KEELEY All Cap Value Fund

Investor Class (A) Shares: KACVX

Institutional Class (I) Shares: KACIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 4th Quarter 2017

To Our Shareholders:

For the quarter ended December 31, 2017, the KEELEY All Cap Value Fund’s net asset value (“NAV”) per Class A share rose 6.03% versus a gain of 5.08% for the Russell 3000 Value Index. For the year, the Fund gained 12.29% compared with a 13.19% gain for the Index.


The markets ended the year on a strong note, with the major US equity indices at or near all-time highs. The holiday cheer was not confined to the US as stock markets in the UK, France, Germany, Japan, India, and Brazil all closed the year at or close to highs.  Equity markets, however, were not the only places displaying strength.  Commodities also advanced into the end of the year with the Goldman Sachs Commodity Index closing near its year-high, as underlying components such as oil, aluminum, and nickel exhibited strength.  This global optimism led the yields on the 3-month treasury bill and 5-year treasury note to close 2017 at near highs, even though there was little evidence of inflation.  In fact, the only major benchmark seeing a significant retreat in 2017 was the CBOE Volatility index – also known as the VIX Index – which tends to decline when US equities rally. 

The global stock rally appears to have been fueled by improving corporate earnings, strengthening economies around the world, and supportive monetary policy from the global central banks.  Many of these factors have driven gains in US stocks, as domestic economic data has been setting six-year records.  And with the passage of a new tax law that will reduce corporate tax burdens, investors remain bullish that economic expansion will continue in 2018.

Taking a closer look at economic trends both in the US and overseas, one sees that economic expansion has been broad-based by sector.  Business confidence surveys such as the purchasing manager indices (“PMI”) reveal that 96 percent of the 28 countries tracked showed expansion of their manufacturing sectors and that 83 percent saw services sector expansion.  Recent data suggest business spending is also starting to pick up. Although tax reform was the sole item on the Trump agenda that successfully passed, the new Administration has been quietly reducing regulation which in turn is giving companies confidence to invest.

This strong economic expansion has produced continued job growth.  The Eurozone jobless rate of 8.8% is at its lowest level in nine years.  The picture is even rosier in the US, where the unemployment rate remains historically low and the US continues to add jobs at a brisk clip: December’s unemployment rate held at 4.1%, the lowest in 17 years.

This labor-market strength has helped drive growth in US consumer confidence during the year, despite a small decline in December.  Although wage growth has been slow, consumers have remained confident amid low unemployment and near record job openings.  Confidence may improve further as many companies have announced measures to share some of the benefits of lower corporate taxes with employees through wage increases, one-time bonuses and benefits improvements.

Overall, the global economy appears to be on solid ground heading into 2018, with strong business and consumer confidence, further strength in labor markets, higher wages and low borrowing costs.  All this should set a backdrop for growth in consumer spending.

With lower corporate taxes, companies should have greater earnings and operating cash flow leading to other interesting capital allocation options besides stock buy-backs and dividend increases, which have been used more frequently over the past few years.  The new tax law encourages capital spending, so we expect a rebound from current low levels of corporate investment.  In addition, limits on interest deductibility will likely encourage certain companies to pay down debt, or spur highly levered private companies to sell. Other companies will look to use the cash to grow via acquisitions, thereby increasing M&A opportunities.

Worldwide merger and acquisition activity has exceeded $3 trillion for the fourth consecutive year, extending an unprecedented wave of deal making that should accelerate under new US tax reform. The US remains the most active region with a record 12,400 deals, amounting to $1.4 trillion. As value investors, we search for companies that are neglected, overlooked and selling at discounts to our calculation of intrinsic value. We also seek companies where restructuring improves their outlook and therefore makes them attractive consolidation candidates. M&A activity should not only help smaller companies that may be acquired at a premium, but also larger companies that can either sell divisions to become more focused or that can acquire to increase operating leverage. We believe our style of active investing will benefit from M&A wave as a result.

We do, however, see three potential threats to further stock market gains - higher inflation, valuation and geopolitical risk.  Oil and other commodity prices have ticked up and this could push prices higher.  In addition, the tighter labor market may ultimately drive higher wages and more inflation.  So far, these factors look manageable, but if they accelerate, the Fed and other central banks may tighten more aggressively. 

Valuation is the second challenge.  We are eight years into a stock market recovery.  Over the last several years, earnings gains have failed to keep pace with stock price appreciation.  At year-end, the S&P 500 traded at 18.2x estimated 2018 earnings, well above the 15.7x average since 1999.  At this point in the business cycle, the market has historically had a difficult time exceeding 19x forward earnings. However, we think that valuations are not as high as they appear because the impact of tax reform is not yet fully reflected in analyst estimates, and many strategists think that the new lower tax rate will add 5%-10% to corporate earnings.  For our smaller, mid-sized companies, we think the positive impact could be double this amount, largely owing to the more domestic sources of earnings for these companies vs. those in the S&P 500.  There remain many unanswered questions, such as how much of the benefit will be shared with employees and/or customers, how much will be reinvested and how much will be competed away.  In addition, even adjusted for the impact of tax reform, valuations remain above average.

Finally, unexpected geopolitical developments now seem likely to be more of a challenge than an opportunity.

For the fourth quarter, our returns were slightly negatively impacted by our overweight allocation in Real Estate, which underperformed in the quarter, and our slight underweight to Financials which outperformed in the quarter. Positive sector allocation came from Utilities and Telecom weights.

Importantly, stock selection led to positive results in the quarter. Our positive selection was led by contributions from the Industrial, Energy and Utility sectors. In Industrials, ITT and Air Lease posted strong performance given global economic strength. In Energy, both Delek and EOG posted strong quarters as the outlook on energy improved. In the Utility space, NRG continues to execute its simplification plan, again pushing its share price closer to what we perceive as fair value. On the negative side, Del Taco was a tough name in the Consumer sector due to concerns over potential wage and food cost inflation.

The top contributors in the quarter were:

Delek US Holdings (DK) operates four mid-sized refineries in Texas, Oklahoma, and Louisiana. Its plants are well-located to benefit from wider crude differentials. Earlier in 2017, Delek acquired competitor Alon USA and as a larger, better capitalized combined company, it has opportunities to reduce costs and fund additional capital improvements to generate higher levels of income. During the quarter, Delek also benefitted from greater profitability due to declining crude and product inventories plus some price divergences created by the disruption from Hurricane Harvey.

Voya Financial, Inc. (VOYA) is a leading provider of retirement and investment services such as life insurance, annuities, and 401(k) plans. It was carved out of Dutch financial services conglomerate ING in 2013 and has worked to lower its risk, change its product mix, and improve returns in recent years. Despite its operating improvements, the stock traded at a discounted valuation due to the overhang from a large closed-block of older, riskier variable annuities. Late in the fourth quarter, Voya announced that it had sold this block and an annuities business to a new private-equity backed company. We believe that these sales will further reduce risk, improve returns, and remove the overhang. The company has already bought back ~ 40% of the outstanding shares since going public in 2013, and has announced that they will buy back another $1.5 Bill of stock in 2018.

Intel Corp. (INTC) engages in the design, manufacture, and sale of computer, networking, and communications platforms that power the cloud and the connected world. The company has been in the process of transforming its business away from its mature, slower growing personal computer (PC) exposure to higher growth data center, communications and memory markets. After several lackluster quarters, Intel posted a better than expected 3Q17 with growth across all businesses along with excellent expense control.

The three largest detractors in the quarter were:

Del Taco Restaurants, Inc (TACO) engages in developing, franchising, owning, and operating Del Taco quick-service Mexican-American restaurants. Led by a recently promoted CEO, John Cappasola, the California based company has been successful at revitalizing the brand and introducing new products as evident by sixteen consecutive quarters of systemwide sales growth.  Despite reporting sales growth of 4.1% in the third quarter, the stock sold off on concerns regarding future margin headwinds stemming from both food and labor inflation. In addition, the industry continues to fight for market share by pushing “value bundles” led by the larger brands such McDonalds. We continue to believe the company is well positioned to weather this environment and will continue to prudently grow outside its’ core West Coast roots utilizing a barbell menu strategy of new entrees combined with compelling “buck and under” menu items.

Wright Medical Group, NV (WMGI) is a global orthopedic medical device company focused on upper/lower extremities and biologics.  The company underperformed as it suffered disruption from a sizable sales force expansion that ultimately resulted in the company reducing earnings guidance.  While it is taking much longer for the new sales representatives to reach full productivity, the 50% increase in the size of the salesforce will ultimately be beneficial for the company as it results in accelerating sales and earnings growth.

Seritage Growth Properties (SRG) is a real estate investment trust (REIT) that owns 258 properties totaling 40 million square feet on 3,000 acres across 49 states.  While the company continues to redevelop former Sears Holdings (SHLD) properties and lease them to specialty retailers at substantially higher rents, it still receives more than 50% of gross rental revenue from Sears Holdings.  Such rental revenue contribution combined with constant fear of Sears underperforming during the crucial holiday season has created a headwind on SRG’s stock price.


In conclusion, thank you for investing alongside us in the KEELEY All Cap Value Fund. We will continue to work hard to justify your confidence and trust.

KEELEY All Cap Value Fund Standardized Performance Information

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

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 February 28, 2019.

This summary represents the views of the portfolio managers as of 12/31/17. 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.

Risks: Smaller and medium-sized company stocks are more volatile and less liquid than larger, more established company securities.

Prior to investing, investors should carefully consider the Fund's investment objective, risks, charges and expenses as detailed in the prospectus and summary prospectus. To obtain a prospectus or a summary prospectus, call us at 800.533.5344 or visit The prospectus/summary prospectus should be read carefully before investing.

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-Teton Advisors, LLC ("Keeley-Teton") 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 Keeley-Teton Advisors, LLC ("Keeley-Teton") 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 Keeley-Teton Advisors, LLC ("Keeley-Teton"). (3) For the purpose of assigning portfolio security holdings to a particular sector and/or industry, Keeley-Teton Advisors, LLC ("Keeley-Teton") 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 Keeley-Teton Advisors, LLC ("Keeley-Teton") 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, Keeley-Teton Advisors, LLC ("Keeley-Teton") 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. Holdings returns for this commentary are calculated as total returns, which reflect any dividends or income earned during the period. Prior to 9/30/16, holdings returns were based upon price percentage change.

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 Keeley-Teton Advisors, LLC ("Keeley-Teton"). 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. Market performance presented solely for informational purposes. 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 2000® Value Index is an unmanaged index that measures the performance of the small-cap value segment of the U.S. equity universe and includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000® Index is an unmanaged index that measures the performance of the smallest 2,000 companies by market capitalization of the Russell 3000® Index. The Russell 2500® Value Index is an unmanaged index that measures the performance of the small to mid-cap value segment of the U.S. equity universe and includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2500® Index is an unmanaged index that measures the performance of the 2,500 smallest companies by market capitalization of the Russell 3000® Index. The Russell Midcap® Value Index is an unmanaged index that measures the performance of the mid-cap value segment of the U.S. equity universe and includes those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap® Index is an unmanaged index that measures the performance of the 800 smallest companies by market capitalization of the Russell 1000® Index. The Russell 1000® Index is an unmanaged index that measures the performance of the 1,000 largest companies by market capitalization of the Russell 3000® Index. The Russell 3000® Value Index is an unmanaged index that measures the performance of the broad value segment of the U.S. equity universe and includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies by market capitalization. These 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 Small-Mid Cap Value Fund, KEELEY Small Cap Value Fund, KEELEY Small Cap Dividend Value Fund, and KEELEY Mid Cap Dividend Value are distributed by G.distributors, LLC.

The top ten holdings of KACVX as of December 31, 2017 include Voya Financial, Inc. (4.43%), EOG Resources, Inc. (4.30%), Air Lease Corporation (4.29%), Visteon Corporation (3.99%), NRG Energy, Inc. (3.79%), Howard Hughes Corporation (3.73%),Intel Corporation (3.59%), Abbott Laboratories (3.52%), and Versum Materials, Inc. (3.03%), Shire PLC Sponsored ADR (2.97%).

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund before investing. The prospectus, which contains more complete information about this and other matters, should be read carefully before investing. To obtain a prospectus, please call 888-933-5391 or visit