Section Hero Funds

21st Century Fund

21st Century Fund

3Q20 Commentary1

Coming off one of the biggest drops in economic activity in history during the second quarter, we opened the third quarter with a strong recovery in both economic indicators and equity markets in general. However, as we sit here today, COVID-19 cases are increasing in Europe and many parts of the U.S., the President and numerous White House staff have recently tested positive for the virus, another fiscal stimulus package has reached a stalemate, and we are witnessing continued social unrest ahead of the approaching Presidential election. In spite of these September headwinds, equity markets posted a strong positive quarter. 


Given the impact the COVID-19 pandemic has had on our lives over the past several months, we have been monitoring various data points on a daily basis related to the progression of the virus. These include the number of new positive cases, the percent of tests coming back positive, hospitalizations, and overall hospital capacity. We track this data at the country, state, and municipal levels. Interestingly, from mid-June to the end of July, we saw daily case growth and hospitalizations more than double, and while new cases surpassed the prior peak in the first quarter, peak hospitalizations remained similar. We believe this can be attributed to improvements in treatments and testing, a better prepared health care system, and younger, generally healthier age cohorts representing a larger percentage of those testing positive. During August, positive cases and hospitalizations came down considerably, however, we are now seeing signs of a resurgence in positive case growth, primarily in Europe and in several U.S. regions, which we will continue to monitor. By performing these analyses, we have sought to position our portfolios to reflect the impact that changes in the progression of the virus may have on our holdings.


In fiscal policy news, politicians continued to jockey over a stalled fifth COVID-19-related relief package. All in, the proposed price tag is now estimated to be in the $1.6 trillion range. Although a pre-election compromise on an entire relief package doesn›t appear likely, as of this writing, smaller relief legislation targeted at particularly vulnerable industries, such as airlines, is being discussed. Although the two sides appear to remain far apart when it comes to the size, scope and timing of a comprehensive stimulus bill, we expect an eventual compromise on a package or another significant package post-election. 

On the monetary side, Federal Reserve Board Chairman Powell stressed that the Fed remains committed to using its tools to do what it can, for as long as it takes, to ensure the economic recovery will be as strong as possible. He also reiterated that, despite the extent of the recovery thus far, the path ahead for the economy remains “highly uncertain.” Powell has repeatedly said that more fiscal support is needed, and that “even if policy actions prove to be greater than needed, they will not go to waste.”


On the health care front, antiviral drugs such as Gilead Science›s remdesivir have become more widely available and we continue to witness progress on the race for a vaccine. In late September, Johnson & Johnson (J&J) announced that it had begun phase three trial testing of its potential COVID-19 vaccine. J&J is the fourth drug maker backed by the Trump administration›s vaccine program “Operation Warp Speed” to enter late-stage testing. The others are Moderna, Pfizer and AstraZeneca. This development coincides with President Trump›s speculation that the U.S. could find a safe and effective vaccine this Fall and have enough vaccine doses to inoculate every American by April 2021, although some health care experts are skeptical that those goals can be met.

 

After national employment statistics bounced back strongly in the second quarter, with the June jobs number reflecting an all-time record increase, employment gains slowed during the third quarter. Although July and August each posted more than a million new payroll jobs, September job gains totaled 661,000, the smallest gain since May of this year, suggesting the U.S. labor market has been losing a bit of traction, as noted by Fed Chairman Powell in recent testimony in the U.S. Senate. In September the unemployment rate fell to 7.9%, a drastic improvement since the crisis began, although still higher than the historical average


In terms of market capitalization, large cap stocks posted loftier gains than small cap stocks, as the Russell 10002,3 and Russell 20002,3 indexes posted quarterly returns of +9.47% and +4.93%, respectively. A larger gap of outperformance was present among investment styles as growth stocks were clearly in favor. The Russell 1000 Growth2,3 and the Russell 1000 Value2,3 indexes posted quarterly returns of +13.22% and +5.59%, respectively.

The Marsico 21st Century Fund posted a return of +9.78% for the third quarter and modestly outperformed its benchmark, the Russell Midcap Growth Index2,3, which returned +9.37%.

Primary Contributors5Stock selection in the Health Care sector4 had the largest positive impact on performance during the quarter, as the majority of the holdings in this sector outperformed that of the benchmark index. Stock selection was also strong in the Real Estate and Materials sectors, contributing positively to results.

Primary Detractors5: Weak stock selection in the Consumer Discretionary and Communication Services sectors, two of the stronger-performing sectors of the benchmark index, had the largest negative effect on performance during the quarter.

 

For more information, please click here for the Marsico 21st Century Fund Quarterly Investment Update.


1 Performance data quoted represents past performance. Past performance is no guarantee of future results. A Fund's performance, especially for short time periods, should not be the sole factor in making an investment decision. Please keep in mind that our views on investments discussed herein are subject to change at any time and the holdings represented here do not represent all of the securities purchased, sold, or recommended by Marsico Capital Management, LLC ("MCM"). Certain less-material factors may not be presented.

2 The Russell Midcap Growth Index (the “Underlying Index”) measures the performance of the mid-capitalization growth sector of the U.S. equity market, and is composed of mid-capitalization U.S. equities that exhibit growth characteristics. It is a subset of the Russell Midcap® Index, which measures the performance of the mid-capitalization sector of the U.S. equity market. The Underlying Index measures the performance of equity securities of Russell Midcap Index issuers with higher price-to-book ratios and higher forecasted growth.  The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership, and includes the reinvestment of dividends. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership, and includes the reinvestment of dividends. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values, and includes the reinvestment of dividends. The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values, and includes the reinvestment of dividends.
The indexes mentioned above are unmanaged and not available for direct investment. For comparison purposes, it should be noted that the indexes do not charge fees and have no expenses

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2018. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is/are used by any other LSE Group company under license. “TMX®” is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company›s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Sector and industry weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by and is the exclusive property and service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s (“S&P”), and is licensed for use by MCM. Neither MSCI, S&P, MCM, nor any third party involved in compiling GICS makes any express or implied warranties or representations with respect to such standard or classification (or the results from use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any such standard or classification. MSCI, S&P, and MCM, and any of their affiliates or third parties involved in compiling GICS shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Source: UMB Fund Services, Inc., FactSet and Marsico Capital Management, LLC (“MCM”). Data shown such as portfolio holdings, percentages, country, and sector weightings generally applied on the date shown above, and may have changed substantially since then. References to specific securities and sectors are not recommendations to buy or sell such securities or related investments.

 

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