Cambiar International and Global Funds Commentary Market Review Global equities extended their year-long upward trajectory into the fourth quarter, closing out 2017 at or near their high water marks for the year. The positive sentiment towards stocks was primarily in response to an accelerating global economy, which bodes well for corporate profits. U.S. stocks received a boost from the U.S. tax reform bill, which should be an additional tailwind to earnings and provides corporates with more firepower that can be deployed via share buybacks, increased dividends or strategic merger/ acquisition activity. Posting a full-year return of 25%, the MSCI EAFE Index bested the S&P 500 Index return of 21.8% - marking the first year since 2012 where international developed stocks outpaced their U.S. counterparts. Emerging markets was the standout performer in 2017, with the MSCI Emerging Markets Index gaining 37%. While valuation levels have moved higher regardless of geography, international markets may continue to offer a more attractive risk/reward vs. U.S. stocks, based on oneyear forward multiples. Given current valuation levels for U.S. stocks, further upside should primarily be a function of earnings growth, as we believe multiple expansion beyond current levels will be difficult. In contrast, international markets offer the potential for multiple expansion as well as a continued recovery in earnings. Market Index One-Year Forward P/E S&P 500 18.2x Nikkei 225 17.5x FTSE 100 14.7x DAX 13.4x CAC 40 14.7x MSCI Europe 14.9x MSCI EM 12.6x Source: Factset International Equity Fund 1 Year 3 Year 5 Year 10 Year Since Inception CAMIX 3.74% 21.25% 8.92% 8.44% 2.71% 8.14% MSCI EAFE 4.23% 25.03% 7.80% 7.90% 1.94% 5.02% MSCI ACWI ex U.S. 5.00% 27.19% 7.83% 6.80% 1.84% 5.46% Inception Date 8.31.1997. 3 year, 5 year, 10 year and since inception performance are annualized. As of 12/31/17. Expense ratios are 1.11% (gross); 1.06% (net). Fee waivers are contractual and are in effect until September 1, 2018. Absent these waivers, total return would be reduced. The performance quoted represents past performance and is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost, and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227. The Fund imposes a redemption fee of 2.00% on shares held less than 90 days. Your return will be lower if a redemption fee is applied to your account. The Cambiar International Equity Fund posted a 3.74% return for the fourth quarter of 2017, lagging the return for the primary 1
benchmark, MSCI EAFE Index. The strategy was unable to keep pace with the index on a full-year basis, primarily a function of the portfolio s first quarter performance deficit. Cambiar s value bias was an additional headwind during the year, as growth stocks outpaced their value counterparts by a margin of almost 700 bps during the year. This is not to suggest that we could not have had better execution in a few areas of the portfolio; stock selection in healthcare and technology were below expectations in 2017. That said, attunements made in the portfolio have translated into improved secondhalf performance that we believe can continue in 2018. While always looking ahead in our pursuit of exceeding client expectations, it is worth noting the strategy s strong longer-term record. Portfolio buy/sell activity was slightly elevated in the quarter, with five liquidations and four new purchases. One effect of the quarter s trade activity was a modest uptick in the portfolio s allocation to Japan, which comprised approximately 20% of the Cambiar portfolio as of quarter-end. Cambiar s constructive outlook for Japan is no longer the non-consensus view that it was a few years ago, yet a combination of attractive fundamentals, reasonable valuations and improving macro data results in a favorable investment backdrop within the country. Bright spots in the quarter (as well as on a full-year basis) included positive stock selection within the basic materials and financial sectors. Royal DSM was a standout performer in 2017, as the company re-rated on its continuing transition from a chemicals producer to a higher-margin nutrition company. Other outperformers within basic materials were BHP Billiton and Arcelor Mittal both of whom are benefiting from a combination of strengthening commodity prices and productivity gains via cost controls and improved volume production. Financials represented a source of positive stock selection for the portfolio in 2017, as Cambiar attained strong contributions from a number of the portfolio s traditional bank holdings as well as private banking and insurance positions. All banks are not created equal, and Cambiar s focus has been on high quality operators that have a history of consistent profitability (as measured by return on equity) and possess excess capital that can be returned to shareholders. We have trimmed positions where prudent, but believe the sector continues to offer an attractive risk/reward in the portfolio. Cambiar received positive contributions from holdings in the consumer staples and healthcare sectors in the quarter, offsetting underperformance sustained in industrials and consumer discretionary. Cambiar is hopeful that the improved 4Q performance in healthcare is a precursor of things to come in 2018 after a relatively challenging 2017. The sector s defensive attributes hampered upside given more of a risk-on rally in 2017; nonetheless, there were gains to be had and Cambiar s stock selection fell short of the mark. On an individual stock basis, Astellas and Otsuka were individual detractors for the year. Astellas was sold earlier this year as part of a portfolio review, while we continue to hold Otsuka. Otsuka is a show-me story, as the company needs to demonstrate that they can move beyond their key drug (Abilify), which went off patent in June 2016. The company trades at a discount to peers, yet we believe is poised to deliver above-peer profit growth in 2018. If they can execute, the stock should re-rate accordingly. Energy stocks led the market in the fourth quarter, as the continued recovery in oil prices was a positive catalyst for gains in the sector. Energy was truly a tale of two halves in 2017 significantly lagging the market in the first half of the year before outperforming in the third and fourth quarters. Despite positive returns in the aggregate, Cambiar s energy positions were unable to keep pace with the index in the quarter as well as on a full year basis. Although the portfolio benefited from its ownership of Royal Dutch Shell, Schlumberger was an outlier to the downside, as the stock was impacted by the slower-than-expected recovery in drilling/well activity outside the U.S. Increased cost discipline within the sector is a positive (and supportive for oil prices); however, the reduced activity has been a near-term headwind for Schlumberger. With that said, we do not believe that now is the time to part ways with this high quality market leader. All indications point to a robust pipeline of new business in 2018, which should translate into a strong earnings recovery in the coming years. Schlumberger, we feel, has also done an excellent job of restructuring their business during the industry downturn - which should add significant operating leverage as revenues improve. The technology sector took a respite in the fourth quarter, after a torrid 2017. With the sale of Murata Manufacturing in the quarter, the Cambiar portfolio has only one tech position at present (Baidu). With many tech companies trading near the upper end of their long-term valuations, we are exercising patience in waiting for more attractive attachment points. 2
International Small Cap Fund 1 Year 3 Year Since Inception CAMFX 6.02% 33.75% 12.07% 10.33% MSCI EAFE SC 6.05% 33.01% 14.20% 13.64% Inception Date 11.18.2014. As of 12/31/17. Expense ratios are 8.20% (gross); 1.15% (net). Fee waivers are contractual and are in effect until September 1, 2018. Absent these waivers, total return would be reduced. The performance quoted represents past performance and is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost, and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227. The Fund imposes a redemption fee of 2.00% on shares held less than 180 days. Your return will be lower if a redemption fee is applied to your account. The Cambiar International Small Cap Fund closed out 2017 on a high note posting a 4Q gain that was strong on both an absolute and relative basis. The quarter culminated in a very strong year for the Cambiar portfolio, with an obvious assist from a rising tide market environment for the international small cap asset class. Small cap international stocks have been laggards (vs. their U.S. counterparts) in recent years, thus it was encouraging to see the asset class rebound in 2017. Given Cambiar s fundamental investment discipline and more focused portfolio construction approach, the strategy s success is highly correlated to stock selection. On this metric, Cambiar had positive stock selection in 9 of the 11 sectors in which it was invested for the year. There were no notable trends in sector leadership during the quarter, as technology, materials and consumer staples were the top performers on a sector basis. For the year, the breadth and strength of the rally was truly exceptional, with most sectors gaining in excess of 20%. The worst performing sector in the index was energy which still gained 12% for the year. The quarter was highlighted by above-benchmark returns in the consumer discretionary and energy sectors. Within consumer discretionary, Don Quijote Holdings and Ocado Group were up sharply in 4Q; positive stock selection resulted in consumer discretionary representing the top sector for Cambiar in 2017. Ocado Group has been an exceptionally strong performer since Cambiar s attachment point in September. Considered by Cambiar to be the best-in-class online grocer in the United Kingdom, Ocado rallied on news of additional partnerships across Europe. Additional highlights in the sector (for the year) included Piaggio and CyberAgent. Cambiar has been active in trimming/selling a number of these positions in light of their stock moves, with the mindset we can always revisit should the opportunity present itself. One sector where Cambiar was less effective from a stock selection standpoint was consumer staples; this comment is applicable to the quarter as well as the trailing one year. Individual laggards included fresh food retailer Distribuidora Internacional and Adecoagro, a South American agricultural company. While the price action in both positions has been disappointing in the short run, we anticipate progress on both fronts in 2018. A higher cash allocation limited potentially additional upside in 2017. Broad-based strength across all areas of the market forced some sales and trims based on valuation, and Cambiar has been hesitant to chase stocks for the sole purpose of remaining fully invested. Given our value discipline, an appropriate attachment point remains a critical component of the buy decision. On a country basis, Japan and the United Kingdom remain the largest allocations, comprising 26% and 19%, respectively. The portfolio has also been successful in sourcing investments within Emerging Markets; the portfolio had an EM allocation of approximately 13% as of quarter-end. 3
Global Equity Fund 1 Year 3 Year 5 Year Since Inception CAMGX 5.09% 17.98% 8.08% 10.80% 11.25% MSCI World 5.51% 22.40% 9.26% 11.64% 12.12% MSCI ACWI 5.73% 23.97% 9.30% 10.80% 11.45% Inception Date: 11.30.2011. 3 year, 5 year and since inception performance are annualized. As of 12/31/17. Expense ratio is 1.84% (gross); 1.10% (net). Fee waivers are contractual and are in effect until September 1, 2018. Absent these waivers, total return would be reduced. The performance quoted represents past performance and is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost, and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, please call 1-866-777-8227. The Fund imposes a redemption fee of 2.00% on shares held less than 90 days. Your return will be lower if a redemption fee is applied to your account. The Cambiar Global Equity Fund slightly lagged the strategy s assigned benchmarks during the quarter. While the objective is to outperform both of these indices on a rolling three-year basis, we view the MSCI World Index to be the appropriate performance bogey given Cambiar s developed market bias. The portfolio will selectively participate in emerging markets (EM - currently 6%), but has generally not approached the 12% allocation that EM comprises in the MSCI ACWI. The Global portfolio generated a strong absolute return for 2017, but was unable to keep pace with the benchmark for the year. The relative underperformance was sustained in the first two quarters of the year which was fairly narrow in scope, and exhibited a strong preference for growth over value. As the rally in equities broadened in the second half of the year, the Cambiar portfolio fared much better. Looking ahead to 2018, we believe the portfolio remains attractively valued and diversified at the country/region and sector levels. The 4Q gain in global equities was broad-based on a sector level, with utilities as the one exception (posted a small loss for the quarter). The Global portfolio was paced by positive stock selection in the materials, telecom and industrials sectors. Energy was another bright spot for Cambiar; after a tough start to the year, energy stocks rebounded in the second half on stronger oil prices. Representing approximately 20% of the Global Fund, Financials remains the largest sector allocation. Although Cambiar s holdings posted an in-line performance for the quarter, the sector was a strong contributor for the portfolio in 2017. Possessing what we feel to be strong capital positions, Cambiar s bank, insurance and related financials holdings offer a combination of good earnings growth and high dividend yields. The potential for rising yields in 2018 will be an additional tailwind for many of the portfolio s spread income businesses. As was the case for much of 2017, tech stocks were the top gainers in the fourth quarter. The Global portfolio s lower allocation to this top-performing sector (as well as modestly lower returns) was a detraction from performance for 4Q as well as on a full year basis. Bright spots in the portfolio included HP Inc. (the printer segment of the former Hewlett Packard) and Baidu. One name that did not participate in the year was Qualcomm; the stock was down early in the year due to a royalty dispute with Apple before rallying in 4Q on news that Broadcom was interested in acquiring the company. Cambiar anticipates a stronger 2018 from Qualcomm; the company is laying the foundation for growth outside of smartphones, while the Broadcom offer helps put a floor under the stock. Positive stock selection in basic materials and industrials was offset by below-benchmark returns in consumer discretionary and healthcare. This dynamic was true for the quarter as well as on a full year basis. Within discretionary, the traditional retail industry continues to face a challenging competitive environment from e-commerce. While valuations have compressed in the space, Cambiar continues to maintain a fairly cautious outlook. The portfolio does own a Japanese retailer that we believe has a defensible brand and market position. As it relates to healthcare, there were no outsized drawdowns from Cambiar s holdings in the sector. Rather, the relative underperformance was simply a case of not keeping pace with the benchmark. We are optimistic that detractors such as Bristol-Myers and Medtronic can deliver improved results in 2018. As mentioned, Cambiar s energy positions were a positive contributor in the quarter, but represented a headwind for the portfolio on a full year basis. The Global portfolio was overweight energy throughout 2017 not the correct call in hindsight. Despite the sector s soft showing in 2017, Cambiar s continued constructive view towards energy is a function of improving fundamentals in the industry. U.S. oil inventories continue to decline from their February peak, and OPEC extended their production limits all of which is helping to bring greater equilibrium to the global oil markets. At the company level, managements reaffirm their focus on free 4
cashflow and expense discipline. The result (hopefully) is greater earnings visibility vs. the rollercoaster ride of recent years. The Global Equity Fund held an average cash position of ~4% over the course of the year, creating a drag on return given the strong move in stocks during 2017. While acknowledging that any cash balance is a negative contributor in a rising market, cash levels are a by-product of the buy/sell process. As would be expected, cash is a relative non-factor when evaluating performance over longer timeframes. Looking Ahead Global equities delivered a dream year for investors strong returns with very low volatility. As we contemplate the outlook for equities in 2018, two key considerations are global growth and valuations. The acceleration in economic growth across most geographies is unlikely to sharply decelerate in 2018, providing a tailwind to corporate profits and stock prices. That said, it is improbable that 2018 will be without some degree of increased volatility along the way. Volatility is not necessary a bad thing the corresponding increase in dispersion across sectors is beneficial to active managers such as Cambiar. Regarding valuation, it is hard to argue that equities in the aggregate are inexpensive. With that said, it is worth noting that the expansion in multiples has not been uniform by geography nor by sector. For example, although U.S. stock averages are at alltime highs, market levels in Japan, the United Kingdom and Europe are still below their 2007 levels (in dollar terms). Such variances provide an additional opportunity for active managers to outperform. What unforeseen shocks could derail the upward trajectory for equities? Geopolitical risk is always front of mind; changes in central bank monetary policy will be another variable worth watching. Although the three rate increases by the Federal Reserve did little to impede stocks from advancing in 2017, the ongoing normalization in policy should eventually be felt by market participants (particularly those with higher leverage ratios). And while generally accommodative monetary policy continues in Japan, the European Central Bank is likely to articulate their plan to end quantitative easing at some point in 2018. The mood at Cambiar is best described as constructive paranoia; while optimistic in the outlook for our companies, we spend equal time thinking about what could go wrong. We appreciate your continued confidence in Cambiar Investors. 5
Disclosure Mutual fund investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. In addition to the normal risks associated with investing, investments in smaller companies typically exhibit higher volatility. The funds may invest in derivatives, which are often more volatile than other investments and may magnify the Fund s gains or losses. Diversification may not protect against market risk. A company may reduce or eliminate its dividend, causing loses to the fund. To determine if a Fund is an appropriate investment for you, carefully consider the Fund s investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the Fund s summary or full prospectus, which may be obtained by calling 1-866-777-7227 or by visiting our website at www.cambiar.com. Please read the prospectus carefully before investing. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada. The MSCI EAFE Small Cap index represents the 85th to 99th percentile of stocks found in the MSCI EAFE. The MSCI All-Country World and World Indices are unmanaged indices compiled by Morgan Stanley Capital International. The MSCI EAFE Value Index captures large and mid cap securities exhibiting overall value style characteristics across Developed Markets countries around the world, excluding the US and Canada. The MSCI EAFE Growth Index captures large and mid cap securities exhibiting overall growth style characteristics across Developed Markets countries around the world, excluding the US and Canada. The MSCI indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an index. The MSCI indices returns do not reflect any management fees, transaction costs or expenses. Individuals cannot invest directly in an Index. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index, with each stock s weight in the Index proportionate to its market value. The S&P 500 returns do not reflect any management fees, transaction costs or expenses. The S&P 500 Growth index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong growth characteristics. The S&P 500 Value index is market-capitalization-weighted index consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics. As of 12.31.17 the Cambiar International Equity Fund had a 2.4% weighting in Arcelor Mittal, 0.0% in Astellas, 3.3% in Baidu, 2.8% in BHP Billiton, 0.0% in Murata, 2.0% in Otsuka, 2.4% in Royal DSM, 2.1% in Royal Dutch Shell, and 2.6% in Schlumberger. The International Small Cap Fund had a 1.9% weighting in Adecoagro, 0.0% in CyberAgent, 1.7% in Distribuidora Internacional, 2.1% in Don Quijote, 2.2% in Ocado Group, and 2.3% in Piaggio. Global Equity Fund had a 0.0% in Apple, 2.1% in Baidu, 2.0% in Bristol Myers, 0.0% in Broadcom, 1.9% in HP, 1.9% in Medtronics, and 2.0% in Qualcomm. Current and future holdings subject to risk. Dividend yield: A financial ratio that shows how much a company pays out in dividends each year relative to its share price. This material represents the portfolio manager s opinion and is an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice or a specific recommendation of securities. Cambiar Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Cambiar Investors LLC or its affiliates. SEI Investments Distribution Co., 1 Freedom Valley Drive, Oaks, PA, 19456. 6