PNC Small Cap Fund (class I)1 returned 0.75% in the first quarter versus a return of -0.08% for the benchmark
Russell 2000 Index.
In the broader market, the first quarter of
2018 started off quietly enough, with corporate executives and investors
excited about the business windfall that elements of the Tax Cut and Jobs Act
is expected to provide. But volatility picked up throughout the quarter, as
investors tried to interpret the potential implications of protectionist
rhetoric that came from the White House.
The Russell 2000 Index pulled back close to 10%
from the end of January through mid-February, but rebounded to end the quarter
down marginally. Most of the other major, domestic equity indices, outside of
the technology-laden NASDAQ Index, also ended the quarter slightly in negative
From a style perspective, the Russell 2000
Growth Index handily outperformed the Russell 2000 Value Index in the first
quarter. Within the Russell 2000 Index, for the quarter, the Information
Technology, Health Care, and Financials sectors posted positive returns, while
all of the other sectors were in negative territory, with the Energy sector
falling by double digits.
For the Fund, at the end of the first quarter,
the investment team's largest overweight was to Industrials, followed by
Consumer Discretionary and Financials. Within Industrials, the Fund's
overweight was concentrated in professional services, aerospace and defense,
and building products companies. The Fund's managers' focus within Consumer
Discretionary is on the auto components, household durables, and specialty
retail industries. Financials included an overweight to consumer finance,
insurance, and capital markets companies.
The Fund's largest sector underweights were in
Health Care and Information Technology. Health Care investments consisted of a
provider of staffing services to hospitals and health-care facilities and a
food and animal safety testing products company. While the biotechnology and
pharmaceutical industries made up over half the Health Care weight in the
Russell 2000 Index, the Fund didn't have any exposure to those industries, as
those types of companies typically don't fit within the Fund's managers
investment philosophy and process.
Information Technology investments were mainly
in the software, services, and electronic equipment industries, with no
exposure to the semiconductor and communications equipment groups. Finally, the
Fund did not have exposure to the Energy, Consumer Staples, Telecommunication
Services, or Utilities sectors.
1Effective May 17, 2018, PNC Small Cap Fund reopened to new investors.