Commentary


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PERKINS SAMPLE LINE ONE PERKINS SAMPLE LINECAP TWO PERKINS US ALL VALUE SUB-HEAD TITLE HERE | 3Q12

PORTFOLIO COMMENTARY | 2Q19

PERFORMANCE REVIEW The Portfolio outperformed the Russell 3000® Value Index during the quarter, driven by strong stock selection in financials, consumer staples and industrials. Within financials, our insurance holdings such as RenaissanceRe Holdings and an asset manager, Cohen & Steers, were notable outperformers. Our largest sector weighting continues to be the financial sector, where we are finding value in the regional banking space, in particular. In consumer staples, our positive stock selection was mostly driven by our position in a convenience store operator that posted stronger-than-expected margins and overall improved financial performance. While we have a neutral consumer staples weight, we continue to be net trimmers due to high valuations. Stock selection in industrials was also additive to performance. We added to our industrial sector weight as well as real estate investment trusts (REITs) based on favorable reward-to-risk ratios by our calculations. A notable area of weakness was the energy sector where several positions lagged as oil stocks generally fell despite improving oil prices. Our large underweight to the sector helped absorb some of this decline. We eliminated two positions in the energy space, but continue to be opportunistic, looking for companies with clean balance sheets and disciplined managements. In the communications sector, Alphabet detracted from performance due to increased regulatory scrutiny. However, we continue to view their business model favorably and have maintained our position in the stock. Technology was also a slight detractor to performance. Although we outperformed within semiconductors and software, this was more than offset by performance in semiconductor equipment and IT consulting services. During the quarter, we decreased our overall technology weight due to elevated valuations; however, if technology gets cheaper from here it is a sector we would be happy to add to as there are several companies that fit our highquality criteria. In terms of sector positioning, the Portfolio maintains relative overweight positions in financials, industrials, health care, technology and REITs. Conversely, the relative underweights are in communication services, energy, utilities and materials. For detailed performance information, please visit www.perkinsinvestmentmanagement.com

OUTLOOK AND POSITIONING The S&P 500® Index had the strongest first half in 20 years to begin 2019, and while we were happy to participate in the rally and to outperform our benchmark during this current bull run, our focus remains on constructing a portfolio that performs particularly well in down markets. With that in mind, we remain vigilant in our focus on what can go wrong with U.S. equities and we are making every stock decision with a healthy discussion of the risks associated with each investment. To date, the market has viewed easy monetary policy as an elixir for all ills, but historically low rates do not come without meaningful risk and unintended consequences. Determining where rates will go from here strikes us as a fool’s game. As such, we have maintained a balanced approach to rate-sensitive stocks, owning REITs and utilities, which tend to benefit from lower rates, along with a significant exposure to banks, which tend to benefit from rising rates. Page 1 of 3

Portfolio Manager: Alec Perkins

Portfolio Manager: Ted Thome, CFA

EXECUTIVE SUMMARY • The Portfolio outperformed the Russell 3000 Value Index for the period. • Outperformance was driven by both stock selection and sector weights, with the majority of outperformance due to stock selection. • We trimmed names in the consumer staples, technology and energy sectors, while adding to industrials and REITs.

PERKINS US ALL CAP VALUE PORTFOLIO COMMENTARY | 2Q19 In addition to rates, we also pay close attention to a handful of other macroeconomic risks. Trade policy uncertainty, political dysfunction in the U.S., geopolitical risk, slowing earnings growth, softer economic readings globally and increasing leverage on corporate balance sheets are all areas of concern that we are talking about every day at Perkins and that we are attempting to factor into our downside analysis of each stock we buy or hold. From a longer-term perspective, we know for sure that volatility will pick up and markets will have meaningful declines. This is not a matter of if, but when. We have already seen some deceleration of earnings growth as we lap the benefit of tax cuts. It is also worth remembering, that it takes businesses time to adjust their investment levels. A deceleration of earnings growth today can lead to slowing investment in the future. We strive to mitigate this risk by looking for companies with more stable earnings streams, that can pay for investment with current cash flow, and that aren’t reliant on outsized growth to justify their high multiples. The recent parade of hot IPOs, some with dubious business models that lack profitability, is often an indication of an overheated market as well. At Perkins, steady earnings and positive cash flow is paramount, and so we avoid what we think of as more speculative companies. On the political side, tariff negotiations that occur daily on Twitter make it difficult for company managements to know how to invest for the future. And the presidential election cycle is now underway leading to both headline risk and real risk for various sectors of the economy.

Also, with the long term in mind, we remain concerned with high levels of corporate debt. Within the small cap universe, net debt to EBITDA, excluding banks, is roughly 3.0x, which represents the highest level in a decade. Historically, when economic activity decelerates, companies with the weakest balance sheets tend to underperform. Our focus on investing in higherquality companies, with strong balance sheets and diversified earnings streams, should result in strong relative performance should leverage become an issue again. Risks aside, there are also a handful of positives in the economy that keep us hopeful that the U.S. stock market could keep humming along in the near term. U.S. GDP growth of over 3%, U.S. unemployment at multi-decade lows and solid consumer spending along with low rates have all driven equity markets to all-time high levels and could propel us to higher highs going forward. It is important to note, however, that when we come up with our upside targets on stocks we aren’t heavily depending on this Goldilocks economy to continue. We are typically using a more conservative approach to our upside targets. Of course, many of the risk factors mentioned above are not new, and the market has gone on to new highs in spite of them. As long as monetary policy remains accommodative and the economy performs, the conditions remain favorable for equity prices. In this scenario, our portfolio should provide good upside participation. However, as always, we are focused on the downside first and have constructed a portfolio we believe will do well in a variety of scenarios. Thank you for your co-investment in the All Cap Value Portfolio.

REPRESENTATIVE ACCOUNT TOP CONTRIBUTORS AND DETRACTORS FOR THE QUARTER ENDED 6/30/19 Top Contributors

Ending Weight (%)

Contribution (%) Top Detractors

Ending Weight (%)

Contribution (%)

Laboratory Corp of America Holdings

5.43

0.67

Occidental Petroleum Corp

0.92

-0.52

Generac Holdings Inc

2.07

0.56

Mammoth Energy Services Inc

0.00

-0.39

UniFirst Corp/MA

2.49

0.47

Alphabet Inc

2.31

-0.20

RenaissanceRe Holdings Ltd

1.87

0.43

MKS Instruments Inc

0.86

-0.15

Cohen & Steers Inc

1.65

0.42

NewMarket Corp

1.92

-0.15

The holdings identified in this table, in compliance with Janus Henderson policy, do not represent all of the securities purchased, held or sold during the period. To obtain a list showing every holding as a percentage of the portfolio at the end of the most recent publicly available disclosure period visit perkinsinvestmentmanagement.com.

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PERKINS US ALL CAP VALUE PORTFOLIO COMMENTARY | 2Q19

Past performance is no guarantee of future results. Discussion is based on performance gross of fees. Information relating to portfolio holdings is based on the representative account in the composite and may vary for other accounts in the strategy due to asset size, client guidelines and other factors. The representative account is believed to most closely reflect the current portfolio management style. As of 6/30/19 the top ten portfolio holdings of the Representative Account are: Laboratory Corp of America Holdings (5.44%), Lamar Advertising Co (3.01%), PepsiCo Inc (2.99%), US Bancorp (2.98%), Chubb Ltd (2.91%), Colgate-Palmolive Co (2.85%), Equity Commonwealth (2.85%), Merck & Co Inc (2.78%), Berkshire Hathaway Inc (2.74%) and UniFirst Corp/MA (2.49%). There are no assurances that any portfolio currently holds these securities or other securities mentioned. Portfolio holdings are as of the date indicated, and are subject to change. This material should not be construed as a recommendation to buy or sell any security. The opinions are as of 6/30/19 and are subject to change without notice. Janus Henderson may have a business relationship with certain entities discussed. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. Security contribution to performance is measured by using an algorithm that multiplies the daily performance of each security with the previous day’s ending weight in the portfolio and is gross of advisory fees. Fixed income securities and certain equity securities, such as private placements and some share classes of equity securities, are excluded. Investing involves risk, including the possible loss of principal and fluctuation of value. Perkins All Cap Value Composite, benchmarked to the Russell 3000® Value Index, includes portfolios that are broadly diversified and seek to identify quality US companies trading at discounted prices with favorable risk reward potential. A typical portfolio will contain 60 to 90 securities and will invest no less than 10% of assets in each market cap category (small, mid and large) and no more than 50% in small cap stocks. The composite was created in January 2010. Janus Henderson provides investment advisory services in the U.S. through Janus Capital Management LLC, together with its participating affiliates. Perkins Investment Management LLC is a subsidiary of Janus Henderson Group plc and serves as the sub-adviser on certain products. Janus Henderson and Perkins are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc. FOR INSTITUTIONAL INVESTOR USE ONLY / NOT FOR PUBLIC VIEWING OR DISTRIBUTION C-0619-25150 10-30-19

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