1st Quarter 2012
The portfolio got off to a slow start in January, but had two solid months in February and March to close the gap and finish the quarter slightly ahead of the Fund’s Russell 2000 Growth Index benchmark. Holdings in the Consumer Discretionary sector were the stellar performers despite rising gasoline prices that reached their highest levels ever during a first quarter. Three of the Fund’s larger holdings led the way as women’s specialty apparel Francesca’s, specialty mattress firm Select Comfort, and big box cosmetics chain ULTA Salon all delivered tremendous gains after each reported strong quarters and gave solid forward-looking guidance. Stock selection within Healthcare also positively contributed to performance led by Vivus, which received a favorable FDA panel ruling regarding its new obesity drug, Qnexa. These panel rulings are rarely overruled and final approval is expected in July.
Holdings in Technology trailed the market, despite strong performances from application software firms such as ACI Worldwide. One of the Fund’s biggest disappointments was communications equipment firm Finisar, which lost ground during the quarter as fears that capital spending from the big telecomm carriers would not materialize.
Looking ahead, we do not expect macroeconomic worries to fade away anytime soon, and expect some choppiness to surface during the upcoming quarters from a new set of worries—the U.S. presidential election, the Supreme Court decision on the healthcare mandate, and the upcoming fiscal cliff from mounting federal debt and the expiration of the Bush tax cuts in January 2013. We didn’t include gasoline prices as we think they may have run their course already, but if we are wrong they will definitely go into the negative column.
That being said, we believe the U.S. equity market is still the place to be as Europe is teetering on the edge of recession, Emerging Markets are slowing down, and 10-year Treasuries yielding only 2%. The continuing fear is contagion in Europe. Although Spanish and Italian yields have started to blow out again, interbank rates both here and across the Atlantic are doing nothing and are well off their highs. Meanwhile, U.S. corporate profits are at an all-time high.
All in all, we were satisfied with the first quarter and believe that we have a solid stable of companies in the portfolio that can continue to report earnings above expectations and drive future estimates ever higher. In addition, we think there are enough macro pieces falling into place that could entice the mountain of cash parked on the sidelines or in low-yielding bonds back into equities over the course of the next 12 to 18 months.
B. Anthony Weber Charles F. Mercer, Jr. CFA Michael E. Johnson, CFA
April 11, 2012
As of March 31, 2012, Francesca’s comprised 2.47% of the portfolio's assets, Select Comfort – 2.86%, Ulta Salon – 2.42%, Vivus – 1.65%, ACI Worldwide – 2.19%, and Finisar – 1.14%.
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.