KEELEY Small Cap Dividend Value Fund

Investor Class (A) Shares: KSDVX

Institutional Class (I) Shares: KSDIX

Manager Commentary and Attribution [PDF]

Fund Commentary - 2nd Quarter 2019

To Our Shareholders:

For the quarter ended June 30, 2019, the KEELEY Small Cap Dividend Value Fund’s net asset value (“NAV”) per Class A share rose 4.09% versus a 1.38% increase for the Russell 2000 Value Index. Year-to-date, the Fund is now up 18.33% compared with a 13.47% gain for the benchmark.


The second quarter was particularly exciting for the Keeley Small Cap Dividend Value Fund. Not only did the Fund have one of its best quarters on a relative basis in recent years, but we welcomed a substantial number of new shareholders through the merger of the Keeley Small Cap Value Fund into the Fund.

For our “legacy” shareholders, this is good news. To the extent that net assets in the Fund exceed $350 million, shareholders benefit from the tiered management fee, and the lower rate on assets exceeding this level. We intend to manage the Fund with the same philosophy, process, and team we have used to manage it over the last nine-plus years.

To our new shareholders, Welcome! We look forward to serving you and we will try our hardest to help you meet your financial goals. We would like to introduce some of the key elements of our process.

The Keeley Small Cap Dividend Value Fund invests in US companies with market caps generally below $3 billion that pay dividends. The dividend-paying, small-cap universe of stocks has outperformed the non-dividend payers with lower volatility over time. That outperformance has typically happened during volatile market periods.

We manage the Fund using a disciplined, bottom-up process that seeks stocks that have a good combination of Quality, Timeliness, and Valuation. The Fund historically has owned between sixty and ninety stocks and sector weights have been similar to those of the Russell 2000 Value index.

That is only an introduction to the process, and we would encourage you to look for additional information about the Fund (including in the prospectus) at

The second development may be more interesting to most readers. Specifically, as the Fund had a strong quarter relative to the Russell 2000 Value index. While the continued decline in interest rates probably helped a little, stock selection was also a driver. This was encouraging in that the second quarter was a good one for the markets and the first half of the year was the strongest one in a long time.

The market, as measured by the S&P 500 was up 17.4% through the first six months and 3.8% in the second quarter. While the second quarter gain was modest compared to the first quarter, the ending tally obscures the significant ups and downs we saw within the quarter.

The quarter started off by maintaining the strong momentum it held exiting the first quarter and produced a 3.9% gain in April. That trend halted and reversed as April gave way to May. May saw the market take back all of April’s gains and a little more with a 6.6% decline. Just like the trend reversed when we changed the month in May, it did so again in June. June saw the market leap ahead by 6.9% to finish the quarter strong. The Russell 2000 index followed a similar up-down-up pattern.

So, what drove the intra-quarter volatility? It is hard to be too certain, but we think that the continuing uncertainty regarding US trade policy and concerns about the impact this uncertainty is having on the global economy likely account for the ups and downs. A quarter or two ago, we would have added interest rate trends to this list, but we think that question has mostly been answered, at least for now. As we write this, the consensus view has developed that the Fed will cut rates at the end of July with potentially more on tap as the year progresses. This seems reasonable as an insurance cut. For more commentary on the action in the markets, please read our commentary on the KEELEY Mid Cap Dividend Value Fund.

Portfolio Results

We are happy to report that the Keeley Small Cap Dividend Value Fund was able to build on the strong first quarter performance with an even stronger second quarter result on a relative basis.

As with most quarters for the Fund, Stock Selection, as opposed to Sector Allocation, drove performance. The Fund benefitted a little from slight underweights in the consumer sectors (Communication Services, Consumer Discretionary, and Consumer Staples), but more than three-quarters of the Fund’s relative outperformance came from Stock Selection. The Fund outperformed in seven sectors and lagged in one, while three were a push. The Fund added the most value in the Information Technology, Health Care, and Consumer Discretionary sectors, while Financials was the only material laggard.

We saw a lot of action in the Technology sector with the Fund’s two leading contributors and leading detractor all within the Technology sector. Cypress Semiconductor and KBR drove gains while Plantronics brought up the rear. We discuss all three stocks below.

The Fund’s two health care stocks continue to perform well with both Ensign Group and Chemed producing double-digit gains in the quarter while the sector was down 5%. Both companies continue to produce strong earnings gains. This has helped them maintain good valuations in a sector that was weak on concerns about the government’s future influence on product and service prices in the industry.

The Consumer Discretionary sector was also down 5%, but a 25% gain in Winnebago and an absolute gain in Marriott Vacations Worldwide led the Fund to be slightly positive. The gain in Winnebago was on the heels of strong earnings results as the company continues to gain share in a slightly shrinking recreational vehicle industry.

The underperformance in Financials was not substantial as it only detracted 40 basis points (bps) relative to the index. The Funds holdings in the sector were up only 4% vs. a little more than 5% for the index. Virtu Financial was the weakest stock with a 7% decline. Volatility, which is a driver of profitability at the company, has trended lower since the end of last year which has led analysts and investors to rein in earnings expectations.

The top contributors in the quarter were:

Cypress Semiconductor (CY - $22.24 – NASDAQ) is a maker of semiconductors used in three distinct market segments: Internet of Things (IoT), high performance memory, and Universal Serial Bus connectors (USB). The company has done a nice job over the last several years expanding into new market segments, streamlining its cost structure, and rolling out new products. This has shown up in better financial results, but not as much in the stock. During the quarter, the hard work of the company and the patience of investors was rewarded when the company received a $23.85 all cash offer from Infineon.

KBR Inc. (KBR - $24.94 – NYSE) operates in two related industries; government services and engineering & construction. In addition to reporting a strong 1Q19, KBR also won a large contract in its Government Services segment as well as a high profile LNG contract in its Hydrocarbon Services contract. It is our belief that KBR should achieve a re-rating to a higher multiple in line with government services peers which trade a few EBITDA multiple points higher than engineering and construction companies.

Atlantica Yield (AY - $22.67 – NYSE) is a total return company (“YieldCo”) that owns, manages, and acquires renewable and conventional energy projects around the world. The company reported a solid quarter with gains in EBITDA and Cash Available for Distribution (CAFD) despite currency headwinds.  Management reiterated its evaluation of strategic alternatives to unlock shareholder value to close the valuation gap.  Atlantica’s sponsor, Algonquin Power & Utilities Corp (AQN - $xx – NYSE) agrees with this assessment as well entering into a new collaboration agreement with Atlantica to purchase additional renewable projects outside the scope of the original pipeline.

The three largest detractors in the quarter were:

Plantronics Inc. (PLT- $37.04 - NYSE) , also known as Poly, is one of the leading makers of business headsets and is also one of the leading manufacturers of audio- and videoconferencing equipment. The stock has struggled since its merger with Polycom in the middle of last year. While the acquisition has been highly accretive, the results have been very noisy with merger and integration associated charges and costs. In addition, some of the business lines have shown some softness due to trade concerns and sales force integration issues. These factors, combined with temporarily high debt levels and a wide range of expectations hurt the stock in the second quarter. We are more optimistic and think that the updating of most of its product lines combined with better free cash flow performance as integration expenses wind down should get the stock moving in the right direction.

Astec Industries (ASTE - $32.56 – NASDAQ) is a leading manufacturer of asphalt plants and pavers used in road construction as well as equipment for the Aggregate, Energy, and Mining industries.  The company came under pressure after reporting a disastrous quarter missing estimates across the board as management said incoming orders collapsed in March resulting in a significant decline in backlog.  Management noted that part of the issue was weather and would expect to recapture some of those lost sales.  The company is in the midst of a turnaround as it searches for a permanent CEO which should lead to better operating performance once the right candidate is found.

Hamilton Beach Brands (HBB - $19.05 - NYSE) designs, manufactures, and sells small kitchen appliances, along with operating a small chain of retail kitchen supplies stores. Shares once again came under pressure after the company reported disappointing earnings results in a seasonally weak quarter.  The company reported revenue that matched analysts’ estimates, but margins took a hit on higher shipping rates and aggressively moving inventory.  Management was confident on the call expecting a pick up in the second half of the year.  We do not share that same enthusiasm due to the continued trade war with China.  Valuation should be supportive at these levels, but broader macro concerns could push shares lower.


In conclusion, thank you for your investment in the KEELEY Small Cap Dividend Value Fund. We will continue to work hard to justify your confidence and trust.

KEELEY Small Cap Dividend 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 1.29% for Class A Shares and 1.04% 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, 2020.

This summary represents the views of the portfolio managers as of 06/30/19. 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. Additionally, dividend paying investments may not experience the same price appreciation as non-dividend paying investments. Portfolio companies may also choose not to pay a dividend or it may be less than anticipated.

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 KSDVX as of March 31, 2019 include Nexstar Media Group, Inc. Class A (2.64%), KBR, Inc. (2.60%), Atlantica Yield plc (2.46%), Altra Industrial Motion Corp. (2.26%), Ensign Group, Inc. (2.22%), CareTrust REIT Inc. (2.15%), Chemed Corporation (2.15%), OUTFRONT Media Inc. (2.15%), Sabra Health Care REIT, Inc. (1.98%), South Jersey Industries, Inc. (1.89%).

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 800-422-3554 or visit