QSV Equity Investors

Q2 2023 Commentary

Stocks climbed a wall of worries in the first half of 2023 that included a banking crisis, higher interest rates and inflation, the debt ceiling debate, and geopolitical concerns. Looking specifically at the “Magnificent Seven” large cap technology stocks, returns of those shares did not climb, but vaulted the wall, leaving other segments of the market in the distance. Bullishness in June lifted shares of lower quality businesses creating headwinds to the quality biased QSV strategies in Q2 2023. Using the Russell Stability indexes as proxies for high and low quality, the Russell Defensive indexes containing businesses with higher Returns on Assets, lower leverage, and lower volatility underperformed low quality businesses, as measured by the Russell Dynamic indexes, across the market cap spectrum for the quarter. QSV’s Small Cap and Mid Cap strategies outperformed their respective Russell value indexes during the quarter while QSV Select slightly underperformed. More information including since-inception performance for each of the strategies may be found at www.qsvequity.com.

QSV Strategy Quarterly Performance

QSV Small Cap returned 3.31% and 3.22%, gross and net of fees, leading the Russell 2000 Value Index return of 3.18% while trailing the Russell 2000 Index return of 5.21%. The most significant positive impact was made in Healthcare, where QSV added value in security selection and was overweight compared to the index, and in Financials, where QSV was underweight and added value through security selection relative to the index. Security selection in Information Technology and Industrials detracted from performance.

QSV Small Cap Top Contributors

Generac Holdings Inc. (GNRC) was the leading contributor to performance during the quarter. Demand for home standby generators is strong and headwinds from high inventory levels in the company’s supply chain are abating. GNRC benefits from a scale advantage in the home generator market with a market share four times greater than their next competitor. The company produces returns on invested capital of 15% and is actively deploying free cash flow from its legacy generator business into its newer clean energy business. QSV trimmed its position in GNRC as the price appreciated.

Karat Packaging (KRT) contributed to performance as shares rose nearly 40%. The foodservice packaging company benefitted from lower input and shipping costs for its products and from increased sales supported by greater distribution capacity in its Midwestern region. KRT produces returns on invested capital of 13% and uses its free cash flow for tuck in acquisitions and capacity expansion.

QSV Small Cap Top Detractors

Shutterstock (SSTK) was the leading detractor to performance for the quarter. Shares fell due to concerns that the stock imagery business of SSTK will be disrupted by Artificial Intelligence generative imagery. While this is a risk to monitor, SSTK is developing its own AI capabilities and is leading its peers with this initiative. SSTK purchased GIPHY from META during the quarter, increasing its total addressable market by adding the world’s largest collection of GIFs and stickers. SSTK produces returns on invested capital of 15%

Glacier Bancorp (GBCI) fell during the quarter as investors reacted to the bank’s lower net interest margins and higher deposit costs. While these results are disappointing, they were not unexpected given the current market environment. We see GBCI as a strong banking franchise with prudent expense management and a thirty-year history of making acquisitions to fuel growth in its business. GBCI produces returns on tangible equity of 16% and has net interest margins more than 3%.

QSV Small Cap Portfolio Activity

Following strong stock performance, Choice Hotels (CHH), Core Laboratories (CLB), Lemaitre Vascular (LMAT), Morningstar (MORN), and Watts Water Technologies (WTS) were sold for valuation reasons. Methode Electronics (MEI) was sold due to concerns over its ability to effectively integrate its acquisition of Northern Lights. World Wrestling Entertainment (WWE) was sold as it approached its acquisition by Endeavor. New positions were initiated in AudioCodes (AUDC), a provider of voice over IP and data networking solutions, Capri Holdings (CPRI), the holding company for retail brands Michael Kors, Jimmy Choo and Versace, consulting services firm ICF International (ICFI), Malibu Boats (MBUU), and Scotts Miracle Gro (SMG). QSV Mid Cap returned 4.09% and 3.84%, gross and net of fees, for the quarter, leading the Russell Mid Cap Value Index return of 3.86% and lagging the Russell Mid Cap Index return of 4.76%. Security selection and an overweight relative to the index in Industrials helped performance as did security selection and an underweight in Utilities. Company selection in Financials and an underweight and security selection in Consumer Discretionary names detracted.

QSV Mid Cap Top Contributors

Management consulting firm Booz Allen Hamilton (BAH) was the leading contributor to performance in the quarter. BAH has scale advantages as a provider of cybersecurity, data analytics, augmented reality, and artificial intelligence projects for the Department of Defense, that, like all U.S. government contracts, are subject to elevated levels of scrutiny that serve as barriers to entry for competitors. The company’s standing as the leader in artificial intelligence solutions to the U.S. government helped propel its share price during the quarter. Shares of vehicle salvage auctioneer Copart (CPRT) gained more than 20% during the quarter. The rate at which insurers choose to total vehicles following accidents has increased due to elevated repair costs, providing CPRT better access to salvaged vehicles for resale. Sales volumes and price per unit sold were up and margins increased during the quarter. CPRT produces returns on invested capital of 26% and net operating margins of 31%. QSV trimmed its position in CPRT during the quarter for valuation reasons.

QSV Mid Cap Top Detractors

MarketAxess Holdings (MKTX) fell on concerns over slightly lower trading volumes that resulted from uncertainty in the banking sector and seasonal patterns. MKTX is the leading platform for trading fixed income securities, where it continues to take market share due to the growing adoption of electronic execution. It is expected that higher yields will drive greater allocations of assets to fixed income and increased participation by retail & institutional investors. Greater adoption by these buyers and by the company’s network of dealers improves liquidity and the effectiveness of the platform for its clients. MKTX produces returns on invested capital of 28% and its shares are at a discount to QSV’s measure of
intrinsic value.

Etsy Inc. (ETSY) declined during the quarter over concerns that consumers’ spending was shifting from goods to services and that the company would be challenged to profitably add customers. Etsy markets differentiated products through its “House of Brands,” which include Esty.com, Reverb, a musical instrument marketplace, Depop, a resale marketplace, and Elo7, a Brazilian marketplace for handmade goods. ETSY joined 7.5 million active sellers with 95.1 buyers as of December 2022. Customer acquisition costs are elevated from COVID era levels, but we see the diversity of its offerings, the strong base of active buyers and sellers, and the productivity tools it offers sellers as competitive advantages. ETSY shares sell at a meaningful discount to our measure of intrinsic value.

QSV Mid Cap Portfolio Activity

QSV took opportunities to upgrade its portfolio during the quarter. New positions were started a previous QSV holding, Jack Henry & Associates (JKHY), a provider of bank technology and payment processing services, and equity exchange Nasdaq Inc. (NDAQ). QSV Select returned 4.03% and 3.80%, gross and net of fees, lagging the returns of 4.37% for the Russell 2500 Value Index and the return of 5.22% for the Russell 2500 Index. Select is a high conviction strategy that takes QSV’s best ideas from our Small Cap and Mid Cap strategies. Company selection in Communication Services and Consumer Staples contributed to performance, while selection in Financials and Real Estate detracted.

QSV Select Top Contributors

Generac Holdings Inc. (GNRC) was the leading contributor to performance during the quarter
and is discussed above. Management consulting firm Booz Allen Hamilton (BAH) was a leading contributor to performance and
is also discussed above.

QSV Select Top Detractors

After being a top contributor to performance of the Select strategy in Q1, shares of electronic trading platform MarketAxess Holdings (MKTX) detracted from performance in Q2. MKTX is discussed above.

Glacier Bancorp (GBCI) fell during the quarter and is also discussed above.

QSV Select Portfolio Activity

QSV took opportunities to upgrade the Select portfolio during the quarter. Shares of Church & Dwight (CHD), Pubmatic (PUBM), and WD-40 (WDFC) were sold for valuation reasons and to purchase higher conviction companies. Positions were initiated in EPAM Systems, Inc. (EPAM), Jack Henry & Associates (JKHY), and Paycom Software (PAYC).

Our Focus on the Long Term

Optimism has returned to the markets and to consumer sentiment, and somewhat rightfully so. 401(k) and brokerage account balances have improved measurably from the end of 2022. This optimism has supported stronger consumer spending on services and is reflected in the performance of certain stocks, with cruise line operators Carnival, Norwegian and Royal Caribbean standing out as the top three S&P 500 performers in Q2. For those still seeking out areas for concern (and not believing that it is different this time) risks exist. Core inflation, the measure excluding food and energy, remains well above target and is declining at a glacial pace. The Federal Reserve and its peer central banks have not yet gotten the desired results from a string of rate hikes. Chairman Powell’s comments that we have “a long way to go” in getting back to 2% policy rates signal more rate increases to come. Elevated borrowing costs are likely to eat into corporate profits and we believe this puts the current valuations of lower quality, more leveraged small and mid-cap companies at risk. Opportunities exist for equity investors, and we counsel an emphasis on quality businesses with limited debt, high interest rate coverage and strong free cash flows. As always, this remains our focus for delivering long-term results for our clients as we invest alongside them.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors. Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the QSV Small Cap strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Mid Cap strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the QSV Select strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the QSV products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the QSV products. Lastly, QSV may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To view a GIPS report, please visit www.qsvequity.com.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors (formerly Ballast Equity Management)

Q1 2023 Commentary

Equity markets finished the quarter with positive returns, while the path to those gains was a rocky one. January was marked by robust performance, with shares of lower-quality, higher beta companies showing significant gains. Markets were dampened in February with news that inflation, while cooling, persists and employment remains strong. March followed with the big story of the quarter, the “don’t say bailout” banking crisis, and the ninth in a string of interest rate increases from the Federal Reserve. Each of the QSV strategies produced returns ahead of their respective Russell value and core indexes during the quarter supported by positive stock selection. More information including since-inception performance for each of the strategies may be found at www.qsvequity.com.

QSV Strategy Quarterly Performance

QSV Small Cap returned 3.40% and 3.31%, gross and net of fees, leading both the Russell 2000 Value Index return of (.66)% and the Russell 2000 Index return of 2.74%. The most significant positive impact was made in Financials, where QSV added value in security selection and was underweight compared to the index, and in Communication Services, where QSV was overweight and outperformed the index. Our underweight and underperformance compared to the Consumer Discretionary sector detracted from performance.

QSV Small Cap Top Contributors

NAPCO Security Technologies (NSSC) was the leading contributor to performance during the quarter. Shares rose over 36% on better-than-expected revenues for the quarter and positive trends toward more recurring revenues. NAPCO manufactures security products for intrusion, fire, access control, and door locking systems. The company’s revenue primarily comes from commercial customers and products are sold through NAPCO’s ecosystem of 10,000 dealers and 2,000 integrators. Shares of media company World Wrestling Entertainment (WWE) were up more than 33% as expectations of a sale of the business rose. WWE has a strong brand within a niche audience, especially for its popular Raw and SmackDown content. Most revenues for WWE come from North America, but we believe there is an opportunity for growth outside the U.S. It was announced on April 3 that Endeavor Group (EDR) will form a new company, combining the UFC and WWE brands.

QSV Small Cap Top Detractors

Seacoast Banking Corp of Florida (SBCF) was the leading detractor to performance for the quarter as shares dropped in tandem with the banking industry. SBCF offers commercial and consumer banking, wealth management, and mortgage and insurance services in the rapidly growing Florida market. While QSV Commentary Q1 2023 shares fell along with their regional bank peers, we see SBCF as a well-capitalized business with growing net interest margins, Returns on Tangible Equity of 10% and Returns on Equity of 7%. Also in the banking industry, Horizon Bancorp (HBNC), fell during the quarter, detracting from performance. HBNC offers commercial and consumer banking, wealth management, and mortgage and insurance services to customers in Central Indiana and Michigan. Its network of branches includes those acquired from TCF Financial in 2021. While negatively affected by the quarter’s banking crisis, we see HBNC as a strong enterprise, with Returns on Tangible Equity of 18% and Returns on Equity of 13%.

QSV Small Cap Portfolio Activity

Aerojet Rocketdyne Holdings Inc. (AJRD) shares were sold early in Q1 as the company was acquired by L3Harris Technologies. QSV initiated new positions in investment banking and wealth management firm Evercore Equity (EVR), Kulicke & Soffa Industries (KLIC), a maker of capital equipment and tools for the semiconductor industry, and NexPoint Residential Trust (NXRT), an operator of multi-family properties
in the southeastern U.S. The QSV Mid Cap strategy returned 5.28% and 5.02%, gross and net of fees, for the quarter, leading both the Russell Mid Cap Value Index return of 1.32% and the Russell Mid Cap Index return of 4.06%. QSV’s security selection added value in the Energy and Consumer Staples sectors, while security selection in Financials detracted.

QSV Mid Cap Top Contributors

West Pharmaceutical Services (WST) rose by 47% during the quarter on further evidence of pricing power and margin increases across its portfolio of products. WST has competitive advantages as a key supplier to pharmaceutical, biotechnology, and generic drug businesses, with expertise in the development and manufacture of supplies for the containment and administration of injectable drugs. The company delivers Returns on Invested Capital of 22%.

Monolithic Power Systems Inc (MPWR) gained more than 40% during the quarter on optimism over the firm’s year-over-year results, diversification of its manufacturing capabilities, and long-term growth prospects. MPWR is a global provider of high-performance, semiconductor based power solutions. As a “fabless” company – one that does not manufacture the chips used in its products – MPWR has benefitted from devoting more resources to chip design rather than capital expenditures, resulting in greater free cash flows, higher margins, and Returns on Invested Capital of 24%.

QSV Mid Cap Top Detractors

Shares of exploration and production company APA Corp (APA) fell as recessionary concerns and waning oil and natural gas prices weighed on investor sentiment. We see APA as a strong operator with geographically diversified sources of production and the ability to emphasize oil or gas production as each presents itself as more advantageous. APA is committed to returning 60% of its strong free cash flow to shareholders in the form of dividends and share repurchases. Shares of management consulting firm Booz Allen Hamilton (BAH) pulled back during the quarter due to a potential Federal government shutdown and feared budget cuts. While these actions would impact QSV Commentary Q1 2023 revenues to BAH, the current backlog of projects should produce growth for the business in 2023 and beyond. Additionally, BAH has been more resilient as it focuses on large government-wide acquisition contracts (GWACs) that can be less susceptible to reductions across government agencies.

QSV Mid Cap Portfolio Activity

With the early quarter rally and later decline, QSV took opportunities to upgrade its portfolio. QSV exited Casey’s General Stores (CASY), Skyworks Solutions (SWKS), and Snap-on Inc (SNA). New positions were started in multi-family real estate investment trust Mid-America Apartment Communities (MAA) and Paycom Software (PAYC), a provider of payroll and human capital software. The QSV Select strategy returned 6.68% and 6.45%, gross and net of fees, leading the returns of 1.40% for the Russell 2500 Value Index and the return of 3.39% for the Russell 2500 Index. Select is a high conviction strategy that takes QSV’s best ideas from our Small Cap and Mid Cap strategies. An underweight and outperformance in Financials helped performance, as did an overweight and outperformance in Healthcare holdings. The leading detractor from performance was our overweight and underperformance in Industrials.

QSV Select Top Contributors

West Pharmaceutical Services (WST) was the leading contributor to performance during the quarter and is discussed above.

MarketAxess Holdings (MKTX), the leading platform for the electronic trading of corporate bonds, contributed to performance during the quarter as investors continued to move from voice-negotiated trading to electronic trading of bonds. MKTX’s dominance in corporate bonds also stands as a risk, as revenues are tied to the level of corporate bond issuance and credit spread volatility. Trends toward increasing turnover in these bonds and capabilities in trading U.S. Treasuries and municipal bonds should help boost revenues. MKTX produces Returns on Invested Capital of 28% and its shares are at a discount to QSV’s measure of intrinsic value.

QSV Select Top Detractors

Following a solid quarterly earnings report, shares of Synovus Financial Corp (SNV) fell along with the banking industry during the March banking crisis. SNV offers shareholders an opportunity to take part in the rapidly growing southeastern U.S. market. The company produces Returns on Tangible Equity of 20% and Returns on Equity of 16%. Shares sell at a significant discount to QSV’s measure of intrinsic value.

Booz Allen Hamilton (BAH) shares also detracted from performance. BAH is discussed above.

QSV Select Portfolio Activity

Turnover was limited during the quarter. As in the QSV Mid Cap strategy, we exited shares of premium tool provider Snap-on Inc (SNA) for valuation reasons.

Our Focus on the Long Term

The banking crisis puts the Federal Reserve in a tenuous spot as it considers added rate increases in the battle against inflation. Pressure on banks’ balance sheets caused by both the stresses on existing borrowers and the need to raise rates credited on deposits will lead to tightened lending standards and diminished lending. This, in turn, will put the brakes on growth and contribute to the risks of a recession. QSV cannot predict with any greater accuracy than the next person whether a recession occurs, but we do know that challenging times such as these generally favor quality businesses that can self-fund growth through free cash flows and less reliance on debt markets. Investors sought quality in a compact list of mega-cap tech companies in early 2023; we believe more compelling opportunities exist in small and midcap companies for investors able to dig out those with durable competitive advantages and reasonable valuations.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors. Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the QSV Small Cap strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Mid Cap strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the QSV Select strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the QSV products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the QSV products. Lastly, QSV may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To view a GIPS report, please visit www.qsvequity.com.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors
Q3 2022 Commentary

More information including since-inception performance for each of the strategies may be found at
www.qsvequityinvestors.com.

Stocks began the quarter during a mid-summer rally, but ended September in bear market territory, as
fears of sticky inflation, potential policy errors by global central banks and the possibility of a recession
weighed heavily on both stock and bond markets. After tagging inflation as “transitory” in 2021, Federal
Reserve Chairman Powell is now showing himself to be more Paul Volcker than Alan Greenspan, with a
willingness to tolerate “some pain to households and businesses” as he swiftly pursues a 2% inflation
target.
QSV’s Quality Value Smallcap and Quality Value Midcap strategies each outpaced its respective Russell
benchmark during the quarter, while the Select Value strategy slightly lagged its index. Of note: Select
Value, a high conviction “best ideas” portfolio of small and mid-capitalization companies, reached its fifth
anniversary, significantly outperforming both the Russell 2500 Value and 2500 Indexes with less risk and
positive stock selection over the five-year period.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned -2.90% and -3.04%, gross and net of fees, leading
the Russell 2000 Value Index return of -4.61% while trailing the Russell 2000 Index return of -2.19%.
Security selection in Information Technology, Industrials and Consumer Staples helped performance,
while an underweight and negative security selection in Energy and negative security selection in
Consumer Discretionary companies detracted.

Quality Value Smallcap Top Contributors

NAPCO Security Technologies, Inc. (NSSC) was the leading contributor to performance during the quarter,
as shares rose over 40%. NSSC is a provider and manufacturer of high-tech security, and internetconnected home, video, fire alarm, access control, and door locking systems, operating globally in
commercial, industrial, residential, and government markets. Despite a slowdown due to COVID-19,
increased funding for school security and the mandated nature of fire alarm installations support stable
and growing revenues for the business. NSSC produces returns on invested capital more than 17%.

Computer Services Inc. (CSVI) shares rallied significantly after the company agreed to be taken private in
a deal valued at $1.6 billion by buyers Centerbridge Partners, L.P. and Bridgeport Partners. The acquisition
price valued CSI at more than a 50% premium to its pre-announcement price. While the deal is expected
to close in Q4, QSV took its gains and exited its position in favor of other opportunities.

Q3 2022 COMMENTARY 2

Quality Value Smallcap Top Detractors

CarGurus (CARG) was the leading detractor to performance for the quarter. Quarterly results beat street
expectations, but macroeconomic headwinds and seasonal slowness were cited as the reasons for lower
guidance for the coming quarter. Despite its challenges, asset light CARG has the competitive advantage
of a strong network effect with over thirty-nine million unique visitors each month and over 30,000 paying
dealerships globally. The company produces returns on invested capital of 12% and shares trade
significantly below QSV’s view of intrinsic value.

Shares of Dorman Products Inc. (DORM) fell during Q3 despite strong financial performance during the
trailing quarter. Inflation, rising interest rates, labor challenges and supply chain issues will test the
provider of automotive parts, yet secular trends of aging cars and more miles driven support the case for
ownership of the asset-light company. DORM is financially strong; low levels of debt and strong free cash
flows have supported share buybacks and acquisitions that broaden its product portfolio and the end
markets served.

Quality Value Smallcap Portfolio Activity

With the early quarter rally and subsequent decline, QSV Equity Investors saw many opportunities to upgrade its
portfolio and activity was higher than normal. QSV Equity Investors exited positions in Computer Services Inc. (CSVI), 1-
800 Flowers.com (FLWS),Frontdoor Inc. (FTDR),Lancaster Colony (LANC), Omega Flex Inc. (OFLX), and
UFP Technologies (UFPT).

New positions were initiated in asset manager Cohen & Steers Inc. (CNS), consumer products company
Helen of Troy Ltd. (HELE), Innoviva (INVA), a biopharma company that collaborates with GlaxoSmithKline,
and real estate company Netstreit (NTST). Also initiated were positions in semiconductor provider Power
Integrations (POWI), digital advertising platform PubMatic (PUBM), digital content provider Shutterstock
(SSTK), and UMH Properties (UMH), a real estate investment trust focused on mobile home properties.
The QSV Equity Investors Quality Value Midcap Strategy returned -3.17% and -3.41%, gross and net of fees, for the
quarter, leading both the Russell Mid Cap Value Index return of -4.93% and the Russell Mid Cap Index
return of -3.44%. QSV Equity Investors’ security selection added value in the Information Technology, Financials and
Consumer Staples sectors, while an underweight and negative security selection in Energy detracted.

Quality Value Midcap Top Contributors

ETSY Inc. (ETSY) rose during the quarter as earnings beat expectations, driven by cost controls and higher
take rates, or fees charged to sellers on the retailer’s platform. ETSY is a high margin retail platform
specializing in handmade and vintage products. ETSY also offers services to improve the productivity of its
sellers, including advertising, logistics and payments. ETSY has strong network effects from a seller base
which is loyal to the platform and dependent on it for its active buyer base of 90 million. ETSY produces
returns on invested capital of 17% and shares are currently at a significant discount to QSV Equity Investors’ estimate
of intrinsic value.

Shares of global technology services company EPAM Systems Inc. (EPAM) rose during the quarter on
strong business performance, guidance from management, and positive news about its global workforce.
EPAM has a network of multidisciplinary teams, 60% of which were in the conflict region of Russia, Belarus,
Q3 2022 COMMENTARY 3 and Ukraine as of February 2022. This exposure has been lowered to 40% of EPAM’s global delivery
footprint and management has targeted 30% by year-end. Most of the firm’s revenues are generated from
U.S. customers and returns on invested capital stand at 18%.

Quality Value Midcap Top Detractors

Helen of Troy Ltd. (HELE) shares fell as the company reduced revenue and earnings guidance for 2023
due to the macroeconomic environment and inventory gluts. HELE is a consumer products company with
leading brands that include OXO, Hydro Flask, Honeywell, Braun, Vick’s, PUR, Hot Tools, Drybar and
Osprey Packs. The company has a strategy to focus more resources on its leading brands; 81% of fiscal
2022 revenue came from its top brands while the company’s leadership brands accounted for 56% of
revenue in 2014. This operational rigor also includes expense control and reductions that we believe will
benefit the company. Shares sell for a significant discount to QSV Equity Investors’ view of intrinsic value.

Shares of household and personal care product producer Church & Dwight Co. Inc. (CHD) fell during the
quarter due to weak quarterly results and reduced guidance because of inventory issues at clients,
including Wal-Mart. We believe the sell-off of CHD shares is overdone and that these headwinds should
turn into tailwinds as pricing stays firm, but supply constraints improve. CHD has strong management and
a 120-year history of paying dividends, buying back shares, and making acquisitions. The company
produces returns on invested capital of 16%.

Quality Value Midcap Portfolio Activity

With the early quarter rally and subsequent decline, QSV Equity Investors saw many opportunities to upgrade its
portfolio and activity was higher than normal. QSV Equity Investors exited Fortinet Inc. (FTNT), Jack Henry & Associates
(JKHY), Lancaster Colony (LANC), Service Corporation International (SCI), and The Scotts Miracle Gro
(SMG).
New positions were initiated in cybersecurity vendor Check Point Software Technologies (CHKP),
MarketAxess Holdings Inc. (MKTX), the leading platform for the electronic trading of corporate bonds,
Teradyne Inc. (TER), a leading provider of semiconductor chip testing equipment and West
Pharmaceutical Services, Inc. (WST), a provider of packaging and delivery components for injectable
therapeutics.

The QSV Select Value Strategy returned -4.72% and -4.93%, gross and net of fees, trailing the returns
of -4.50% and -2.82% for the Russell 2500 Value and Russell 2500 Indexes, respectively. Select Value is a
high conviction strategy that takes QSV Equity Investor’s “best ideas” from our Quality Value Smallcap and Quality
Value Midcap strategies. Security selection helped performance most notably in Information Technology
and Communication Services companies, while detracting in Consumer Discretionary holdings. An
underweight and negative security selection in Energy detracted from performance.

Select Value Top Contributors

As in the QSV Equity Investors Quality Value Smallcap portfolio, NAPCO Security Technologies, Inc. (NSSC) was the
leading contributor to performance during the quarter and is discussed above.

Lancaster Colony Corp (LANC) shares aided performance during the quarter as the company delivered
results well above the market’s expectations. LANC is a provider of specialty food products sold through
retail and food service channels. The company leverages certain products from its food service channel,
such as Chick-fil-A sauces and Buffalo Wild Wings sauces, which are sold under exclusive licensing
agreements. LANC has been successful in responding to inflation with price increases and cost savings
programs to partially offset these higher costs. Shares were sold during the quarter for valuation reasons.

Select Value Top Detractors

As in the Quality Value Midcap strategy, Consumer Staples companies Church & Dwight Co. (CHD) and
Helen of Troy Ltd. (HELE) were the leading detractors from performance during the quarter. Both are
discussed above.

Select Value Portfolio Activity

Keeping with its approach to invest in the best ideas of QSV Equity Investors’s Quality Value Smallcap and Midcap
strategies, QSV Equity Investors sold and purchased several holdings, upgrading its portfolio. QSV exited positions in
Jack Henry and Associates (JKHY), Lancaster Colony (LANC), Service Corporation International (SCI),
and The Scotts Miracle Gro (SMG).

QSV Equity Investors initiated positions in Cohen & Steers, (CNS), MarketAxess Holdings, Netstreit (NTST), PubMatic
(PUBM), and West Pharmaceutical Services, Inc. (WST) during the quarter.

Our Focus on the Long Term

The Federal Reserve’s tightening cycle threatens to “break things” and may tip the economy into a
recession, with declines in corporate earnings to follow. A silver lining of the bear market is more
reasonable equity valuations relative to early 2022 and long-term averages, yet it is difficult to know the
outlook for earnings – and the validity of current valuation estimates – when so many uncertainties exist.
We would like to think that “everything is priced in,” but experience has shown we cannot know
everything. Bottom line: we do not think that we are out of the woods yet and the economy and markets
will likely get worse before getting better.

Rising interest rates and stubborn inflation have shown there are few places for investors to hide. There
are companies with greater resilience to these challenges, though, which provide the “QSV” we seek
for our clients’ portfolios. Businesses with pricing power, lower levels of debt, lower capital intensity and
competitive “moats” offer attractive opportunities for long term investors to upgrade their portfolios and
benefit from the long-term compounding that results. We invite you to join us.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors. Gross returns are
calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s
management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are
compared to the historical performance of the Russell Midcap Indices as they are a widely used
benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to
the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small
capitalization securities. The returns of the QSV Equity Investors are compared to the historical
performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization
securities. An investment with QSV Equity Investors should not be construed as an investment in a
program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM
products and these indices. Furthermore, these indices do not include any transaction costs, management
fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that
are not included in these indices.

No client or potential client should assume that any information presented should be construed as
personalized investment advice. Personalized investment advice can only be rendered after engagement
of the firm for services, execution of the required documentation, and receipt of required disclosures.
Investing carries risk of loss.

QSV Equity Investors claims compliance with the Global Investment Performance Standards
(GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote
this organization, nor does it warrant the accuracy or quality of the content contained herein. To view a
GIPS report, please visit www.qsvequityinvestors.com.
QSV Equity Investors is a registered investment advisor. For additional information about the
firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov

QSV Equity Investors

Q4 2022 Commentary

Q4 2022 began with a bear market rally that continued into November but waned in December. Rate hikes
by the Federal Reserve and Chairman Powell’s comments that it was too soon to consider a pause tested
investors’ resolve. November’s mid-term election delivered the ingredients for gridlock in Washington,
and we ended 2022 with investors feeling the sting of a difficult year that offered few places to hide from
sharply negative results.

The exceptional place to hide for equity investors in 2022 was the energy sector. QSV has generally
found few businesses in this sector that we believe make prudent capital allocation decisions and our
underweight to these companies was a meaningful drag on our annual performance.

QSV’s Quality Value Smallcap strategy did produce returns ahead of both the Russell 2000 Value and
Russell 2000 indices in 2022. Our Quality Value Midcap and Select Value strategies each lagged their
respective Russell value indexes while outperforming the Russell Mid Cap and Russell 2500 indexes,
respectively. We remain confident in our ability to outperform these benchmarks over full market cycles
and have done so since the inception of each product. More information including since-inception
performance for each of the strategies may be found at www.qsvequityinvestors.com.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned 6.58% and 6.49%, gross and net of fees, lagging
the Russell 2000 Value Index return of 8.42% while leading the Russell 2000 Index return of 6.23%. Security
selection in Healthcare and Energy helped performance, while an underweight and negative security
selection in Consumer Discretionary companies detracted.

Quality Value Smallcap Top Contributors

Rocket propulsion supplier Aerojet Rocketdyne Holdings Inc. (AJRD) was the leading contributor to
performance during the quarter. Shares rose nearly 40% on news that the company would be acquired by
L3Harris Technologies (LHX) after AJRD was courted by multiple suitors. Earlier in 2022, an acquisition of
the company by Lockheed was scuttled over antitrust concerns. We continue to hold AJRD and believe
the likelihood that the deal will close in early 2023 is high.

Shares of property and casualty insurer RLI Corp. (RLI) rose more than 35%. Despite the impact of
Hurricane Ian, RLI quarterly results were strong, with lower-than-expected losses and a 13% increase in
gross premiums written. Earnings reflected the gains on the sale of RLI’s minority ownership in eyewear
maker Maui Jim for $686 million, a stake held for more than 25 years due to RLI’s legacy ophthalmic
services subsidiary.

Quality Value Smallcap Top Detractors

Simulations Plus Inc. (SLP) was the leading detractor to performance for the quarter as shares dropped
on earnings that were below street expectations. SLP is a leading provider of software and services used
by major pharmaceutical, biotech, and regulatory agencies to make better informed, data-driven
decisions. While earnings are expected to be more muted in the coming year due to higher labor costs,
we see long term value due to the company’s high switching costs, intellectual assets, and a 93% renewal
rate by its customers. SLP produces operating margins of 29% on average and its shares are well below
our estimate of intrinsic value.

Shares of direct-to-consumer pool and spa provider Leslies Inc. (LESL) fell during Q4 on recession concerns
and worries over consumer spending. LESL is the industry leader globally, with both physical stores and
strong digital distribution, and benefits from recurring revenues from meeting its customers’ maintenance
needs. While we have confidence in its business model, we sold our position in LESL for better
opportunities.

Quality Value Smallcap Portfolio Activity

With the early quarter rally and subsequent decline, QSVsaw many opportunities to upgrade its
portfolio. QSV exited positions in Allied Motion Technologies (AMOT), CarGurus Inc. (CARG), Leslies
Inc. (LESL), and John B. Sanfilippo and Son Inc. (JBSS).
New positions were initiated in title and specialty insurer First American Financial (FAF), home generator
manufacturer Generac Holdings (GNRC), exploration and production company PDC Energy (PDCE), and
UFP Industries (UFPI), a provider of lumber and treated wood products.

The QSV Quality Value Midcap Strategy returned 9.03% and 8.76%, gross and net of fees, for the
quarter, lagging both the Russell Mid Cap Value Index return of 10.45% and the Russell Mid Cap Index
return of 9.18%. QSV’s security selection added value in the Energy and Consumer Staples sectors, while
security selection in Financial names detracted.

Quality Value Midcap Top Contributors

Ross Stores Inc. (ROST) rose by 38% during the quarter driven by strong Q3 results and optimism for the
coming quarter and 2023. Lower income consumers that drive sales for ROST have been challenged in
2022 by higher energy, housing, and food costs, but employment and wage growth appear as positives.
ROST is expected to continue to benefit from competitive advantages that include significant vendor
relationships and strong inventory management. Returns on invested capital stand at 30% on average.

Shares of management consulting firm Booz Allen Hamilton (BAH) rose during the quarter as the
company both beat quarterly expectations and raised guidance for revenue and earnings for the full year.
BAH is a leading provider of management and technology consulting. Its “best of breed” status stands as
a competitive advantage as it captures contracts from the U.S. government, generating 97% of the
company’s revenues. BAH generates returns on invested capital of 15% on average.

Quality Value Midcap Top Detractors

First Financial Bankshares Inc. (FFIN) shares fell as rising interest rates increased deposit costs and loan
demand moderated. FFIN is a highly profitable bank holding company with a footprint in the thriving Texas
market. FFIN produces returns on tangible equity of 16% and its shares are priced at a discount to our
view of its intrinsic value.

Shares of self-storage owner and operator Extra Space Storage (EXR) fell during the quarter as
management lowered earnings guidance. Lower share prices also reflected the impact of higher interest
rates; 38% of the company’s debt was variable at the end of Q3 2022. We continue to have confidence in
the long-term prospects for EXR, supported by its same-store occupancy rate of 96% and its size and scale,
giving it a significant cost advantage and marketing presence over smaller peers.

Quality Value Midcap Portfolio Activity

With the early quarter rally and subsequent decline, QSV saw many opportunities to upgrade its
portfolio. QSV exited Celanese Corp. (CE), Clorox (CLX), Take Two Interactive (TTWO), and Helen of
Troy (HELE).
New positions were initiated in exploration and production company APA Corp. (APA), industrial and
office REIT EastGroup Properties (EGP), Lennox International (LII), a leader in heating, ventilation and
cooling products, Northern Trust (NTRS), offering leadership in custody and wealth management services,
and Zebra Technologies (ZBRA), a leader in automatic identification and data capture technology.

The QSV Select Value Strategy returned 8.00% and 7.76%, gross and net of fees, trailing the return of
9.21% for the Russell 2500 Value Index while leading the return of 7.43% for the Russell 2500 Index. Select
Value is a high conviction strategy that takes QSV “best ideas” from our Quality Value Smallcap and
Quality Value Midcap strategies. Security selection helped performance most notably in Healthcare and
Industrials companies. An overweight and negative security selection in Information Technology
detracted from performance as did an underweight and negative security selection in Consumer
Discretionary names.

Select Value Top Contributors

Booz Allen Hamilton (BAH) was the leading contributor to performance during the quarter and is
discussed above.
Getty Realty Corporation (GTY) shares aided performance during the quarter as shares rose by over 27%.
The company met earnings expectations for the quarter and management raised guidance for the full year
2022. GTY owns a portfolio of more than 1000 properties that are leased at 99.5% with annual rent
escalators averaging 1.6%. Properties are predominantly convenience stores and gas stations which are
e-commerce and recession resistant.

Select Value Top Detractors

PubMatic Inc. (PUBM) was the leading detractor to performance during the quarter. PUBM is a leading
platform provider in the programmatic digital advertising technology market, helping publishers that
supply digital ad inventory to better manage their inventory, selling a high percentage of their inventory
and maximizing revenue per ad sold. Competitive advantages include switching costs – the time, effort,
and money required to transfer platforms once an advertiser is set up on PUBM’s platform – and cost
advantages through its investment in infrastructure and off-shore research and development. PUBM
produces returns on invested capital of 15% and its shares are currently at a significant discount to our
measure of intrinsic value.

National Storage Affiliates Trust (NSA) detracted from performance as rising interest rates are expected
to impact both the company’s variable rate debt and its borrowing costs for future acquisitions.
Additionally, occupancy rates were off more than anticipated. NSA is the fourth largest publicly traded
REIT focused on self-storage and benefits from high switching costs. We continue to have conviction in
high-quality NSA as it produces funds from operation well above its peers driven by its focus on properties
in secondary markets that are often overlooked by its competitors. While lower occupancies are cause for
concern, these levels follow post-COVID increases that were significant and unsustainable.

Select Value Portfolio Activity

Continuing with our approach to investing in the best ideas of QSV’s Quality Value Smallcap and
Midcap strategies, QSV sold and purchased several holdings, upgrading its portfolio. QSV exited
positions in Clorox (CLX), John B. Sanfilippo & Son (JBSS), Take Two Interactive (TTWO), and Helen of
Troy (HELE).

QSV initiated positions in EastGroup Properties (EGP), Generac Holdings (GNRC), PDC Energy (PDCE),
and Zebra Technologies (ZBRA) during the quarter.

Our Focus on the Long Term

The folly of predicting macro events was laid bare in 2022 as the Federal Reserve and Wall Street were
wildly wrong concerning the persistence of inflation and the direction of equity and bond markets. We
suspect that the Federal Reserve has more interest rate hikes in store for us in 2023, that a recession is
possible, that downward earnings revisions are likely, and that consumers face trouble as personal savings
rates are down while debt levels are up. To the positive, the employment picture remains strong, although
questions remain whether inflation can come down without impacting the labor market.
We know that the macro events of the coming year are unknowable, so, as always, we prepare for the
challenges and opportunities to come through ownership of quality businesses that possess competitive
“moats.” This approach has proven to be a cornerstone in building enduring wealth over the long term.
The price paid for ownership of these businesses is critical to success. There is great uncertainty as to the
outlook for corporate earnings in 2023 but we know that a focus on quality provides some clarity;
businesses with low leverage, stable and growing cash flows and stable and growing returns on invested
capital give us a far better starting point for making sound assessments of the future cash flows each
business will deliver. We believe the carnage of the past year has created tremendous opportunities to
upgrade to higher quality, small and mid-cap businesses, setting our clients up for success.

Disclaimer:

Returns are for the respective composites of QSV Equity Management (BEM). Gross returns are
calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s
management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are
compared to the historical performance of the Russell Midcap Indices as they are a widely used
benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to
the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small
capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical
performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization
securities. An investment with QSV Equity Management should not be construed as an investment in a
program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM
products and these indices. Furthermore, these indices do not include any transaction costs, management
fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that
are not included in these indices.
No client or potential client should assume that any information presented should be construed as
personalized investment advice. Personalized investment advice can only be rendered after engagement
of the firm for services, execution of the required documentation, and receipt of required disclosures.
Investing carries risk of loss.
QSV Equity Management, LLC claims compliance with the Global Investment Performance Standards
(GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote
this organization, nor does it warrant the accuracy or quality of the content contained herein. To view a
GIPS report, please visit www.qsvequityinvestors.com.
QSV Equity Management, LLC is a registered investment advisor. For additional information about the
firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors

QSV Equity Investors

Q1 2022 Commentary

More information including since-inception performance for each of the strategies may be found at www.qsvequityinvestors.com.

QSV concluded its commentary last quarter with a list of “known risks” that included a continuation of inflation, the Federal Reserve’s tightening cycle and trajectory, and the fact that attention paid by investors to geopolitical risks stood at a four-year low, while the ambitions of China, Iran and Russia continued to rise. These risks emerged in more profound ways than we expected, with war in Ukraine, a more hawkish Fed, and inflation spiking to 40-year highs. Markets reacted to these risk factors with heightened volatility and negative returns across equity market caps. Performance by energy stocks greatly outstripped all other sectors as worries over global supply – already escalated prior to the war in Ukraine – rose further.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned -6.50% and -6.58%, gross and net of fees, lagging the Russell 2000 Value Index return of -2.40% while leading the Russell 2000 Index return of -7.53%. QSV has historically been significantly underweight in Energy holdings, as these businesses generally do not have the high returns on invested capital or consistency of business performance we seek. This created meaningful headwinds to performance, as did robust performance by certain index constituents in the Defense and Shipping industries. Healthcare and Communication Services holdings helped performance, while holdings in the Energy and Industrials sectors detracted.

Quality Value Smallcap Top Contributors

Energy services company Core Laboratories (CLB) rose over 40% as investor sentiment turned favorable toward the company’s prospects in its reservoir description and production enhancement services divisions. CLB is the singular energy holding in the QSV strategy and has competitive advantages that include its intangible assets (patents, proprietary technology, and human capital) and network effects (multi-client reservoir studies). Prior to the start of the conflict in Ukraine, CLB announced that it expects double digit gains in 2022 for both its business segments; these gains could improve further as exploration and production increases.

Shares of on-line automotive sales platform CarGurus, Inc. (CARG) also rose during the quarter. CARG offers a leading marketplace for both individuals and dealerships to buy, market and sell vehicles in the U.S. as well as Canada and the U.K. CARG has a strong network effect competitive advantage with over thirty-nine million unique visitors each month and over 30,000 paying dealerships globally. Positive stock performance was supported by quarterly revenues that exceeded Street expectations by over 20% and by the company’s investment in dealer-matching service CarOffer.

Quality Value Smallcap Top Detractors

Shares of 1-800 Flowers.com (FLWS) fell 45% during the quarter. Challenges to the company’s margins included higher freight, shipping, and labor rates all hitting during its important holiday season. FLWS is working to offset these challenges by adding more automation into its manufacturing and distribution facilities, raising prices where possible, and building additional inventories. FLWS continues to have strong and growing free cash flows and delivers average returns on invested capital of 12%. FLWS has a proven record of making accretive acquisitions, something we expect will continue to boost business performance.

Shares of Watts Water Technologies, Inc. (WTS) fell during the quarter, along with the other housing related companies, despite strong earnings that exceeded expectations. WTS is a global provider of Smart and Connected water conservation, safety, and flow control products. Share price performance was impacted by conservative guidance for the coming year; WTS has tough comparisons to beat for the first two quarters of 2022 and is making growth investments in its business. The company does have pricing power and we expect price increases and the shift to energy efficient products to aid performance in the second half of 2022.

Quality Value Smallcap Portfolio Activity

QSV exited its position in Eagle Pharmaceuticals (EGRX). Prior to the invasion of Ukraine, a new position was initiated in Aerojet Rocketdyne Holdings, Inc. (AJRD), a manufacturer of aerospace and defense products and systems. Also initiated was a position in Medpace Holdings Inc. (MEDP), a leading clinical contract research focused primarily on full-service project work for small- and mid-sized biopharmaceutical clients. AJRD and MEDP each produce high returns on invested capital, 18% and 16% respectively, and each sells at a meaningful discount to QSV estimate of intrinsic value.

The QSV Quality Value Midcap Strategy returned -7.06% and -7.29%, gross and net of fees, for the quarter, lagging the Russell Mid Cap Value Index return of -1.82% and the Russell Mid Cap Index return of -5.68%. QSV security selection added value in the Industrial and Financials sectors, while selection in Healthcare and a meaningful underweight to Energy holdings detracted from strategy performance. QSV has historically been significantly underweight in Energy holdings, as these businesses generally do not have the high returns on invested capital or consistency of business performance we seek.

Quality Value Midcap Top Contributors

Energy services company Core Laboratories (CLB) was the leading contributor to performance and is discussed above.

W.R. Berkley Corporation (WRB) rose over 20% during the quarter as earnings exceeded expectations. WRB provides specialty coverages within the property and casualty insurance and reinsurance markets. The company expects strong business performance to continue, as rate increases in excess of claims trends are anticipated to continue. WRB continues to sell at a significant discount to QSV’s estimate of intrinsic value.

Quality Value Midcap Top Detractors

Masimo Corporation (MASI) shares fell in mid-quarter on the news of its planned acquisition of consumer technology company Sound United. MASI is a medical technology company which develops, manufactures, and markets non-invasive vital sign monitoring devices. While the thesis behind the acquisition is confusing on the surface, it makes strategic sense as MASI is eager to build infrastructure and relationships for marketing its future consumer-focused products, such as the Masimo W1 smartwatch. MASI produces returns on invested capital of 18% and remains a key portfolio holding. QSV will closely monitor the integration of Sound United along with the overall business performance of the company.

Icon PLC (ICLR) shares fell over concerns that business would slow, post COVID, and that it could stumble in its integration of newly acquired PRA Health. ICLR – and PRAH – are clinical research organizations (CROs) providing outsourced development services to the pharmaceutical, biotechnology, and medical device industries. ICLR has a history of being conservative as it communicates its outlook and previously communicated its expectations for 2022. The cultures of ICLR and PRA Health are similar, and the combined organization will bring synergies and benefit from reduced client concentrations.

Quality Value Midcap Portfolio Activity

QSV exited Amdocs Limited (DOX), Maximus Inc. (MMS), and Qualys Inc. (QLYS) during the quarter. New positions were initiated in EPAM Systems Inc. (EPAM), a provider of software and digital platform engineering services, global freight forwarding company Expeditors International of Washington (EXPD), and Helen of Troy Ltd. (HELE), a consumer products company with brands including Braun, Hydro Flask and Revlon.

The QSV Select Value Strategy returned -8.76% and -8.96%, gross and net of fees, trailing the returns of -1.50% and -5.82% for the Russell 2500 Value and Russell 2500 Indexes, respectively. Select Value is a high conviction strategy that takes QSV’s “best ideas” from its Quality Value Smallcap and Quality Value Midcap strategies. Security selection more than offset the negative impact of an overweight in Technology companies during the quarter. QSV’s overweight and its security selection detracted from performance in Healthcare and its meaningful underweight to Energy also detracted.

Select Value Top Contributors

Energy services company Core Laboratories (CLB) was the leading contributor to performance and is discussed above.

Financial technology company Jack Henry & Associates, Inc. (JKHY) was the second greatest contributor to performance during the quarter. JKHY provides automation software, payment processing, and outsourcing solutions to community banks and credit unions and has moved up market into larger banking organizations over the past ten years. The company produces returns on invested capital of 20%, supported by high switching costs and a scalable business model.

Select Value Top Detractors

As in the Quality Value Midcap strategy, holdings Masimo Corporation (MASI) and Icon PLC (ICLR) were the greatest detractors. Comments on each are noted above.

Select Value Portfolio Activity

Adhering to QSV’s emphasis on owning its best small and mid-cap ideas within the Select Value portfolio, QSV exited Amdocs Limited (DOX), Maximus Inc. (MMS), and Qualys Inc. (QLYS) during the quarter. New positions were entered in Clorox (CLX), an existing holding in the QSV Quality Value Midcap strategy, and Helen of Troy Ltd. (HELE).

Our Focus on the Long Term

With today’s “perfect storm” of risk factors, the near-term outlook is more cloudy than usual. Inflation, the Fed’s tightening cycle, and geopolitical concerns all weigh on the markets and seem likely to persist during 2022. What seems certain is that economic growth will be slower, leading to slowing corporate earnings growth. The earnings cycle and earnings growth, company by company, will be in focus, favoring stable and profitable quality businesses such as those emphasized in the QSV strategies.

QSV advises clients that investing in high quality businesses is a winning strategy over time, but we know there will be periods of underperformance. The first quarter of 2022 was painfully such a time, as energy and companies tied to commodity prices drove returns, while stable companies with high returns on invested capital lagged significantly. Investors who can accept these near-term “disconnects” with benchmarks and have the patience to commit to long term ownership are rewarded over time with higher returns and less volatility. We continue to stay true to our investment process and seek out quality businesses that can be “price makers” in these challenging times.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors (BEM). Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS report, please contact QSV at (844) 3-BALLAST.

CSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors

February 25, 2022

More information including since-inception performance for each QSV strategy may be found at www.qsvequityinvestors.com.

War

Markets have been bracing for conflict between Russia and Ukraine for much of 2022 and, on Thursday, this conflict became a reality. President Vladimir Putin has stated that Ukraine “is an inalienable part of [Russia’s] history, culture, and spiritual space” and seems intent on restoring what was the U.S.S.R. Equity markets reacted with wild swings, including a near seven hundred basis point trough to peak move by the NASDAQ. The initial “risk off” reaction triggered by news of Russia’s invasion was followed by a sharp rally as investors seemed relieved by sanctions that were less severe than feared and the possibility that the Federal Reserve’s expected rate hikes be muted as it wishes to avoid economic slowdown.

The Markets

Oil and natural gas prices have been on the rise in 2022 and the conflict between Russia and Ukraine sent them higher. Prices have been driven by the recovery in global demand and the discipline shown by OPEC in sticking to its promise to slash oil production. Further, there has been a low level of investment in hydrocarbon production in recent years as energy companies have instead returned capital to shareholders. Shares of oil and natural gas exploration and production companies, including Marathon Oil, Halliburton, Hess, and Occidental Petroleum, have been propelled by these rising prices and have been the bright spots in small and mid-cap indexes during an otherwise negative 2022. Through Thursday, for example, the Energy sector was up over 19% in the Russell Mid Cap Value index while the benchmark, itself, was down 7%. Similarly, the Energy sector was up over 15% year-to-date in the Russell 2000 Value index and the benchmark was down nearly 7%.

The Case for Quality

Fears over rising inflation, the persistence of COVID, and concerns over the pace of rate hikes by the Federal Reserve were all worries for investors entering 2022. The war between Russia and Ukraine only adds to these, with uncertainty around additional sanctions, the duration of the conflict and added inflationary pressures from energy and agricultural inputs. The resulting volatility is a reminder that risk goes hand in hand with the pursuit of rewards in investing and, in our view, makes the case for long term ownership of quality businesses. Quality businesses, in QSV’s definition, deliver high returns on invested capital supported by durable competitive advantages. These companies share strong balance sheets, lower debt and pricing power, all characteristics that offer stability in volatile times. Businesses like Clorox, Campbell Soup, and McCormick & Company offer essential products and services and possess scale advantages and intangible assets that give them staying power and result in a “smoother ride” for investors in their shares. Equity investing is essential as retirement plans provide benefits to plan participants, foundations strive to fulfill their missions and families build secure futures. Allocations to quality businesses have proven to offer strong long-term results with less volatility in turbulent times.

Disclaimer:

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS report, please contact QSV at (844) 3-BALLAST.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors

Q4 2021 Commentary

More information including a since-inception performance for each of the strategies may be found at www.qsvequityinvestors.com.

Equity markets marched higher in the quarter, with returns in large capitalization indexes outpacing those of small cap indexes. Businesses and investors faced numerous challenges – research firm Sentieo cited “supply chain,” “inflation” and “variant” as the most mentioned words on Wall Street calls – but returns were lifted by an ongoing combination of favorable monetary policy and fiscal stimulus which has fueled earnings growth into the second year of economic recovery. Investors have been slowly moving away from the higher beta and long duration stocks that led the market since the 2020 lows to lower beta, higher quality defensive stocks more recently. Using the Russell Stability indexes as proxies for high and low quality, the Russell Defensive indexes containing businesses with higher Returns on Assets, lower leverage, and lower volatility meaningfully outperformed lower-quality businesses, as measured by the Russell Dynamic indexes, across the market cap spectrum.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned 6.67% and 6.57% gross and net of fees, beating both the Russell 2000 Value and Russell 2000 Indexes’ returns of 4.36% and 2.14%, respectively. Quality “QSV-like” businesses, those with less sensitivity to economic and credit cycles and with more sustainable business models, outperformed. Active returns were greatest in the Healthcare, Communication Services, and Financials sectors, while Utilities and Cash detracted from performance. Security selection was a strong contributor to performance, with the most impactful contributions in Healthcare and Real Estate companies.

Quality Value Smallcap Top Contributors

Forward Air (FWRD) rose over 45% during the quarter as the company continues to grow organically and through acquisitions. FWRD is the leader in the deferred airfreight transportation market, where it provides time-sensitive ground transportation (airport-to-airport) to other transportation providers such as freight forwarders and airlines. The mix of FWRD’s business is shifting to higher margin, less labor-intensive palletized cargo which bodes well for an improvement in its already strong 12% return on invested capital.

National Storage Affiliates Trust (NSA) shares rose during the quarter as occupancy rates and pricing power remained high. The company continues to grow through acquisition, focusing on secondary markets where there is less competition for properties and where the company believes there is less sensitivity to economic fluctuations. NSA raised its dividend for the third consecutive quarter in November while maintaining a conservative payout ratio.

Quality Value Smallcap Top Detractors

Although PaySign (PAYS) beat revenue estimates for the quarter and raised the bottom end of its guidance for full year EBITDA, shares fell significantly during the quarter. The business performance continued to be impaired because of the impact of the COVID pandemic on the company’s plasma business. PAYS also cited pandemic-related government stimulus programs as disincentives for individuals to donate plasma. QSV exited its position in PAYS in favor of better ideas.

As with many retail and e-commerce stocks, shares of 1-800 Flowers.com (FLWS) fell sharply during the quarter. Headwinds to the company’s results include supply chain issues, including rising shipping and container costs, and higher labor rates. FLWS is working to offset some of these challenges with price increases and greater automation. The company has also made accretive acquisitions, including a seller of premium seafood and organic foods, Vital Choice, which offers synergies with existing holding Harry & David. FLWS continues to have strong average returns on invested capital of 12% and continues to be a holding for QSV.

Quality Value Smallcap Portfolio Activity

QSV exited positions in Physicians Realty Trust (DOC), Dril-Quip Inc. (DRQ), InterDigital Inc. (IDCC), MGE Energy, Inc. (MGEE), PaySign Inc., (PAYS), and Zynex Inc., (ZYXI). Zix Corporation (ZIXI) was excited as it was acquired by OpenText, a provider of information management solutions. QSV entered new positions in Frontdoor Inc. (FTDR), a provider of tech-enabled home services and warranties, and Getty Realty Corp. (GTY), owner of a convenience store and gasoline station properties that operate under brands including BP, Citgo, Exxon, and Shell. Also added were Postal Realty Trust (PSTL), the only publicly traded REIT focused on the management of properties leased to the U.S. Postal Service, and Progress Software Corp. (PRGS), a provider of cloud-based security solutions.

The QSV Quality Value Midcap Strategy returned 10.65% and 10.38%, gross and net of fees, for the quarter, leading both the Russell Mid Cap Value Index return of 8.54% and the Russell Mid Cap Index return of 6.44%. QSV added value in the Consumer Discretionary and Healthcare sectors, while Energy and Utilities exposures detracted from strategy performance. Security selection delivered an excess performance in 7 of 11 S&P sectors, with selection in Healthcare and Consumer Discretionary companies delivering the most meaningful returns.

Quality Value Midcap Top Contributors

Extra Space Storage Inc. (EXR) was the second largest contributor to performance during the quarter. EXR controls the second largest self-storage portfolio in the United States. Its scale advantage and the data that is derived from its portfolio allows EXR to move swiftly when adjusting pricing to reflect changing market trends. High occupancy rates and acquisitions supported robust performance during the quarter.

Swimming pool supplies provider Pool Corp (POOL) was the greatest contributor to performance during the quarter. The stay-at-home environment buoyed sales of Pool’s products and its share price. While the expected sales in new residential pools have slowed from strong pandemic growth, these represent less than 20% of sales for the company and its installed base will continue to deliver strong results, in our view. POOL has average returns on invested capital of 27% and continues to be a holding for QSV.

Quality Value Midcap Top Detractors

Core Laboratories (CLB) was the leading detractor from performance as COVID-19 related disruptions, hurricanes in the Gulf Coast, and supply chain issues impacted its business performance. CLB is the leader in providing core and reservoir analysis to oil and gas companies. Competitive advantages include its intangible assets (patents, proprietary technology, and human capital) and network effects (multi-client reservoir studies). The company anticipates growing customer demand in both the U.S. and international markets in 2022 and has increased raw materials inventories to address its supply chain challenges. CLB is one of the more profitable names in the group and continues to be a holding.

Despite quarterly performance that met expectations and raising the company’s guidance for the full year, Fleetcor Technologies Inc. (FLT) detracted from performance during the quarter. FLT is a provider of global business payment processing solutions, processing more than 1.6 billion transactions each year in segments that include trucking, lodging, toll roads and corporate payments. Its scale in these segments and the growth in business-to-business payments serve as strong moats for the business. Supply chain bottlenecks and driver shortages have impacted trucking within its fuel payments segment, but we see these as short-term issues and have conviction in the business.

Quality Value Midcap Portfolio Activity

QSV exited Physicians Realty Trust (DOC), MGE Energy, Inc. (MGEE), MSCI Inc. (MSCI), and Waste Connections (WCN), during the quarter. Aspen Technology (AZPN) was exited as it entered into a definitive agreement to be acquired by Emerson Electric, a global technology and engineering company. New positions were initiated in consumer products company Church & Dwight (CHD), the well-known provider of cleaning and disinfecting products company Clorox (CLX), food and snack company Campbell Soup (CPB), and video game publisher Take-Two Interactive Software, Inc. (TTWO).

The QSV Select Value Strategy returned 9.44% and 9.20%, gross and net of fees, leading the returns of 6.36% and 3.82% for the Russell 2500 Value and Russell 2500 Indexes, respectively. Select Value is a high conviction strategy that takes WSV “best ideas” from its Quality Value Smallcap and Quality Value Midcap strategies. Exposures in the Healthcare and Consumer Discretionary sectors aided returns, while the Industrials and Energy sectors detracted. Security selection can be credited for all the outperformance for the quarter, with Healthcare, Consumer Staples and Information Technology holdings most notably contributing.

Select Value Top Contributors

National Storage Affiliates Trust (NSA) was the leading contributor to performance during the quarter. Its results are noted above.

Pool Corp (POOL) was the second greatest contributor to performance during the quarter. Its results are discussed above.

Select Value Top Detractors

Core Laboratories (CLB) was the leading detractor from performance in the Select Value strategy and is discussed above.

Fleetcor Technologies Inc. (FLT) was the second largest detractor from performance during the quarter and is also addressed above.

Select Value Portfolio Activity

Adhering to QSV’s emphasis on owning its best small and mid-cap ideas within the Select Value portfolio, new positions were initiated in Church & Dwight (CHD), Getty Realty Trust (GTY), and Take-Two Interactive Software (TTWO). QSV exited its holdings in Aspen Technology (AZPN), MSCI (MSCI), and Waste Connections (WCN).

Our Focus on the Long Term

For much of 2021, the markets rose seemingly without concern for potential risks. QSV sees the New Year through the lens of opportunity, but with a keen eye on risk management through ownership of quality businesses. Known risks include:

• A continuation of inflation and its effects on consumers’ purchasing power and the pricing power of businesses.
• COVID, and global responses to the pandemic, persist as risks.
• Actions by the Federal Reserve that may progress at levels greater or lesser than anticipated.
• The fact that attention paid by investors to geopolitical risks stands at a four-year low, according to BlackRock, while the ambitions of China, Iran and Russia continue to rise.  Our own political landscape in the U.S. that remains highly polarized.

The potential impact of each of these is important for investors to consider, yet the macro future is not knowable. We do know that rising rates will impact the valuations of equities, particular higher growth names heavily reliant on future earnings. We also know that lower quality value stocks had their day in the sun in 2020 and early 2021 after briefly being left for dead at the start of the pandemic. QSV believes that our area of focus – quality businesses with durable competitive advantages, strong balance sheets and strong cash flow generation – will serve investors particularly well in the coming year and beyond. These businesses, purchased at reasonable valuations, have a long history of providing solid participation in rising markets and shock absorption for the surprises that come.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors (BEM). Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS report, please contact QSV at (844) 3-BALLAST.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors

Q3 2021 Commentary

More information including a since-inception performance for each of the strategies may be found at www.qsvequityinvestors.com.

As we noted in our outlook last quarter, U.S. equity markets delivered between one and two years of expected returns in just the first six months of 2021. Equity markets pushed higher through August, but fell in September, as uncertainty regarding fiscal and monetary policy, inflation concerns, and slowing growth impacted investor sentiment. Factors driving performance shifted multiple times during the quarter. Using the Russell Stability indexes as proxies for high and low quality, the Russell Defensive indexes containing businesses with higher Returns on Assets, lower leverage, and lower volatility outperformed low-quality businesses, as measured by the Russell Dynamic indexes, across the market cap spectrum.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned -1.68% and -1.77%, gross and net of fees, beating both the Russell 2000 Value and Russell 2000 Indexes’ returns of -2.98% and -4.36%, respectively. Quality “QSV-like” businesses, those with less sensitivity to economic and credit cycles and with more sustainable business models, outperformed. Information Technology and Communication Services holdings helped performance, while Energy and Consumer Staples holdings hurt performance. Security selection was a strong contributor to performance, adding more than 100% of the strategy’s relative outperformance.

Quality Value Smallcap Top Contributors

Shares of Hollysys Automation Technologies (HOLI) rose significantly during the quarter as multiple offers were presented to acquire the business. HOLI is a China-based leader in integrated solutions for industrial automation and rail transportation and has been a long-term QSV holding. With the tailwinds presented by the buyout offers, QSV exited its position in HOLI during the quarter for valuation reasons.

Specialty pharmaceutical company Eagle Pharmaceuticals, Inc. (EGRX) rose over 30% during the quarter, supported by a court ruling that determined the company’s marketing application for Vasopressin did not infringe on patents held by the makers of the generic Vasostrict. We believe the outlook for EGRX is bright, with numerous late-stage pipeline assets, new collaborations with certain biotech companies, and additional indications in development for its existing products.

Quality Value Smallcap Top Detractors

In spite of a quarterly earnings beat and management raising guidance, Leslie’s Inc. (LESL) was the largest detractor to returns during the quarter. LESL is the largest consumer-facing omni-channel brand in the U.S. pool and spa care industry, operating more than 900 locations across 38 states. Quarterly earnings comparisons have gotten more difficult, and “reopening” has likely resulted in some shift in consumer spending from the home and pool to travel, restaurants, and other discretionary spending. That considered, QSV believes the competitive advantages of LESL remain intact, which includes the company’s installed base of customers driving strong recurring maintenance revenues.

Simulations Plus Inc. (SLP) shares were down during the quarter as its revenues disappointed as a result of a drop in its services business. We believe this dip to be temporary. SLP is a software and services provider to the pharmaceutical industry, aiding those businesses with software and services that support their drug discovery, product quality and innovation. The company is approaching a 20% market share of the companies that would be potential users of its software and consulting services. We see the outlook as strong for SLP, both due to organic growth and through acquisitions supported by its strong balance sheet.

Quality Value Smallcap Portfolio Activity

Rising markets and volatility presented abundant opportunities to sell positions for price reasons and to buy where better opportunities arose. Positions added during the quarter were on-line auto marketplace Car Gurus (CARG), on-line retailer 1-800 Flowers (FLWS), and Hawkins (HWKN), a provider of chemicals and ingredients for water treatment and nutrition. Also added were Johnson Outdoors (JOUT), a manufacturer of outdoor recreation products, insurer Primerica (PRI), and media company World Wrestling Entertainment (WWE). In addition to the previously mentioned sale of HOLI, QSV exited positions in US Ecology Inc. (ECOL), J&J Snack Foods (JJSF), Sensient Technologies (SXT), and airport operator Grupo Aeroportuario del Centro Norte (OMAB).

The QSV Quality Value Midcap Strategy returned 1.49% and 1.25%, gross and net of fees, for the quarter, leading both the Russell Mid Cap Value Index return of -1.01% and the Russell Mid Cap Index return of -0.93%. QSV added value in the Healthcare and Real Estate sectors, while Energy and Consumer Staples holdings detracted from strategy performance. Overall, security selection delivered more than 100% of the outperformance relative to the index during the quarter.

Quality Value Midcap Top Contributors

Microchip manufacturer Monolithic Power Systems Inc. (MPWR) was the top contributor to performance during the quarter. In the midst of a chip shortage, MPWR continues to progress in its transformation from a semiconductor device company to a technology solutions company, which we believe will drive meaningful revenue growth in the coming years. The mission of MPWR to reduce total energy consumption in end systems is well suited to the demands of its clients in the automotive, industrial, communications, and consumer end markets.

Icon PLC (ICLR) contributed to performance as shares were propelled by strong business results and optimism over expected synergies in its acquisition of PRA Health. ICLR is a late-stage contract research organization that provides drug development and clinical trial services to pharmaceutical, biotechnology, and medical device firms. While the business has operated globally, its purchase of PRA Health is expected to enhance these capabilities and deepen its relationships with clients including Pfizer.

Quality Value Midcap Top Detractors

Core Laboratories (CLB) dropped nearly 30% during the quarter, detracting from performance. CLB helps oil and gas companies better understand how to improve production levels and economics with core and reservoir analysis. Competitive advantages include its intangible assets (patents, proprietary technology, and human capital) and network effects (multi-client reservoir studies). Quarterly results were disappointing as COVID-19 related disruptions weighed on margin performance.

Shares of Scotts Miracle-Gro Company (SMG) declined sharply in September, in part due to investors’ concerns over the oversupply of cannabis in California. SMG’s Hawthorne division is a leading supplier of hydroponics products to the cannabis industry. While this news makes for click-worthy headlines, SMG remains the largest player in the U.S. gardening industry with a market share greater than 50% with its Scotts Miracle-Gro, Ortho, Tomcat, and Roundup brands. As a result, Scotts can charge materially higher prices than its competition. QSV added to its position on the weakness in share price.

Quality Value Midcap Portfolio Activity

As in the Quality Value Smallcap Strategy, portfolio activity was higher than typical as rising markets and volatility presented opportunities for taking gains and allocating to better opportunities. Positions added were management consulting firm Booz Allen Hamilton Holding Corp. (BAH), government health and human service provider Maximus Inc. (MMS), and Trinet Group Inc. (TNET), a provider of human resource solutions to small businesses. QSV exited its positions in US Ecology Inc. (ECOL), J&J Snack Foods (JJSF), SEI Investments (SEIC), and Waters Corp. (WAT).

The QSV Select Value Strategy returned 2.04% and 1.82%, gross and net of fees, leading the returns of -2.07% and -2.68% for the Russell 2500 Value and Russell 2500 Indexes, respectively. Select Value is a high conviction strategy that takes QSV’s “best ideas” from its Quality Value Smallcap and Quality Value Midcap strategies. Holdings in the Healthcare and Financials sectors aided returns, while the Consumer Staples and Energy sectors detracted. As with QSV’s Quality Value Smallcap and Midcap strategies, more than 100% of excess returns were a result of security selection in the Select Value strategy.

Select Value Top Contributors

Icon PLC (ICLR) was the leading contributor to performance. Our comments on ICLR are noted above. Shares of real estate management and investment firm Jones Lang LaSalle (JLL) rose over 25% as earnings results exceeded expectations. While some drivers behind this outperformance are temporary, the key drivers were the strong recovery in transactional leasing activity and the benefit of more permanent cost-saving measures. Competitive advantages of JLL include its retention rate of 90% when it takes over real estate management services from its clients.

Select Value Top Detractors

Core Laboratories (CLB) was the leading detractor to performance. Our comments on CLB are noted above.

Fair Isaac Corp. (FICO) detracted from performance as shares fell on disappointing aspects of its quarterly results. The company is a leading data and analytics company focused on predicting consumer behavior through its scores and software. FICO Scores serve as a benchmark “currency” in the U.S. consumer credit industry that are embedded in both industry processes and regulation, and in financial institutions’ systems and workflows. The scale advantage enjoyed by FICO supports high margins and free cash flows and the company produces Returns in Invested Capital of 12%.

Select Value Portfolio Activity

New positions in Booz Allen Hamilton Holding Corp. (BAH), CSG Systems International (CSGS), a leading provider of billing services to the cable, broadband and satellite industry, Maximus (MMS), and workforce solutions provider Insperity (NSP) were initiated in the Select Value strategy during the quarter. QSV exited its holdings in CBOE Global Markets (CBOE), J&J Snack Foods (JJSF), MGP Ingredients (MGPI), and Waters Corp. (WAT).

Our Focus on the Long Term

There is no shortage of risks in equity markets, including the above-mentioned uncertainty over fiscal and monetary policy, inflation concerns, and slowing economic growth. Tax policy looms as a potential impact to corporate margins and supply chain issues persist. While the potential impact of each of these is important for investors to consider, the macro future isn’t knowable. What we do know is the importance of maintaining a focus on fundamentals and quality businesses that have pricing power and persistent performance.

With 42% of the Russell 2000 companies lacking positive earnings in the trailing twelve months, we know that cheap money and government stimulus have propped up the market returns of low-quality companies. Selectivity will be critical in the coming months, and we will serve our clients through careful diligence and a continued attention to the sustainability of business performance and the price paid for each holding in our strategies.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors (BEM). Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are compared to the historical performance of the Russell Midcap Indices as they are a widely used benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM products and these indices. Furthermore, these indices do not include any transaction costs, management fees and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries risk of loss.

QSV Equity Investors, LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS report, please contact QSV at (844) 3-BALLAST.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.

QSV Equity Investors, LLC
Q2 2021 Commentary

More information including a since-inception performance for each of the strategies may be found at www.qsvequityinvestors.com.

Further reopening of the U.S. economy fueled robust economic growth and rising markets during the quarter. In just five memorable quarters, we have gone from a severe economic contraction and uncertainty to rapid recovery and increasing optimism. Estimated GDP growth of 9.4% for the second quarter buoyed this optimism and likely represents a peak before we return to more normal rates of growth. The near-term “voting machine” of the markets has propelled the stocks of cyclical companies tied to the recovery, companies with limited or no earnings, and those that rely on cheap liquidity. To a degree, this is understandable, as many of these stocks had been trounced in the downturn of early 2020, but QSV believes there is merit to focusing on businesses that possess pricing power and sustainable business models for the days ahead.

QSV Strategy Quarterly Performance

The QSV Quality Value Smallcap Strategy returned 2.97% and 2.83%, gross and net of fees, lagging both the Russell 2000 Value and Russell 2000 Indexes’ returns of 4.56% and 4.29%, respectively. Stocks of “QSV-like” businesses, those with less sensitivity to economic and credit cycles and with more sustainable business models, lagged more cyclical and higher beta stocks during the period. This was reflected in the nearly 500 basis points of outperformance posted by the Russell 2000 Dynamic (higher beta) Index relative to the returns of the Russell 2000 Defensive Index that contains businesses with higher Returns on Assets, lower leverage, and lower volatility. At a sector level, Utilities and Real Estate helped performance, while Communication Services and Healthcare hurt performance. Virtually all of our underperformance in Communication Services (and approximately one-half of QSV’s underperformance relative to the Index) was due to the contribution to the Index from meme stock AMC Entertainment that rose 455% in the quarter.

Quality Value Smallcap Top Contributors

Shares of National Storage Affiliates Trust (NSA) rose during the quarter as occupancy rates remained high. Self-storage REITs are operating in an increasingly strong environment, where extremely high occupancy levels along with strong demand are pushing the rates charged to new customers higher while existing customer rent increases are at high single to low double-digit levels. The acquisition of 23 properties also contributed to NSA’s growth during the quarter.
Lemaitre Vascular (LMAT) sales were impacted by a lower number of vascular procedures during the pandemic, yet LMAT continues to demonstrate strong business performance. LMAT engages in the design, sales, service, and technical support of medical devices and implants for the treatment of peripheral vascular disease. LMAT estimates it supplies over half of the 15,000 vascular surgeons and 4,500 hospitals worldwide. A competitive advantage is its focus on niche markets; LMAT has over 15 product lines where it maintains a #1 or #2 market share. This niche focus helps the business resist reimbursement pressures and generate an average return on invested capital of 14% over the last five years. The company’s new product pipeline will support strong future growth.

Quality Value Smallcap Top Detractors

Emergent BioSolutions (EBS) was the largest detractor to returns during the quarter. EBS is a leading maker of vaccines and other products that address public health threats. Quality control came into question at one EBS plant and 75 million doses of the Johnson & Johnson coronavirus vaccine produced there were destroyed because of suspected contamination. The company is also being investigated over allegations that they leveraged government contacts to win the vaccine production business and whether federal officials failed to oversee the firm’s work. QSV exited its position in EBS and will continue to monitor the company.

PaySign, Inc. (PAYS) shares were down during the quarter as the headwinds of the COVID pandemic on the company’s plasma business continued. PAYS has cited pandemic-related government stimulus programs and the current $300 weekly Federal unemployment aid payments (on top of state unemployment benefits) as disincentives for individuals to donate plasma. Revenues in the plasma segment were down 27% in Q1 2021 and headwinds are expected to continue into Q3. In spite of these challenges, QSV believes PAYS will remain strong in this segment where it intends to add a total of sixty new plasma centers in 2021, exiting this year with at least 400 centers, a growth rate of 18% over 2020. PAYS shares sell at a significant discount to QSV’s estimate of intrinsic value. QSV added to its position on weakness in the share price.

Quality Value Smallcap Portfolio Activity

Positions added during the quarter included Evertec, Inc. (EVTC), a payment processing and information technology consulting firm, workforce solution provider Insperity, Inc. (NSP), and food packaging company Karat Packaging, Inc. (KRT). Also added were Leslie’s, Inc. (LESL), the largest direct-to-consumer provider of pool and spa care services, and Zynex Inc. (ZYXI), a medical device manufacturer specializing in pain management products. In addition to the previously mentioned sale of EBS, QSV exited positions in firearms manufacturer Sturm Ruger & Co. (RGR), and Valmont Industries (VMI). NIC Inc. (EGOV) exited the portfolios as it was acquired by Tyler Industries.

The QSV Quality Value Midcap Strategy returned 6.75% and 6.50%, gross and net of fees, for the quarter, leading the Russell Mid Cap Value Index return of 5.66% while lagging the Russell Mid Cap Index return of 7.50%. Security selection helped performance in the Consumer Discretionary and Technology sectors and detracted from performance in the Materials sector.

Quality Value Midcap Top Contributors

Pool Corporation (POOL) was the top contributor to performance during the quarter. As the largest distributor of swimming pool supplies in the world and a leading distributor of landscape and irrigation products, POOL saw strong tailwinds during the shelter in place environment of the pandemic. We expect those positive trends to continue supported by the company’s large installed base of customers and the trend toward de-urbanization.
Index and portfolio analytics provider MSCI Inc. (MSCI) contributed to performance as shares were propelled by the growing adoption of environmental, social and governance (ESG) investing, which the company sees as a $3.9 billion revenue opportunity. Indexes provided by MSCI are an embedded part of a growing number of investment products, including exchange traded funds, and account for 75% of the company’s operating profits. The company produces 20% returns on invested capital and these “sticky” streams of revenue should support strong continued results.

Quality Value Midcap Top Detractors

Casey’s General Stores, Inc. (CASY) dropped nearly 10% during the quarter, detracting from performance. The operator of 2,200 convenience stores completed the purchase of the 94 store Bucky’s Convenience Stores chain. Business performance remains strong and CASY produced same store sales growth during the quarter in each of its business segments. CASY benefits from a geographic competitive advantage, as it is often the only store within miles of its competitors, and it owns 99% of its stores.

Quality Value Midcap Portfolio Activity

No new positions were initiated during the quarter nor were any positions sold in the Quality Value Midcap Strategy.

The QSV Select Value Strategy returned 4.31% and 4.09%, gross and net of fees, lagging the returns of 5.00% and 5.44% for the Russell 2500 Value and Russell 2500 Indexes, respectively. Select Value is a high conviction strategy that takes QSV’s “best ideas” from its Quality Value Smallcap and Quality Value Midcap strategies. Stock selection in the Consumer Discretionary and Financials sectors aided returns, while selection in the Materials and Information Technology sectors detracted. As with QSV’s Quality Value Smallcap strategy, robust returns of more cyclical small cap businesses created headwinds for Select Value, particularly the outsized returns within the Index of AMC Entertainment.

Select Value Top Contributors

National Storage Affiliates (NSA) and Pool Corporation (POOL) were the leading contributors to the performance of the Select Value Strategy during the quarter. Our comments can be found above.

Select Value Top Detractors

Emergent BioSolutions (EBS) and Scott’s Miracle-Gro, Inc. (SMG) were the leading detractors to the performance of the Select Value strategy and commentary is noted above.

Select Value Portfolio Activity

Payment processing and information technology consulting firm Evertec, Inc. (EVTC) was added as a high conviction holding to the Select Value strategy during the quarter, using the proceeds from the sales of Emergent BioSolutions (EBS) and PaySign, Inc. (PAYS).

Our Focus on the Long Term

U.S. equity markets have packed between one and two years of expected returns into the first six months of 2021. Economic activity has rebounded, and company earnings have been strong, coming off of a low base following the downturn. Supportive monetary and fiscal policy have also contributed to these results, although the stimulus from fiscal policy will fade in the second half of the year. We are pleased to have these returns and know our clients are, as well, but we caution that fundamentals matter and that elevated markets generally go hand in hand with higher risk. QSV always favors quality businesses, those with strong balance sheets and steady and growing free cash flows supported by durable competitive advantages. We see this emphasis on sustainable businesses purchased at reasonable valuations as critically important in the coming quarters, helping our investors navigate the opportunities and challenges that will come.

Disclaimer:

Returns are for the respective composites of QSV Equity Investors (BEM). Gross returns are calculated net of trading fees. Net returns are calculated net of trading fees and net of the firm’s management fee. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy are compared to the historical performance of the Russell Midcap Indices as they are widely used benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to the historical performance of the Russell 2000 Indices as they are widely used benchmarks for small capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical performance of the Russell 2500 Indices as they are widely used benchmarks for SMID capitalization securities. An investment with QSV Equity Investors should not be construed as an investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary between the BEM products and these indices. Furthermore, these indices do not include any transaction costs, management fees, and other expenses, as do the BEM Products. Lastly, BEM may invest in securities and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as personalized investment advice. Personalized investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Investing carries a risk of loss.

QSV Equity Investors , LLC claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of the CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS report, please contact QSV at (844) 3-BALLAST.
QSV Equity Investors, LLC is a registered investment advisor. For additional information about the firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov.