1st Quarter 2012 Commentary - ASTON Small Cap Growth Fund
1st Quarter 2012
Domestic equities recorded another strong quarter to begin 2012, as steady improvement in employment data, manufacturing, and some signs of firming in the housing market all contributed to a more favorable economic backdrop in the U.S. Although the sovereign debt crisis continues to be the focus in European economies and European markets, its impact on U.S. equities appeared more muted in recent months as U.S. stocks instead advanced on the improved domestic outlook. The large-cap oriented S&P 500 Index gained more than 12% during the first quarter, slightly outpacing the small-cap Russell 2000 Index.
Sector performance was broadly positive in the U.S. throughout the period, with tightly bunched and double-digit returns seen across most industry groups. Only Utilities, which had been a beneficiary of a flight-to-quality trade during the second half of last year, failed to generate a positive return. The Technology and Consumer Discretionary sectors were especially strong, and growth indexes outperformed their value counterparts.
The Fund gained more than 16% during the first quarter, outpacing its Russell 2000 Growth Index benchmark by a significant margin. Stock selection drove most of the favorable performance, most notably in the Technology and Consumer Discretionary sectors. IT service companies, semiconductor/equipment stocks, and software names all contributed meaningfully to the outperformance within Technology. Electronic payment device-maker Verifone Systems benefited from the broader adoption of smart card payment technologies, and specifically gained on news that MasterCard would incentivize merchants to adopt the chip-based EMV technology. Semiconductor company Microsemi advanced on the launch of a new system synchronization technology, while software firms Kenexa and Ariba also delivered strong results.
Jarden, Knology, Office Depot, and Shutterfly were the key drivers within Consumer Discretionary. The market reacted well to consumer products conglomerate Jarden’s stock buyback plan and the company’s improving revenue outlook. Shares of regional cable operator and telecomm provider Knology advanced on speculation that the company was exploring a sale and attracting interest from private equity investors. Office Depot benefited from takeover speculation as well. Lastly, Shutterfly had a strong quarter, helped by its bid for Kodak’s Gallery photo processing service and an earnings report that beat analyst estimates.
Performance shortfalls during the quarter came mainly from a handful of stocks in the Healthcare and Industrials sectors. Shares of Vanguard Health Systems and Tenet Healthcare both underperformed the health sector by a noticeable amount, with Vanguard stock recording a modest decline. Healthcare IT firm Allscripts-Mysis Healthcare Solutions disappointed the market with its February earnings report, also detracting from performance. Commercial earth imaging firm DigitalGlobe was the notable underperformer in Industrials. The stock fell on an earnings shortfall and a more general concern about a difficult government funding environment.
Lee Munder Capital Group, LLC
As of March 31, 2012, Verifone Systems comprised 1.87% of the portfolio's assets, Microsemi – 2.35%, Kenexa – 2.84%, Ariba – 2.16%, Jarden – 1.53%, Knology – 5.48%, Office Depot – 2.11%, Shutterfly – 2.75%, Vanguard Health Systems – 1.26%, Tenet Healthcare – 2.10%, Allscripts Healthcare Solutions – 2.20%, and DigitalGlobe – 0.86%.
Note: Small-cap stocks are considered riskier than large-cap stocks due to greater potential volatility and less liquidity.
Before investing, consider the Fund’s investment objectives, risks, charges, and expenses. Contact 800 992-8151 for a prospectus or summary prospectus containing this and other information. Please, read it carefully. Aston Funds are distributed by Foreside Funds Distributors LLC.