KEELEY All Cap Value Fund
Manager Commentary and Attribution [PDF]Fund Commentary - 1st Quarter 2013
In the first calendar quarter of 2013, the KEELEY All Cap Value Fund (KACVX) increased 14.55 percent compared to a 12.26 percent increase for the Russell 3000 Value Index. Despite concerns over the fiscal cliff and the impact of the payroll tax cut and sequestration, equities continued their strong momentum in the first quarter of the new year. Overall, the economic recovery in the U.S. continued, albeit at a somewhat sluggish pace. Europe was the only significant drag on a quarter with a great deal of optimism, and the developments in Cyprus were a stark reminder that some unpredictable uncertainties remain. However, the majority of economic news was upbeat during the quarter, and strong momentum in key areas of the economy, such as housing, proved to be a positive catalyst for equities. Additionally, with an improving economy and the Federal Reserve showing very few signs of slowing down their efforts to boost the economy through Quantitative Easing (QE), there are a number of constructive elements to promote the continued forward movement of equities in 2013. Our portfolio also carried a great deal of positive momentum into the new year, producing a strong quarter in both absolute and relative terms. During the first quarter strong stock selection drove all of our outperformance as our sector selection slightly detracted. All ten sectors of the Russell 3000 Value Index generated positive returns during the quarter, with 7 of 10 producing double digit returns. Stock selection proved to be the primary driver of our returns during the quarter, led by strong holdings in the industrials, energy, and consumer discretionary sectors. Our sector allocation had a negative impact, due in large part to an overweight position in materials, which was the worst performing sector in the benchmark.
Strong stock selection in the consumer discretionary sector was the primary driver of our returns during the quarter, accounting for the majority of our relative outperformance. The top contributor during the quarter, Fiesta Restaurant Group (FRGI) came from this sector, and rose over 73 percent and added 102 basis points of return to the fund. Fiesta, who owns, operates, and franchises the Taco Cabana and Pollo Tropical restaurants, announced a positive long-term outlook in March due to improving sales and a lower annual estimated effective tax rate. The company also expects to deliver earnings per share growth of 20 percent or greater in 2013.
The second best performer during the quarter was Chicago Bridge & Iron Co. (CBI), which came from the industrial sector. The builder of energy infrastructure has been in a strong uptrend over the past year and jumped sharply late in the first quarter, rising over 33 percent and adding 51 basis points of return to the portfolio after the company provided optimistic guidance for sales in 2013. The company is benefitting from a strong backlog and has quickly recognized synergies from its acquisition of Shaw Group.
From a sector perspective, we do not anticipate significant changes in the near-term. The portfolio is maintaining a cyclical bias, with overweight positions in the industrials and consumer discretionary sectors. Additionally, our weight in financials has increased in recent years (over 26%) and is now almost in-line with the Russell 3000 Value Index. The portfolio also has exposure to more defensive areas such as healthcare, which is overweight the benchmark at almost 13 percent. Although we continue to be comfortable with our exposure in more cyclical areas, we have recognized rising valuations in those areas and have taken advantage of strong performance to trim those holdings.
Overall, although performance has been strong, we believe equities in our universe of corporate restructuring continue to offer value. A number of companies are presenting compelling valuations and some industries (such as homebuilders) are still bouncing off of secular lows in their businesses and, in our opinion, continue to offer strong long-term upside. Additionally, with an improving economic environment and substantial pent-up demand, companies are looking to corporate restructuring as a way to become more competitive and strategically position themselves for the future. For example, activist investors are becoming more prevalent and forcing change, spin-off activity continues to be robust, and the persistent low-interest rate environment has been a catalyst to facilitate much of this activity. The fact that these elements are all in place has been a boost to our investment universe and we do not anticipate any interruption in the near future. Lastly, markets continue to climb the "wall of worry", but investors, mired in poor fixed-income returns for years, are slowly rotating into equities. While this is not a factor in our investment process, this is a positive and long-awaited development. Thank you for your support of the All Cap Value Fund.
The performance reflected herein is for the Class A shares without load. "Without load" does not reflect the deduction of the maximum 4.50% sales fee (load), which reduces the performance quoted. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Most current performance data may be obtained at www.KeeleyFunds.com.
The Fund's adviser has contractually agreed to waive a portion of its management fee or reimburse the Fund if total ordinary operating expenses during the current fiscal year as a percentage of the Fund's average net assets exceed 1.39% for Class A Shares and 1.14% for Class I Shares. The waiver excludes expenses related to taxes, interest charges, dividend expenses incurred on securities that a Fund sells short, litigation and other extraordinary expenses, brokerage commissions and other charges relating to the purchase and sale of portfolio securities. The waiver is in effect through January 31, 2014.
Investors should consider carefully before investing in the Fund's investment objective, risks and charges and expenses. To obtain an additional prospectus, which contains that information and other information about the Fund, please call us at 800.533.5344 or visit www.keeleyfunds.com. Please read the prospectus carefully before you invest or send money.
Stocks of smaller companies tend to be more volatile and less liquid than those of large companies.
This summary represents the views of the portfolio managers as of 03/31/13. Those views may change, and the Fund disclaims any obligation to advise investors of such changes. For the purpose of determining the Fund's holdings, securities of the same issuer are aggregated to determine the weight in the Fund. Portfolio holdings are subject to change without notice and are not intended as recommendations of individual securities.
Performance attribution is commonly used to measure the quality of the separate decisions that go into the management of an investment portfolio compared to a benchmark index. This analysis tries to isolate the effect and measure the return contribution of market allocation, which analyzes the positive/negative impact of a portfolio's allocation to groupings such as geographic regions or market sectors, and stock selection, which analyzes the positive/negative impact of the portfolio manager's security ownership and weighting decisions within a wider grouping. The performance attribution data in this quarterly commentary was prepared by Keeley Asset Management Corp. ("KAMCO") using the following constraints: (1) Fund portfolio holdings are as of the beginning of each day; index constituents are as of the end of the day. That means that the Fund's holdings are not included until the day after acquisition (when it is included in the portfolio as of the beginning of the next business day), and a portfolio holding that is sold is included in the analysis through the end of the day on which it is sold, and that the values at which securities are included in the analysis are the values as of the beginning of the day. For the index, securities are included at their values at the end of the day. (2) The securities values used in the analysis are the prices used by KAMCO in its internal records for the Fund and the prices used by the index provider for the benchmark index. If a price from either of those sources is unavailable, pricing information from FactSet is used. Pricing information from the index provider or from FactSet may differ from the pricing information used by KAMCO. (3) For the purpose of assigning portfolio security holdings to a particular sector and/or industry, KAMCO assigns the securities in accordance with the sector and industry classifications of the Global Industry Classification Standard (GICS) developed by MSCI and Standard and Poor's (to the extent available) as a primary source and FactSet (to the extent available) as a secondary source for this information. In the event KAMCO securities information vendors do not classify a security's issuer to a particular sector or industry or if the published classification appears to be incorrect, KAMCO may classify the security's issuer according to its own judgment, using other securities information vendors, the company description and other publicly available information about the company's peer group. Sector and/or industry classifications may change over time. The attribution information provided in this commentary includes summaries of attribution by market sector. Attribution is not precise and should be considered to be an approximation of the relative contribution of each of the sectors considered. The information on performance by sector reflects the aggregated gross return of the Fund's securities. Contributions to the Fund's performance by sector (computed as described above) were compared against the contributions to the aggregate return of the stocks comprising the index, by sector, as reported by FactSet Databases.
The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by KAMCO. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Data provided for performance attribution are estimates based on unaudited portfolio results. Performance contributors and detractors were not realized gains or losses for the Fund during the quarter. The S&P 500 Index is designed to act as a barometer for the overall U.S. stock market. The index is unmanaged, consisting of 500 stocks that are chosen on the basis of market size, liquidity, and industry grouping. The S&P 500 is a market value weighted index with each stock's weight in the index proportionate to its market value. The Russell 3000 Value Index is an unmanaged index that measures the performance of those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth rates. The Index figures do not reflect any deduction for fees, expenses or taxes, and are not available for direct investment. Securities in the Fund may not match those in the indexes and performance of the Fund will differ. The KEELEY All Cap Value Fund, KEELEY Mid Cap Value Fund, KEELEY Small-Mid Cap Value Fund, KEELEY Small Cap Value Fund, KEELEY Small Cap Dividend Value, KEELEY Mid Cap Dividend Value, and KEELEY Alternative Value Fund are distributed by Keeley Investment Corp.
The top ten holdings of KACVX as of March 31, 2013 include ITT Corp. (1.84%), Chicago Bridge & Iron Co. (1.83%), The ADT Corp. (1.75%), Rockwood Holdings, Inc. (1.73%), Pfizer, Inc. (1.70%), Hanesbrands, Inc. (1.70%), Teleflex, Inc. (1.66%), NCR Corp. (1.65%), Eaton Corp. PLC (1.62%), and Union Pacific Corp. (1.61%).