN (for the period ended October 31, 2019)(1),(2)

 

 

          Since Expense Ratio
  6 Month 1 Year 3 Years 5 Years Inception(2) Gross(3) Net(3)
Class A (NAV) 2.19% 5.76% 8.91% 6.26% 9.33% 2.89% 1.35%
Class A (MOP) -2.61% 0.71% 7.16% 5.23% 8.58% 2.89% 1.35%
Russell 2000® Value Index(4) -0.53% 3.22% 8.60% 6.24% 9.79%    
Class C (NAV) 1.87% 5.13% 8.24% 5.56% 8.62% 3.44% 2.00%
Class C (CDSC) 0.87% 4.35% 8.24% 5.56% 8.62% 3.44% 2.00%
Russell 2000® Value Index(4) -0.53% 3.22% 8.60% 6.24% 9.79%    
Investor Class 2.18% 5.87% 9.11% 6.43% 9.50% 2.83% 1.25%
Russell 2000® Value Index(4) -0.53% 3.22% 8.60% 6.24% 9.79%    
Institutional Class 2.41% 6.18% 9.34% 6.63% 9.72% 2.44% 1.00%
Russell 2000® Value Index(4) -0.53% 3.22% 8.60% 6.24% 9.79%    

 

Performance quoted represents past performance, does not guarantee future results and current performance may be lower or higher than the data quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month end may be obtained at www.emeraldmutualfunds.com.

 

Returns for periods less than 1 year are cumulative.

 

The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Subject to investment risks, including possible loss of the principal amount invested.

 

Maximum Offering Price (MOP) for Class A shares includes the Fund's maximum sales charge of 4.75%. Performance shown at NAV does not include these sales charges and would have been lower had it been taken into account.

 

A Contingent Deferred Sales Charge (CDSC) of 1.00% may apply to Class C shares redeemed within the first 12 months after a purchase.

 

(1)As of June 26, 2015, the Emerald Small Cap Value Fund was reorganized as a successor to the Elessar Small Cap Value Fund (the Predecessor Fund), a series of Elessar Investment Trust. The performance shown for periods prior to June 26, 2015 reflects the performance of the Predecessor Fund's Institutional Class and Investor Class shares. The Predecessor Fund did not offer Class A or Class C shares. The performance shown for Class A and C shares prior to June 30, 2015 reflect the historical performance of the Predecessor Fund’s Institutional and Investor Shares since inception on October 15, 2012, calculated using the fees and expenses of Class A and C shares, respectively.
(2)Commencement Dates - Class A: 06/30/2015, Class C: 06/30/2015, Institutional Class: 10/15/2012, Investor Class:10/15/2012
(3)Emerald Mutual Fund Advisers Trust (“Emerald” or the “Adviser”) has agreed contractually to waive a portion of its fees and reimburse other expenses until August 31, 2020 in amounts necessary to limit the Fund’s operating expenses (exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expenses, taxes and extraordinary expense) for Class A, Class C, Institutional Class, and Investor Class shares to an annual rate (as percentage of the Fund’s average daily net assets) of 1.35%, 2.00%, 1.00% and 1.25% respectively. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the agreement described above to the extent that the Fund's expenses in later periods fall below the annual rates set forth in the relevant agreement. The Fund will not be obligated to pay any such deferred fees and expenses more than three years after the year(s) in which the fees and expense were incurred. The Adviser may not discontinue this waiver prior to August 31, 2020, without the approval by the Fund's Board of Trustees. Ratios as of the Prospectus dated August 31, 2019 and may differ from the ratios presented in the Financial Highlights.

 

 

Semi-Annual Report | October 31, 2019 9

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

(4)The Russell 2000® Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

Important Risks

Investing in smaller companies generally will present greater investment risks, including: greater price volatility, greater sensitivity to changing economic conditions and less liquidity than the securities of larger, more mature companies.

 

 

10 www.emeraldmutualfunds.com

 

 

Emerald Small Cap Value Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

GROWTH OF $10,000 INVESTMENT IN THE FUND (for the period ended October 31, 2019)

 

Comparison of change in value of a $10,000 investment (includes applicable sales loads)

 

 

 

 

The chart represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Investing in the Fund is subject to investment risks, including possible loss of the principal amount invested.

 

Semi-Annual Report | October 31, 2019 11

 

 

Emerald Insights Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

October 31, 2019

 

Dear Shareholders:

 

Investment Results:

The performance of the Emerald Insights Fund (the “Insights Fund”) Class A Shares (without the sales load) for the six months ended October 31, 2019 reflected a return of +0.26%, trailing the Russel 3000® Growth Index benchmark return of +4.05%. Performance for the period suffered in large part due to the continued flow of funds into low volatility, bond proxy, momentum-type names as well as from the severe underperformance of small capitalization stocks (an area of overweight for the Fund) vs. large caps in the benchmark.

 

Performance data quoted represents past performance. Past performance does not guarantee future results.

 

Investment Analysis:

From an economic perspective, indicators were mixed during the period - with most consumer, employment and housing related measures registering moderate strength, with domestic manufacture, construction and corporate profit measures weakening and then stabilizing as the period progressed. Monetary indicators improved, with M2 growth(1) improving and the Fed cutting rates twice for a total of 50 basis points (bps). The yield curve, as measured by the U.S. 10/1 year note/bill ratio, inverted and then normalized toward the end of the reporting period, although negative rates persisted in many global economies. The ongoing trade war had a negative impact on a number of the Insights Fund holdings over the period, but trade tensions appeared to ease as the reporting cycle progressed.

 

The Insights Fund portfolio continued to have estimated earnings growth rates substantially above the benchmark per our internal estimates (>300bps), while at the same time trading at a discount on Price/Cash Flow, Price/Book and Price/Sales ratios. The Insights Fund had a lower weighted average market capitalization than the benchmark but was still very large, and contained more non-earners than the benchmark in the Technology and Healthcare sectors. This exposure to non-earners as well as our overweight vs. the benchmark to some smaller, high-growth names, detracted from performance, as non-earners and small-caps were some of the indices worst performers.

 

Market Outlook:

After more than two years of low volatility, low growth, bond proxy momentum stock outperformance, the market finally began to witness a sector rotation into growthier, and in some cases more cyclically oriented exposure - an area where Emerald has generally been overweight. Given our portfolio growth/valuation metrics mentioned above, if this growth/valuation disparity narrows, we believe our portfolio is positioned to take advantage of the rotation as well as any movement back to small caps which are tracking toward historic valuation lows vs. large caps.

 

Related to the domestic U.S. economy, based on the current data in front of us, we do not believe a recession is likely in the next one year period. It is widely held that consumer spending constitutes at least 70% of GDP, while manufacturing, which is clearly in a slowdown, makes up just 11% of economic activity. By most measures the consumer is in good shape. Employment is at record levels, the savings rate, consumer sentiment and retail a sales are strong, and monetary policy is stimulative. Mortgage rates, inflation and unemployment are all at extreme lows - hardly an environment for a contraction. As growth managers with a belief that earnings growth drives stock prices, and while earnings growth was weak during the reporting period, we expect growth to re-emerge as 2020 progresses, especially for some of the Fund’s overweight sectors like Energy and Materials. At this point, we are comfortable that, absent an exogenous shock, i.e. Trade, Geopolitics, no recession is in the near-term offing.

 

The Insights Fund’s portfolio remains overweight the Energy, Material and Utilities sectors. We are underweight Technology, Staples, Consumer Discretionary, Financials, and Producer Durables and approximately equal weight Healthcare. We think we have the correct balance of secular and cyclical growers, along with exposure to names that position us defensively should the economy falter, offset by higher-octane holdings in Energy, Materials, Banking, Software, and Security. This barbell approach has served us well in the past. We continue to employ our 10-step research process to identify and analyze high growth companies with strong management teams and differentiated, competitively defensible technologies. We feel confident that over time our process will result in rust-adjusted returns above our benchmark.

 

Top Contributors Top Detractors  
InMode Ltd. Glu Mobile Inc.  
Apple Inc. PlayAGS, Inc.  
Reata Pharmaceuticals, Inc. Class A Chart Industries, Inc.  
Microsoft Corporation Amazon.com, Inc.  
Trex Company, Inc. Malibu Boats Inc Class A  
     
David A. Volpe, CFA Stephen L. Amsterdam Joseph Hovorka
Deputy Chief Investment Officer Associate Portfolio Manager Associate Portfolio Manager
Portfolio Manager    

 

Emerald Mutual Fund Advisers Trust

 

 

12 www.emeraldmutualfunds.com

 

 

Emerald Insights Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Past performance does not guarantee future results. Fund prices fluctuate as the underlying assets have exposure to market fluctuations and other risks, as described in the Fund’s prospectus. Please visit www.emeraldmutualfunds.com to obtain current performance information and for the current prospectus and statement of additional information. This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing.

 

The views of Emerald Mutual Fund Advisers Trust and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed are those of the author only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the Fund or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither Emerald Mutual Fund Advisers Trust nor the Fund accepts any liability for losses either direct or consequential caused by the use of this information.

 

The Emerald Insights Fund is distributed by ALPS Distributors, Inc.

 

The Fund is subject to investment risks, including possible loss of the principal amount invested and therefore is not suitable for all investors. The Fund may not achieve its objectives.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

The Russell 3000® Growth Index is a market capitalization weighted index based on the Russell 3000® index. The Russell 3000® Growth Index includes companies that display signs of above average growth. The index is used to provide a gauge of the performance of growth stocks in the United States. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

 

The price-to-cash flow (P/CF) ratio is a stock valuation indicator or multiple that measures the value of a stock’s price relative to its operating cash flow per share.

 

The price-to-book ratio compares a company's market value to its book value. The market value of a company is its share price multiplied by the number of outstanding shares. The book value is the net assets of a company.

 

The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its revenues. It is an indicator of the value placed on each dollar of a company’s sales or revenues.

 

The U.S. 10 year note/1 year bill ratio is a ratio of normally positive sloping interest rates across maturities of identical credit instruments.

 

(1)M2 is a measure of the money supply that includes cash, checking deposits, and easily convertible near money.

 

 

Semi-Annual Report | October 31, 2019 13

 

 

Emerald Insights Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

TOP TEN HOLDINGS

(as a % of Net Assets)*

 

Microsoft Corp.   5.39%
Apple, Inc.   4.84%
Amazon.com, Inc.   4.54%
Alphabet, Inc.   3.53%
iShares Expanded Tech-Software Sector ETF   2.57%
Chegg, Inc.   2.30%
Harsco Corp.   2.15%
Trex Co., Inc.   2.04%
Visa, Inc.   1.91%
LendingTree, Inc.   1.88%
Top Ten Holdings   31.15%

 

INDUSTRY SECTOR ALLOCATION

(as a % of Net Assets)

 

Technology   32.58%
Health Care   16.94%
Consumer Discretionary   14.44%
Producer Durables   9.03%
Financial Services   8.31%
Materials & Processing   4.35%
Energy   4.24%
Consumer Staples   3.44%
Utilities   1.60%
Cash, Cash Equivalents, & Other Net Assets   5.07%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

ANNUALIZED TOTAL RETURN (for the period ended October 31, 2019)

 

 

          Since Expense Ratio
  6 Month 1 Year 3 Year 5 Year Inception(1) Gross(2) Net(2)
Class A (NAV) 0.26% 11.65% 13.54% 7.47% 7.53% 2.19% 1.35%
Class A (MOP) -4.47% 6.37% 11.71% 6.43% 6.53% 2.19% 1.35%
Russell MidCap® Growth Index(3) 2.04% 18.93% 16.81% 10.92% 11.47%    
Russell 3000® Growth Index(4) 4.05% 16.34% 18.50% 13.05% 13.67%    
Class C (NAV) 0.00% 10.92% 12.79% 6.74% 6.79% 2.84% 2.00%
Class C (CDSC) -1.00% 10.06% 12.79% 6.74% 6.79% 2.84% 2.00%
Russell MidCap® Growth Index(3) 2.04% 18.93% 16.81% 10.92% 11.47%    
Russell 3000® Growth Index(4) 4.05% 16.34% 18.50% 13.05% 13.67%    
Investor Class 0.35% 11.71% 13.49% 7.42% 7.46% 2.24% 1.40%
Russell MidCap® Growth Index(3) 2.04% 18.93% 16.81% 10.92% 11.47%    
Russell 3000® Growth Index(4) 4.05% 16.34% 18.50% 13.05% 13.67%    
Institutional Class 0.43% 11.95% 13.85% 7.77% 7.82% 1.89% 1.05%
Russell MidCap® Growth Index(3) 2.04% 18.93% 16.81% 10.92% 11.47%    
Russell 3000® Growth Index(4) 4.05% 16.34% 18.50% 13.05% 13.67%    

 

The performance quoted represents past performance, does not guarantee future results and current performance may be lower or higher than the data quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month end may be obtained at www.emeraldmutualfunds.com.

 

Returns for periods less than 1 year are cumulative.

 

The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Subject to investment risks, including possible loss of the principal amount invested.

 

Maximum Offering Price (MOP) for Class A shares includes the Fund's maximum sales charge of 4.75%. Performance shown at NAV does not include these sales charges and would have been lower had it been taken into account.

 

A Contingent Deferred Sales Charge (CDSC) of 1.00% may apply to Class C shares redeemed within the first 12 months after a purchase.

 

(1)Inception Date – August 1, 2014.
(2)Emerald Mutual Fund Advisers Trust ("Emerald" or the "Adviser") has agreed contractually to waive a portion of its fees and reimburse other expenses until August 31, 2020 in amounts necessary to limit the Fund's operating expenses (exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expenses, taxes and extraordinary expense) for Class A, Class C, Institutional Class, and Investor Class shares to an annual rate (as percentage of the Fund's average daily net assets) of 1.35%, 2.00%, 1.05% and 1.40% respectively. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the agreement described above to the extent that the Fund's expenses in later periods fall below the annual rates set forth in the relevant agreement. The Fund will not be obligated to pay any such deferred fees and expenses more than three years after the year(s) in which the fees and expense were incurred. The Adviser may not discontinue this waiver prior to August 31, 2020, without the approval by the Fund's Board of Trustees. Ratios as of the Prospectus dated August 31, 2019 and may differ from the ratios presented in the Financial Highlights.
(3)The Russell MidCap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.
(4)The Russell 3000® Growth Index is a market capitalization weighted index based on the Russell 3000® index. The Russell 3000® Growth Index includes companies that display signs of above average growth. The index is used to provide a gauge of the performance of growth stocks in the United States. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

 

14 www.emeraldmutualfunds.com

 

 

Emerald Insights Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Important Risks

Investing in smaller companies generally will present greater investment risks, including: greater price volatility, greater sensitivity to changing economic conditions and less liquidity than the securities of larger, more mature companies.

 

 

Semi-Annual Report | October 31, 2019 15

 

 

Emerald Insights Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

GROWTH OF $10,000 INVESTMENT IN THE FUND (for the period ended October 31, 2019)

 

Comparison of change in value of a $10,000 investment (includes applicable sales loads)

 

 

 

The chart represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Investing in the Fund is subject to investment risks, including possible loss of the principal amount invested.

 

 

16 www.emeraldmutualfunds.com

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

October 31, 2019

 

Dear Shareholders:

 

Investment Results:

The Emerald Banking & Finance Fund (the “Banking & Finance Fund”) outperformed the Russell 2000® Index for the six months ended October 31, 2019, returning 0.52% (without sales charge) vs. (-1.09)% for the Index. During the six month ended October 31, 2019, the Russell 2000® Financial Services Index returned +2.95%; the SNL Small Cap U.S. Bank & Thrift Index gained +2.38% versus a +4.16% gain delivered by the Standard & Poor’s 500 Index and a loss of (-0.53)% for the Russell 2000® Value Index.

 

Performance data quoted represents past performance. Past performance does not guarantee future results.

 

Our April 30, 2019 Annual Report shareholder letter lamented the fact that,

 

Uncertainty continues to rule “bank land.” Will the yield curve invert? Will the Fed raise rates in 2019? Will the Fed cut rates? Will the strong dollar come home to roost? Will there be a trade deal with China? Iran...Venezuela...North Korea, etcetera, etcetera, etcetera.

 

Well in fact the yield curve did invert, although the 2 and 10 year yield curve only inverted for a matter of hours and in our opinion the curve needs to be inverted for several weeks before it becomes a reliable predictor of a recession. The Federal Reserve (Fed) did not raise rates but instead has cut rates by 25 basis points three times in 2019 nearly reversing all of the four increases in 2018, with the last cut lowering the range to 1.5% from 1.75%. There still has been no trade deal with China and there have been so many reports of trade deal- on and trade deal- off we fear this uncertainty will last well into 2020. Meanwhile investors seemingly have become numb to the headlines about global risks such as Iran, Venezuela, North Korea and now Syria as we close out 2019.

 

With that said, banks continue to grow earnings, loans and deposits while credit quality remains impressive despite the “one-off” concerns investors have endured related to shared national credits in the energy patch as well as quick service food franchises and healthcare. Despite the ongoing health and profitability of the banking sector, banks continue to trade at attractive valuations. Market sentiment was tempered as the three Fed interest rate decreases resulted in an almost immediate reduction in loan yields while deposit pricing typically lags Fed rate decreases by six months thus leading to a market sure to experience lower net interest margins in the second half of 2019 and so far this has played out as expected.

 

With that said the volatile ride continues as the financial sector continues its rebound from the dismal Q4’18 performance with Class A shares (HSSAX) having rebounded 18.57% from the bottom of December 24, 2018 through October 31, 2019 (without sales charge).

 

Investment Analysis:

Profitability at U.S. banks with less than $10 billion in assets continued their upward ascend despite fears of a slowing economy and the Fed cutting rates, according to S&P Global. According to the S&P Global Data Dispatch report, the median return on average equity among the 247 publicly traded banks and thrifts in the analysis was 10.69% for the quarter, slightly above the 10.68% posted in the third quarter of 2018. However, the group’s median net interest margin fell to 3.63% from 3.72% year-over-year.

 

To help offset the net interest margin compression management teams have successfully reduced expenses as they renegotiate contracts, rationalize the banks’ branch footprints and reduce wage expense. In the third quarter, dozens of banks reported a year-over-year decline in full-time employee numbers and we believe headcount and other expense shrinkage will continue to be a long term trend. With that said, the median efficiency ratio improved in Q3 to 59.60%, down from 60.38% in the year ago quarter.

 

Ten years after the “financial crisis” and credit quality remains, dare we say “pristine?” No, we won’t go that far we will say it remains “good.” The median net charge-off ratio for banks with less than $10 billion in assets increased 1 basis point year-over-year to 0.05%. As previously mentioned, we have seen some “one-off” credit deterioration in shared national credits focused in the energy, healthcare and franchise restaurant sectors but nothing that has proven to be a systemic issue. Moving forward we have been focusing our attention to agriculture loans. We believe loss of income resulting from the continuing trade war between the U.S. and China is forcing more farmers to tap the resilient value of their land to keep them going through next year’s planting season. According to a survey of lenders released at the American Bankers Association’s annual agricultural banking conference, more than 46% of bankers expect an increase in loans secured by farmland over the next year, compared with 37% who saw an uptick in this kind of financing over the previous 12 months. The findings suggest that many farmers are burning through cash they had put aside to weather unprofitable harvests from lower commodity prices. The equity stored in the value of their farmland is considered the last financial resort for some to cover operating expenses. So far, loans secured by farmland are holding up well, but bankers are growing increasingly concerned that credit quality will weaken if the trade war drags on much longer. Roughly three out of four of the agriculture lenders surveyed by the ABA and Farmer Mac said that farmers’ ability to repay loans is their top concern.

 

 

Semi-Annual Report | October 31, 2019 17

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Median year-over-year loan growth has slowed as loans grew 7.4% in Q3 down from 10.7% loan growth in the third quarter of 2018. Deposit growth also slowed to a median 7.8% year-over-year, down from 8.7% in the third quarter of 2018.

 

Market Outlook:

In our last shareholder letter we stated that, “the set-up for the next 12 months for the bank sector is the ‘haziest’ we have seen in some time.” We believe that the picture has cleared somewhat since then and feel incrementally more positive. While the trade war with China has not come to a conclusion we believe an agreement will be reached prior to the 2020 election, likely in the first half of 2020 and bank stocks will likely react positively. Additionally, we believe that several ongoing themes will support the bank stocks such as deregulation, solid credit quality, continued earnings growth, and merger activity.

 

We believe our long term consolidation theme will continue to play out as a tailwind for the sector. In Q3’19, 81 acquisitions were announced which when annualized translates to 5.93% of all FDIC insured banks being acquired. That 5.93% annualized rate was above the 5.13% reported in Q2’19 and the 4.73% reported in Q3’18. In fact, 2019 is on track to be the strongest year for M&A activity since 1991 and Q3’19 was the strongest third quarter in the data set. (Source: Raymond James Industry Brief - October 1st 2019)

 

Additionally, we see an improving net interest margin scenario on the horizon as loan yields are starting to hit floors and thus we believe there will be less pressure on earning asset yields in the 2H’19 and 2020. As a result, we believe that net interest margin for community banks as a group will be down 2-4 basis points in the 2H’19 but will stabilize and rise into the first half of 2020.

 

We believe that as in the fourth quarter of 2018, the expectations for lower net interest margins and slower earnings growth was priced into community stocks and the pull back in community bank valuations was overdone. In fact at the beginning of the month of September, banks in the Russell 2000 were trading 23% below their 20 year median on a price-to-earnings (P/E) basis and 11% below their 20 year median on a P/TBV basis. At those valuations, to get back to the relative P/TBV of the past 10 years, small banks would have to write off 31% of their book value. (Source: Raymond James; Equity Strategy September 4th 2019) We believe that community banks were oversold in the fourth quarter of 2018 leading to a rebound in performance in HSSAX of 18.57% from its low in 2018 seen on December 24th 2018. We believe the community bank sector is currently repricing from the oversold levels experienced in September of 2019. In fact, HSSAX has rebounded 6.86% from its low in the month of September 2019 (September 3, 2019).

 

We believe that bank valuations will continue to rebound to the median 10 year historical valuations at a minimum. Our focus remains on seeking companies capable of producing above average organic growth, relatively stable net interest margin moving forward, and improving earnings power aided by lower efficiency ratios, with potential for accretive mergers and acquisition activity, as we deploy Emerald’s 10-step research process.

 

Top Contributors Top Detractors  
Meta Financial Group, Inc. Merchants Bancorp  
Kirkland Lake Gold Ltd. Green Dot Corporation Class A  
Stewardship Financial Corporation Bank of N.T. Butterfield & Son Limited  
Amerant Bancorp Inc. Class A SVB Financial Group  
MoneyGram International, Inc. CBTX, Inc.  
     
Kenneth G. Mertz II, CFA Steven E. Russell, Esq.  
Chief Investment Officer Portfolio Manager  
Portfolio Manager    

 

Emerald Mutual Fund Advisers Trust

 

 

18 www.emeraldmutualfunds.com

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

Past performance does not guarantee future results. Fund prices fluctuate as the underlying assets have exposure to market fluctuations and other risks, as described in the Fund’s prospectus. Please visit www.emeraldmutualfunds.com to obtain current performance information and for the current prospectus and statement of additional information. This material must be preceded or accompanied by a prospectus. Please read the prospectus carefully before investing.

 

The views of Emerald Mutual Fund Advisers Trust and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed are those of the author only, and represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the Fund or any securities or any sectors mentioned in this letter. The subject matter contained in this letter has been derived from several sources believed to be reliable and accurate at the time of compilation. Neither Emerald Mutual Fund Advisers Trust nor the Fund accepts any liability for losses either direct or consequential caused by the use of this information.

 

The Emerald Banking and Finance Fund is distributed by ALPS Distributors, Inc.

 

The Fund is subject to investment risks, including possible loss of the principal amount invested and therefore is not suitable for all investors. The Fund may not achieve its objectives.

 

Diversification does not eliminate the risk of experiencing investment losses.

 

The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Index is not actively managed and does not reflect any deduction of fees, expenses or taxes. An investor may not invest directly into the Index.

 

The Russell 2000® Financial Services Index – is comprised of the smallest financial services companies in the Russell 3000 Index. The Index is not actively managed and does not reflect any deductions for fees, expense, or taxes. An investor may not invest directly in the Index.

 

SNL Small Cap Bank & Thrift Index: Includes all publicly traded (NYSE, NYSE Amex, NASDAQ, OTC BB, Pink Sheets) Banks and Thrifts in SNL's coverage universe with $250M to $1B Total Common Market Capitalization as of most recent pricing data. Source: SNL Financial, data as of April 30, 2019.

 

The Standard & Poor’s 500® Index is an unmanaged index of 500 common stocks chosen for the market size, liquidity and industry group representation. It is a market-value weighted index. The Index is not actively managed and does not reflect any deduction for fees, expenses or taxes. An investor may not invest directly into the Index

 

The Russell 2000® Value Index measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios (A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.) and lower forecasted growth values. The Index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into the Index.

 

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.

 

 

Semi-Annual Report | October 31, 2019 19

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

TOP TEN HOLDINGS

(as a % of Net Assets)*

 

Triumph Bancorp, Inc.   3.87%
Meta Financial Group, Inc.   3.70%
Bancorp, Inc.   3.68%
Metropolitan Bank Holding Corp.   3.64%
Bank7 Corp.   3.34%
Esquire Financial Holdings, Inc.   3.16%
ServisFirst Bancshares, Inc.   3.16%
Amerant Bancorp, Inc.   3.15%
Innovative Industrial Properties, Inc.   2.47%
Kirkland Lake Gold, Ltd.   2.42%
Top Ten Holdings   32.59%

 

INDUSTRY SECTOR ALLOCATION

(as a % of Net Assets)

 

Banks: Diversified   67.12%
Banks: Savings, Thrift & Mortgage Lending   9.39%
Consumer Lending   3.60%
Equity Reit - Industrial   3.20%
Diversified Financial Services   2.82%
Mining   2.58%
Computer Services Software & Systems   2.29%
Asset Management & Custodian   1.97%
Insurance: Property-Casualty   1.56%
Commercial Finance & Mortgage Companies   1.50%
Insurance: Multi-Line   0.93%
Equity Reit - Office   0.86%
Financial Data & Systems   0.65%
Advertising Agencies   0.53%
Equity Reit - Diversified   0.24%
Cash, Cash Equivalents, & Other Net Assets   0.76%

 

*Holdings are subject to change, and may not reflect the current or future position of the portfolio.

ANNUALIZED TOTAL RETURN (for the period ended October 31, 2019)

 

 

  6       10 Since Expense Ratio
  Month 1 Year 3 Year 5 Year Year Inception(1) Gross(2) Net(2)
Class A (NAV) 0.52% -2.21% 9.45% 9.15% 12.36% 8.53% 1.42% 1.42%
Class A (MOP) -4.25% -6.86% 7.69% 8.09% 11.82% 8.30% 1.42% 1.42%
Russell 2000® Index(3) -1.09% 4.91% 10.96% 7.37% 12.27% 7.97%    
Russell 2000® Financial Services Index(4) 2.95% 9.48% 10.39% 8.71% 12.62% 8.52%    
Class C (NAV) 0.14% -2.88% 8.73% 8.44% 11.65% 8.51% 2.07% 2.07%
Class C (CDSC) -0.86% -3.62% 8.73% 8.44% 11.65% 8.51% 2.07% 2.07%
Russell 2000® Index(3) -1.09% 4.91% 10.96% 7.37% 12.27% 7.97%    
Russell 2000® Financial Services Index(4) 2.95% 9.48% 10.39% 8.71% 12.62% 8.52%    
Investor Class 0.48% -2.24% 9.48% 9.17% 11.04% 1.47% 1.47%
Russell 2000® Index(3) -1.09% 4.91% 10.96% 7.37% 12.27% 7.97%    
Russell 2000® Financial Services Index(4) 2.95% 9.48% 10.39% 8.71% 12.62% 8.52%    
Institutional Class 0.65% -1.88% 9.82% 9.51% 13.26% 1.12% 1.12%
Russell 2000® Index(3) -1.09% 4.91% 10.96% 7.37% 12.27% 7.97%    
Russell 2000® Financial Services Index(4) 2.95% 9.48% 10.39% 8.71% 12.62% 8.52%    

 

The performance quoted represents past performance, does not guarantee future results and current performance may be lower or higher than the data quoted. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance data current to the most recent month end may be obtained at www.emeraldmutualfunds.com.

 

Performance shown for periods prior to March 16, 2012, reflects the performance of the Forward Banking & Finance Fund, a series of Forward Funds (as a result of a reorganization of the Forward Banking & Finance Fund into the Emerald Banking & Finance Fund).

 

Returns for periods less than 1 year are cumulative.

 

The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Subject to investment risks, including possible loss of the principal amount invested.

 

Maximum Offering Price (MOP) for Class A shares includes the Fund's maximum sales charge of 4.75%. Performance shown at NAV does not include these sales charges and would have been lower had it been taken into account.

 

A Contingent Deferred Sales Charge (CDSC) of 1.00% may apply to Class C shares redeemed within the first 12 months after a purchase.

 

(1)Inception Dates - Class A: 02/18/1997, Class C: 07/01/2000, Institutional Class: 03/19/2012, Investor Class: 03/16/2010

(2)Emerald Mutual Fund Advisers Trust ("Emerald" or the "Adviser") has agreed contractually to waive a portion of its fees and reimburse other expenses until August 31, 2020 in amounts necessary to limit the Fund's operating expenses (exclusive of Acquired Fund Fees and Expenses, brokerage expenses, interest expenses, taxes and extraordinary expense) for Class A, Class C, Institutional Class, and Investor Class shares to an annual rate (as percentage of the Fund's average daily net assets) of 1.84%, 2.49%, 1.54% and 1.89% respectively. The Adviser will be permitted to recover, on a class-by-class basis, expenses it has borne through the agreement described above to the extent

 

 

20 www.emeraldmutualfunds.com

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

that the Fund's expenses in later periods fall below the annual rates set forth in the relevant agreement. The Fund will not be obligated to pay any such deferred fees and expenses more than three years after the year(s) in which the fees and expense were incurred. The Adviser may not discontinue this waiver prior to August 31, 2020, without the approval by the Fund's Board of Trustees. Ratios as of the Prospectus dated August 31, 2019 and may differ from the ratios presented in the Financial Highlights.

(3)The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® is a subset of the Russell 3000® Index representing approximately 8% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The index is not actively managed and does not reflect any deductions for fees, expenses or taxes. An investor may not invest directly into an index.

(4)The Russell 2000® Financial Services Index is an additional index, and is comprised of the smallest financial services companies in the Russell 3000 Index. The Index is not actively managed and does not reflect any deductions for fees, expense, or taxes. An investor may not invest directly in the Index.

 

Important Risks

A fund that concentrates in a particular industry will involve a greater degree of risk than a fund with a more diversified portfolio. Investing in smaller companies generally will present greater investment risks, including: greater price volatility, greater sensitivity to changing economic conditions and less liquidity than the securities of larger, more mature companies.

 

 

Semi-Annual Report | October 31, 2019 21

 

 

Emerald Banking and Finance Fund Manager Commentary

 

October 31, 2019 (Unaudited)

 

GROWTH OF $10,000 INVESTMENT IN THE FUND (for the period ended October 31, 2019)

 

Comparison of change in value of a $10,000 investment (includes applicable sales loads)

 

 

 

The chart represents historical performance of a hypothetical investment of $10,000 in the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

Investing in the Fund is subject to investment risks, including possible loss of the principal amount invested.

 

 

22 www.emeraldmutualfunds.com

 

 

Emerald Funds Disclosure of Fund Expenses

 

October 31, 2019 (Unaudited)

 

As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including applicable sales charges (loads); and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, shareholder services fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the (six-month) period and held for the entire period May 1, 2019 through October 31, 2019.

 

Actual Expenses

The first line for each share class of the Fund in the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the applicable line under the heading titled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example For Comparison Purposes

The second line for each share class of each Fund in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other mutual funds.

 

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the second line for each share class of the Fund within the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.

 

   Beginning
Account Value
05/01/19
  Ending
Account Value
10/31/19
  Expense
Ratio(a)
  Expense Paid
During Period
5/01/19 - 10/31/19(b)
Emerald Growth Fund            
Class A            
Actual  $1,000.00   $957.70    1.01%  $4.97 
Hypothetical (5% return before expenses)  $1,000.00   $1,020.06    1.01%  $5.13 
Class C                    
Actual  $1,000.00   $954.10    1.67%  $8.20 
Hypothetical (5% return before expenses)  $1,000.00   $1,016.74    1.67%  $8.47 
Institutional Class                    
Actual  $1,000.00   $959.10    0.69%  $3.40 
Hypothetical (5% return before expenses)  $1,000.00   $1,021.67    0.69%  $3.51 
Investor Class                    
Actual  $1,000.00   $957.10    1.05%  $5.17 
Hypothetical (5% return before expenses)  $1,000.00   $1,019.86    1.05%  $5.33 
                     
Emerald Small Cap Value Fund                    
Class A                    
Actual  $1,000.00   $1,021.90    1.35%  $6.86 
Hypothetical (5% return before expenses)  $1,000.00   $1,018.35    1.35%  $6.85 
Class C                    
Actual  $1,000.00   $1,018.70    2.00%  $10.15 
Hypothetical (5% return before expenses)  $1,000.00   $1,015.08    2.00%  $10.13 
Institutional Class                    
Actual  $1,000.00   $1,024.10    1.00%  $5.09 
Hypothetical (5% return before expenses)  $1,000.00   $1,020.11    1.00%  $5.08 
Investor Class                    
Actual  $1,000.00   $1,021.80    1.25%  $6.35 
Hypothetical (5% return before expenses)  $1,000.00   $1,018.85    1.25%  $6.34 

 

 

Semi-Annual Report | October 31, 2019 23

 

 

Emerald Funds Disclosure of Fund Expenses

 

October 31, 2019 (Unaudited)

 

   Beginning
Account Value
05/01/19
   Ending
Account Value
10/31/19
   Expense
Ratio(a)
   Expense Paid
During Period
5/01/19 - 10/31/19(b)
 
Emerald Insights Fund                
Class A                    
Actual  $1,000.00   $1,002.60    1.35%  $6.80 
Hypothetical (5% return before expenses)  $1,000.00   $1,018.35    1.35%  $6.85 
Class C                    
Actual  $1,000.00   $1,000.00    2.00%  $10.05 
Hypothetical (5% return before expenses)  $1,000.00   $1,015.08    2.00%  $10.13 
Institutional Class                    
Actual  $1,000.00   $1,004.30    1.05%  $5.29 
Hypothetical (5% return before expenses)  $1,000.00   $1,019.86    1.05%  $5.33 
Investor Class                    
Actual  $1,000.00   $1,003.50    1.40%  $7.05 
Hypothetical (5% return before expenses)  $1,000.00   $1,018.10    1.40%  $7.10 
                     
Emerald Banking and Finance Fund                    
Class A                    
Actual  $1,000.00   $1,005.20    1.49%  $7.51 
Hypothetical (5% return before expenses)  $1,000.00   $1,017.65    1.49%  $7.56 
Class C                    
Actual  $1,000.00   $1,001.40    2.13%  $10.72 
Hypothetical (5% return before expenses)  $1,000.00   $1,014.43    2.13%  $10.79 
Institutional Class                    
Actual  $1,000.00   $1,006.50    1.13%  $5.70 
Hypothetical (5% return before expenses)  $1,000.00   $1,019.46    1.13%  $5.74 
Investor Class                    
Actual  $1,000.00   $1,004.80    1.50%  $7.56 
Hypothetical (5% return before expenses)  $1,000.00   $1,017.60    1.50%  $7.61 

 

(a)The Fund's expense ratios have been based on the Fund's most recent fiscal half-year expenses.
(b)Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184)/366 (to reflect the half-year period).

 

 

24 www.emeraldmutualfunds.com

 

 

Emerald Growth Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value (Note 2) 
COMMON STOCKS: 99.73%    
Consumer Discretionary: 20.90%    
 768,349   American Eagle Outfitters, Inc.  $11,817,208 
 1,044,667   Chegg, Inc.(a)   32,029,490 
 164,826   Children's Place, Inc.   13,500,898 
 179,706   Churchill Downs, Inc.   23,359,983 
 202,299   Chuy's Holdings, Inc.(a)   4,930,027 
 487,123   Del Taco Restaurants, Inc.(a)   3,719,184 
 211,882   Five Below, Inc.(a)   26,508,557 
 191,070   Jack in the Box, Inc.   16,053,701 
 249,281   Marcus Corp.   8,999,044 
 202,187   Meritage Homes Corp.(a)   14,575,661 
 575,849   Noodles & Co.(a)   3,069,275 
 246,016   Ollie's Bargain Outlet Holdings, Inc.(a)   15,715,502 
 374,933   Planet Fitness, Inc., Class A(a)   23,868,235 
 523,272   SeaWorld Entertainment, Inc.(a)   13,824,846 
 430,101   Steven Madden, Ltd.   17,711,559 
 381,200   Taylor Morrison Home Corp., Class A(a)   9,549,060 
 370,375   Tilly's, Inc., Class A   3,800,047 
 250,360   Urban Outfitters, Inc.(a)   7,185,332 
 370,606   YETI Holdings, Inc.(a)   12,344,886 
         262,562,495 
           
Consumer Staples: 5.14%     
 945,701   BellRing Brands, Inc., Class A(a)   16,521,397 
 7,184   Boston Beer Co., Inc., Class A(a)   2,690,121 
 469,817   Freshpet, Inc.(a)   24,552,636 
 847,045   Simply Good Foods Co.(a)   20,786,484 
         64,550,638 
           
Energy: 0.89%
 478,011   New Fortress Energy LLC(a)   8,240,910 
 120,420   Viper Energy Partners LP   2,898,509 
         11,139,419 
           
Financial Services: 12.85%    
 79,593   Agree Realty Corp.   6,269,541 
 159,120   Ameris Bancorp   6,818,292 
 266,841   Axos Financial, Inc.(a)   7,751,731 
 480,456   BRP Group, Inc., Class A(a)   7,783,387 
 81,892   Bryn Mawr Bank Corp.   3,120,904 
 27,043   CenterState Bank Corp.   685,811 
 55,159   CNB Financial Corp.   1,724,822 
 525,752   CrossFirst Bankshares, Inc.(a)   7,029,304 
 122,232   eHealth, Inc.(a)   8,438,897 
 1,011,100   Everi Holdings, Inc.(a)   10,171,666 
 146,592   Evo Payments, Inc., Class A(a)   4,167,611 
 122,502   First Choice Bancorp   2,739,145 
 57,497   Industrial Logistics Properties Trust   1,221,236 
 61,453   LendingTree, Inc.(a)   22,113,862 
 280,509   Moelis & Co., Class A   10,008,561 
 134,758   Monmouth Real Estate Investment Corp.   2,032,151 
Shares      Value (Note 2) 
Financial Services (continued)   
 460,737   OceanFirst Financial Corp.  $11,025,436 
 448,774   Pacific Premier Bancorp, Inc.   15,148,366 
 173,409   Palomar Holdings, Inc.(a)   7,829,416 
 238,038   Pinnacle Financial Partners, Inc.   14,001,395 
 73,480   QTS Realty Trust, Inc., REIT, Class A   3,937,793 
 237,840   STAG Industrial, Inc.   7,382,554 
         161,401,881 
           
Health Care: 27.11%    
 320,427   Adamas Pharmaceuticals, Inc.(a)   1,316,955 
 127,224   Addus HomeCare Corp.(a)   10,713,533 
 359,176   Aimmune Therapeutics, Inc.(a)   9,992,276 
 466,137   Applied Therapeutics, Inc.(a)   7,695,922 
 152,451   Arena Pharmaceuticals, Inc.(a)   7,426,650 
 853,513   ArQule, Inc.(a)   8,629,016 
 269,960   AtriCure, Inc.(a)   7,178,236 
 390,128   Avrobio, Inc.(a)   5,664,659 
 1,178,244   BioDelivery Sciences International, Inc.(a)   6,810,250 
 276,010   Biohaven Pharmaceutical Holding Co., Ltd.(a)   12,674,379 
 655,619   Catalyst Pharmaceuticals, Inc.(a)   3,101,078 
 370,320   Collegium Pharmaceutical, Inc.(a)   4,443,840 
 452,950   Dicerna Pharmaceuticals, Inc.(a)   7,469,146 
 500,000   Exicure, Inc.(a)   1,305,000 
 102,057   Haemonetics Corp.(a)   12,321,342 
 725,347   Horizon Therapeutics PLC(a)   20,969,782 
 371,540   Insmed, Inc.(a)   6,906,929 
 216,038   Integer Holdings Corp.(a)   16,729,983 
 871,986   Karyopharm Therapeutics, Inc.(a)   10,202,236 
 88,947   LivaNova PLC(a)   6,291,221 
 45,150   Livongo Health, Inc.(a)   974,789 
 129,603   Merit Medical Systems, Inc.(a)   2,676,950 
 78,141   Mirati Therapeutics, Inc.(a)   7,359,319 
 1,046,059   NeoGenomics, Inc.(a)   23,986,133 
 2,035,891   Oncocyte Corp.(a)   3,461,015 
 163,963   Oyster Point Pharma, Inc.(a)   3,079,225 
 215,634   PTC Therapeutics, Inc.(a)   8,817,274 
 427,963   Radius Health, Inc.(a)   12,171,268 
 135,072   Reata Pharmaceuticals, Inc., Class A(a)   27,835,638 
 460,203   Replimune Group, Inc.(a)   7,823,451 
 178,978   Tabula Rasa HealthCare, Inc.(a)   9,117,139 
 326,979   Tandem Diabetes Care, Inc.(a)   20,135,367 
 207,824   Teladoc Health, Inc.(a)   15,919,318 
 120,197   TransMedics Group, Inc.(a)   2,156,334 
 340,850   Twist Bioscience Corp.(a)   8,119,047 
 183,015   Varex Imaging Corp.(a)   5,492,280 
 342,591   Vericel Corp.(a)   5,436,919 
 180,523   Zogenix, Inc.(a)   8,060,352 
         340,464,251 
           
Materials & Processing: 3.66%    
 91,725   Carpenter Technology Corp.   4,496,360 

 

 

Semi-Annual Report | October 31, 2019 25

 

 

 

Emerald Growth Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value (Note 2) 
Materials & Processing (continued) 
 439,013   PQ Group Holdings, Inc.(a)  $7,230,544 
 389,399   Trex Co., Inc.(a)   34,224,278 
         45,951,182 
           
Producer Durables: 10.38%    
 229,970   Aerojet Rocketdyne Holdings, Inc.(a)   9,941,603 
 200,000   Air Transport Services Group, Inc.(a)   4,182,000 
 60,125   Allied Motion Technologies, Inc.   2,276,333 
 202,888   Chart Industries, Inc.(a)   11,895,324 
 399,593   Harsco Corp.(a)   8,099,750 
 127,607   Insperity, Inc.   13,479,127 
 190,337   Knoll, Inc.   5,089,611 
 1,161,756   Kratos Defense & Security Solutions, Inc.(a)   21,933,953 
 155,734   NV5 Global, Inc.(a)   11,279,814 
 215,416   Tetra Tech, Inc.   18,842,438 
 319,956   TriNet Group, Inc.(a)   16,954,468 
 415,770   Tutor Perini Corp.(a)   6,431,962 
         130,406,383 
           
Technology: 16.35%    
 187,500   Alarm.com Holdings, Inc.(a)   9,262,500 
 626,079   Ciena Corp.(a)   23,240,052 
 66,150   EverQuote, Inc., Class A(a)   1,342,845 
 340,571   ForeScout Technologies, Inc.(a)   10,475,964 
 1,516,391   Glu Mobile, Inc.(a)   8,992,199 
 482,910   Leaf Group, Ltd.(a)   1,434,243 
 21,573   Lumentum Holdings, Inc.(a)   1,351,764 
 28,184   MACOM Technology Solutions Holdings, Inc.(a)   640,904 
 244,392   Mercury Systems, Inc.(a)   18,001,915 
 362,060   Model N, Inc.(a)   10,785,767 
 66,765   New Relic, Inc.(a)   4,276,966 
 156,015   Perficient, Inc.(a)   6,115,788 
 432,018   PlayAGS, Inc.(a)   4,985,488 
 756,598   Pluralsight, Inc., Class A(a)   13,679,292 
 73,550   Proofpoint, Inc.(a)   8,485,463 
 109,616   Q2 Holdings, Inc.(a)   7,836,448 
 419,395   Rapid7, Inc.(a)   21,007,495 
 384,466   SailPoint Technologies Holding, Inc.(a)   7,443,262 
 488,358   SVMK, Inc.(a)   8,985,787 
 696,516   USA Technologies, Inc.(a)   4,513,424 
 292,454   Varonis Systems, Inc.(a)   20,925,084 
 623,956   Viavi Solutions, Inc.(a)   9,958,338 
 84,687   Vocera Communications, Inc.(a)   1,686,965 
         205,427,953 
           
Utilities: 2.45%    
 14,982   Boingo Wireless, Inc.(a)   141,880 
 205,625   Cogent Communications Holdings, Inc.   12,057,850 
 155,697   Shenandoah Telecommunications Co.   5,007,215 

  

Shares      Value (Note 2) 
Utilities (continued)    
 1,387,075   Vonage Holdings Corp.(a)  $13,551,723 
         30,758,668 
           
     Total Common Stocks     
     (Cost $914,688,269)   1,252,662,870 
           
SHORT TERM INVESTMENTS: 0.24%    
 2,985,193   Dreyfus Government Cash Management Fund - Institutional Class 1.741% (7-Day Yield)   2,985,193 
           
     Total Short Term Investments     
    (Cost $2,985,193)   2,985,193 
           
Total Investments: 99.97%     
(Cost $917,673,462)   1,255,648,063 
           
Other Assets In Excess Of Liabilities: 0.03%   417,389 
Net Assets: 100.00%  $1,256,065,452 

 

(a)Non-income producing security.

 

For Fund compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percentage of net assets.

 

See Notes to Financial Statements.

 

 

26 www.emeraldmutualfunds.com

 

 

 

Emerald Small Cap Value Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value (Note 2) 
COMMON STOCKS: 98.93%
Consumer Discretionary: 12.80%     
 1,138   Aaron's, Inc.  $85,270 
 477   Children's Place, Inc.   39,071 
 1,200   Eldorado Resorts, Inc.(a)   53,724 
 6,759   GameStop Corp., Class A   36,769 
 3,699   Gray Television, Inc.(a)   60,701 
 2,825   Meritor, Inc.(a)   62,235 
 4,678   Party City Holdco, Inc.(a)   26,290 
 4,906   ZAGG, Inc.(a)   36,157 
         400,217 
           
Energy: 5.79%     
 1,310   Arcosa, Inc.   50,317 
 1,728   Delek US Holdings, Inc.   69,033 
 3,936   Magnolia Oil & Gas Corp., Class A(a)   38,652 
 962   Viper Energy Partners LP   23,155 
         181,157 
           
Financial Services: 41.49%     
 2,582   Amalgamated Bank, Class A   47,018 
 3,392   Amerant Bancorp, Inc., Class B(a)   48,166 
 727   Americold Realty Trust   29,145 
 1,239   Ameris Bancorp   53,091 
 1,814   Ares Management Corp., Class A   53,640 
 1,669   Axos Financial, Inc.(a)   48,484 
 4,384   Bancorp, Inc.(a)   47,786 
 3,074   Bank7 Corp.   55,947 
 2,635   Baycom Corp.(a)   55,704 
 3,242   Bridgewater Bancshares, Inc.(a)   40,817 
 2,910   BRP Group, Inc., Class A(a)   47,142 
 1,529   CNB Financial Corp.   47,812 
 1,407   Easterly Government Properties, Inc.   31,404 
 1,102   Employers Holdings, Inc.   46,659 
 258   Euronet Worldwide, Inc.(a)   36,138 
 503   First Merchants Corp.   19,894 
 2,879   Heritage Insurance Holdings, Inc.   38,348 
 703   Innovative Industrial Properties, Inc.   53,428 
 1,433   Investar Holding Corp.   35,553 
 2,336   Meta Financial Group, Inc.   73,958 
 976   Moelis & Co., Class A   34,824 
 1,563   People's Utah Bancorp   45,483 
 2,177   Plymouth Industrial REIT, Inc.   41,058 
 1,924   Rexford Industrial Realty, Inc.   92,526 
 1,234   Synovus Financial Corp.   41,796 
 2,193   TPG RE Finance Trust, Inc.   44,364 
 1,169   Triumph Bancorp, Inc.(a)   37,934 
 988   Western Alliance Bancorp   48,738 
         1,296,857 
           
Health Care: 2.97%     
 336   Biohaven Pharmaceutical Holding Co., Ltd.(a)   15,429 
 1,478   Karyopharm Therapeutics, Inc.(a)   17,293 
Shares      Value (Note 2) 
Health Care (continued)
 2,006   Varex Imaging Corp.(a)  $60,200 
         92,922 
           
Materials & Processing: 6.28%     
 1,673   Kirkland Lake Gold, Ltd.   78,547 
 1,237   Koppers Holdings, Inc.(a)   39,708 
 1,551   Universal Forest Products, Inc.   78,108 
         196,363 
           
Producer Durables: 16.89%     
 1,073   Air Lease Corp.   47,191 
 1,071   Allied Motion Technologies, Inc.   40,548 
 1,539   Columbus McKinnon Corp.   57,743 
 868   Cubic Corp.   64,006 
 1,028   Douglas Dynamics, Inc.   48,141 
 2,535   Harsco Corp.(a)   51,384 
 1,525   Hillenbrand, Inc.   46,955 
 807   ICF International, Inc.   69,152 
 633   OSI Systems, Inc.(a)   62,819 
 906   SP Plus Corp.(a)   40,018 
         527,957 
           
Technology: 11.54%     
 1,749   Blucora, Inc.(a)   37,831 
 2,280   Cerence, Inc.(a)   35,340 
 1,255   Ebix, Inc.   53,501 
 1,924   Kulicke & Soffa Industries, Inc.   45,685 
 417   MKS Instruments, Inc.   45,128 
 6,690   Photronics, Inc.(a)   78,941 
 2,623   PlayAGS, Inc.(a)   30,269 
 3,130   Turtle Beach Corp.(a)   34,055 
         360,750 
           
Utilities: 1.17%     
 3,732   Vonage Holdings Corp.(a)   36,462 
           
     Total Common Stocks     
    

(Cost $2,563,831)

   3,092,685 
           
SHORT TERM INVESTMENTS: 0.42%     
 13,247   Dreyfus Government Cash Management Fund - Institutional Class 1.741% (7-Day Yield)   13,247 
           
     Total Short Term Investments     
    

(Cost $13,247)

   13,247 
           
Total Investments: 99.35%     

(Cost $2,577,078)

   3,105,932 

 

Semi-Annual Report | October 31, 2019 27

 

 

 

Emerald Small Cap Value Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

  Shares  Value (Note 2) 
Utilities (continued)     
      
Other Assets In Excess Of Liabilities: 0.65%   20,193 
Net Assets: 100.00%  $3,126,125 

 

(a)Non-income producing security.

 

For Fund compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percentage of net assets.

 

See Notes to Financial Statements.

 

 

28 www.emeraldmutualfunds.com

 

 

 

Emerald Insights Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value (Note 2) 
COMMON STOCKS: 92.36%
Consumer Discretionary: 14.44%
 302   Amazon.com, Inc.(a)  $536,551 
 599   Burlington Stores, Inc.(a)   115,110 
 8,864   Chegg, Inc.(a)   271,770 
 953   Churchill Downs, Inc.   123,880 
 3,937   Cinemark Holdings, Inc.   144,094 
 930   Dine Brands Global, Inc.   68,030 
 479   Home Depot, Inc.   112,364 
 1,076   Lennar Corp., Class A   64,130 
 616   Polaris, Inc.   60,768 
 7,928   SeaWorld Entertainment, Inc.(a)   209,458 
         1,706,155 
           
Consumer Staples: 3.44%     
 8,644   BellRing Brands, Inc., Class A(a)   151,010 
 428   Boston Beer Co., Inc., Class A(a)   160,269 
 1,830   Freshpet, Inc.(a)   95,636 
         406,915 
           
Energy: 4.24%     
 2,041   Diamondback Energy, Inc.   175,036 
 5,577   Magnolia Oil & Gas Corp., Class A(a)   54,766 
 4,134   Oil States International, Inc.(a)   58,992 
 3,248   Parsley Energy, Inc., Class A   51,351 
 6,808   Tellurian, Inc.(a)   54,260 
 4,445   Viper Energy Partners LP   106,991 
         501,396 
           
Financial Services: 8.31%     
 1,029   Blackstone Group, Inc., Class A   54,702 
 831   Citigroup, Inc.   59,716 
 562   Euronet Worldwide, Inc.(a)   78,719 
 640   Fiserv, Inc.(a)   67,930 
 989   JPMorgan Chase & Co.   123,546 
 617   LendingTree, Inc.(a)   222,027 
 1,262   Visa, Inc., Class A   225,721 
 3,041   Western Alliance Bancorp   150,013 
         982,374 
           
Health Care: 16.94%     
 1,116   Abbott Laboratories   93,309 
 1,002   Alnylam Pharmaceuticals, Inc.(a)   86,914 
 3,284   Applied Therapeutics, Inc.(a)   54,219 
 2,747   Avrobio, Inc.(a)   39,886 
 9,556   BioDelivery Sciences International, Inc.(a)   55,234 
 1,922   Biohaven Pharmaceutical Holding Co., Ltd.(a)   88,258 
 1,592   BioTelemetry, Inc.(a)   62,661 
 11,833   Catalyst Pharmaceuticals, Inc.(a)   55,970 
 3,930   Dicerna Pharmaceuticals, Inc.(a)   64,806 
 2,406   Horizon Therapeutics PLC(a)   69,558 
 6,977   Inmode, Ltd.(a)   214,613 
 8,199   Insmed, Inc.(a)   152,419 
Shares      Value (Note 2) 
Health Care (continued)     
 2,055   Integer Holdings Corp.(a)  $159,139 
 659   Merck & Co., Inc.   57,109 
 1,845   Merit Medical Systems, Inc.(a)   38,109 
 1,490   Oyster Point Pharma, Inc.(a)   27,982 
 2,115   PTC Therapeutics, Inc.(a)   86,482 
 379   Reata Pharmaceuticals, Inc., Class A(a)   78,104 
 1,311   Sarepta Therapeutics, Inc.(a)   108,892 
 4,850   SmileDirectClub, Inc.(a)   56,721 
 2,229   Tabula Rasa HealthCare, Inc.(a)   113,545 
 1,168   Tandem Diabetes Care, Inc.(a)   71,925 
 924   Teladoc Health, Inc.(a)   70,778 
 669   Veeva Systems, Inc., Class A(a)   94,884 
         2,001,517 
           
Materials & Processing: 4.35%     
 7,862   Cleveland-Cliffs, Inc.   56,842 
 2,816   GMS, Inc.(a)   84,368 
 1,308   Scotts Miracle-Gro Co.   131,310 
 2,747   Trex Co., Inc.(a)   241,434 
         513,954 
           
Producer Durables: 9.03%     
 2,627   Chart Industries, Inc.(a)   154,021 
 275   CoStar Group, Inc.(a)   151,118 
 12,524   Harsco Corp.(a)   253,861 
 6,372   Kratos Defense & Security Solutions, Inc.(a)   120,303 
 217   Lockheed Martin Corp.   81,740 
 797   NV5 Global, Inc.(a)   57,727 
 1,498   OSI Systems, Inc.(a)   148,662 
 956   TopBuild Corp.(a)   99,357 
         1,066,789 
           
Technology: 30.01%     
 102   Adobe, Inc.(a)   28,349 
 331   Alphabet, Inc., Class A(a)   416,663 
 1,876   Anaplan, Inc.(a)   88,547 
 2,300   Apple, Inc.   572,148 
 3,336   Dropbox, Inc., Class A(a)   66,120 
 640   Facebook, Inc., Class A(a)   122,656 
 722   Fortinet, Inc.(a)   58,886 
 14,389   Glu Mobile, Inc.(a)   85,327 
 1,621   Knowles Corp.(a)   34,981 
 912   Lumentum Holdings, Inc.(a)   57,146 
 4,444   Microsoft Corp.   637,136 
 7,878   MobileIron, Inc.(a)   49,316 
 1,086   NVIDIA Corp.   218,308 
 474   Palo Alto Networks, Inc.(a)   107,783 
 4,916   PlayAGS, Inc.(a)   56,731 
 3,118   Pluralsight, Inc., Class A(a)   56,374 
 844   Proofpoint, Inc.(a)   97,372 
 7,682   Pure Storage, Inc., Class A(a)   149,492 
 3,233   Rapid7, Inc.(a)   161,941 

 

 

Semi-Annual Report | October 31, 2019 29

 

 

Emerald Insights Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value (Note 2) 
Technology (continued)     
 1,382   RealPage, Inc.(a)  $83,680 
 362   salesforce.com, Inc.(a)   56,649 
 288   ServiceNow, Inc.(a)   71,211 
 924   Take-Two Interactive Software, Inc.(a)   111,203 
 2,202   Varonis Systems, Inc.(a)   157,553 
         3,545,572 
           
Utilities: 1.60%     
 2,292   Aqua America, Inc.   103,896 
 8,713   Vonage Holdings Corp.(a)   85,126 
         189,022 
     Total Common Stocks     
    

(Cost $8,861,189)

   10,913,694 
           
EXCHANGE TRADED FUNDS: 2.57%     
Technology: 2.57%     
 1,411   iShares Expanded Tech-Software Sector ETF   303,252 
           
     Total Exchange Traded Funds     
    

(Cost $303,743)

   303,252 

 

SHORT TERM INVESTMENTS: 5.07%     
 599,193   Dreyfus Government Cash Management Fund - Institutional Class 1.741% (7-Day Yield)   599,193 
           
     Total Short Term Investments      
    

(Cost $599,193)

   599,193 

 

Total Investments: 100.00%     

(Cost $9,764,125)

   11,816,139 
      
Other Assets In Excess Of Liabilities: 0.00%   159 
Net Assets: 100.00%  $11,816,298 

 

(a)Non-income producing security.

 

For Fund compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percentage of net assets.

 

See Notes to Financial Statements.

 

 

30 www.emeraldmutualfunds.com

 

 

Emerald Banking and Finance Fund Schedule of Investments

 

October 31, 2019 (Unaudited)

 

Shares      Value
(Note 2)
 
COMMON STOCKS: 99.24%    
Consumer Discretionary: 0.53%    
Advertising Agencies: 0.53%     
 111,560   QuinStreet, Inc.(a)  $1,431,315 
           
Financial Services: 93.84%     
Asset Management & Custodian: 1.97%     
 243,486   Focus Financial Partners, Inc., Class A(a)   5,327,474 
           
Banks: Diversified: 67.12%     
 70,605   1st Source Corp.   3,613,564 
 19,953   Amalgamated Bank, Class A   363,344 
 65,534   Amerant Bancorp, Inc., Class B(a)   930,583 
 433,450   Amerant Bancorp, Inc., Class A(a)   8,517,292 
 69,178   American Business Bank(a)   2,358,970 
 80,890   Ameris Bancorp   3,466,136 
 913,279   Bancorp, Inc.(a)   9,954,741 
 316,977   Bank of Commerce Holdings   3,556,482 
 189,583   Bank of NT Butterfield & Son, Ltd.   6,246,760 
 495,424   Bank7 Corp.   9,016,717 
 241,551   Baycom Corp.(a)   5,106,388