Portfolio Review During the first quarter the Westport Select Cap Fund Class Retirement (MUTF:WPSRX)’s R shares rose 2.13%, ahead of the Russell 2000 (INDEXRUSSELL:RUT) Index’s gain of 1.12%. Since inception 16 and a quarter years ago, the Westport Select Cap Fund R shares have outperformed by just under 3 percentage points a year, 10.52% to 7.65%, both compounded annually.
Following last year’s strong gains, it was not surprising to see the market struggle in the first three months of 2014. Compounding the usual concerns over the growth outlook, Federal Reserve policy, etc., Russia’s annexation of Crimea added a geopolitical risk to the investment puzzle.
In this environment, the Westport Select Cap Fund continued to perform well. Several issues stood out on the upside with three adding one percentage point or more to performance. United Rentals, Inc. (NYSE:URI), the country’s largest equipment rental company, gained over 21% in the quarter, adding 126 basis points***. The company continues to benefit from the gradual improvement in non-residential construction and the continuing trend to rent versus buy decisions on the part of major customers. DeVry Education Group Inc (NYSE:DV) was up over 19% and added 110 basis points. This for-profit education company reported December quarter earnings that exceeded analysts’ estimates and indicated that new student enrollment at its largest operating unit could soon improve. The third large contributor was FEI Company (NASDAQ:FEIC), a producer of electron microscopes, whose shares were up over 15% and added 104 basis points. The company continues to benefit from its unique market position and growing acceptance of new products.
Overall, of the 22 positions in the portfolio, 12 gained and 10 declined. Importantly, of the declining issues, none subtracted more than 60 basis points from performance.
One interesting side-light I would note is that the Fund’s strong performance in the quarter was achieved without benefit from what I call the “Big Three,” Universal Health Services, Inc. (NYSE:UHS) – Class B shares, Precision Castparts Corp. (NYSE:PCP) and Willis Group Holdings PLC (NYSE:WSH). All of these stocks rose sharply in 2013 and, as might be expected, were modestly depressed by profit taking in the first quarter. Cumulatively, the trio account for 29.2% of the portfolio and contributed a negative 66 basis points to performance. Given that the fundamentals of each company are strong, I believe we could see positive results over the balance of this year.
The Fund added no new positions during the quarter, trimmed a number of holdings and saw no merger and acquisition activity.
Investors should consider the investment objectives, risk, and charges and expenses of The Westport Funds carefully before investing; this and other information about the Funds is in the prospectus, or summary prospectus, which can be obtained by calling 1-888-593-7878 or at our website www.westportfunds.com. Read the prospectus or summary prospectus carefully before you invest.
The views expressed and any forward-looking statements are as of the date of the publication and are those of the portfolio managers and/or the Advisor. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments.
There are special risks associated with small and mid-capitalization issues such as market illiquidity and greater market volatility than larger capitalization issues.
***Basis Point is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Portfolio composition is subject to change at any time and should not be considered a recommendation to purchase or sell a particular security. On March 31, 2014, the following securities comprised these respective percentages of the Westport Select Cap Fund: United Rentals, Inc. (NYSE:URI), DeVry Education Group Inc (NYSE:DV) (6.5%), FEI Company (NASDAQ:FEIC), Universal Health Services, Inc. (NYSE:UHS) – Class B shares (11.1%), Precision Castparts Corp. (NYSE:PCP) (8.8%), Willis Group Holdings PLC (NYSE:WSH) (9.4%).