Day: August 17, 2023

Market Abstract

With inflation regularly easing and the U.S. financial system holding agency, shares usually superior through the second quarter. Circumstances prompted U.S. Federal Reserve (“Fed”) officers to pause their aggressive rate-hike marketing campaign in June and forecast that the U.S. would keep away from a recession in 2023. Fed Chair Jerome Powell did assert, nevertheless, that markets ought to anticipate additional price will increase within the coming months, maybe as many as two extra by year-end.

Fueled by a surge in synthetic intelligence (AI)-related expertise shares, double-digit positive aspects in large-cap development shares led the inventory market increased, based on the Russell household of indices. Market volatility, as mirrored within the VIX Index, was largely benign through the interval and revisited pre-pandemic lows in June. Working counter to inventory traders’ basic optimism, bond traders drove short- and long-duration yields increased, additional sharpening the already inverted U.S. Treasury yield curve.

High 10 Holdings (% Of Portfolio)

Holding1 (topic to vary)	Weighting
Lamb Weston Holdings, Inc. (LW)	5.11%
Sally Magnificence Holdings, Inc. (SBH)	3.79%
Zoom Video Communications, Inc. (ZM)	2.98%
Microsoft Corp. (MSFT)	2.75%
Levi Strauss & Co. (LEVI)	2.66%
Dwell Nation Leisure, Inc. (LYV)	2.59%
DigitalBridge Group, Inc. (DBRG)	2.58%
Rivian Automotive, Inc. (RIVN)	2.57%
Apple, Inc. (AAPL)	2.20%
Labcorp (LH)	2.13%

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Fund Efficiency

The Meridian Hedged Fairness Fund (the “Fund”) superior 3.56% (Internet) through the quarter, trailing its benchmark, the S&P 500 Index, which gained 8.74%.

Our expertise is that outperformance is born out of capital preservation and avoiding giant drawdowns, particularly in risky intervals. When upward momentum in a choose group of firms drives the broader market increased, as we noticed through the three-month interval ending June 30, 2023, the Fund’s portfolio technique, which prioritizes the administration of danger over the chance for extra market return, is liable to underperformance.

Total, we work to keep up an “enduring” portfolio that may mitigate capital losses throughout turbulent bear market environments and expertise upside participation throughout robust bull markets. To attain that, we spend money on high quality companies which might be sustaining appreciable aggressive benefits, wholesome steadiness sheets, strong money circulation traits, and muted volatility traits.

At any given time, roughly half of the Fund is invested in such increased high quality, bigger capitalization firms with promising development prospects. The steadiness of the portfolio is invested in equities hedged in a risk-managed method the place extra opportunistic investments are married with choices in an effort to extend the margin of security and cut back draw back dangers. Underlying this method is our dedication to deep basic analysis, which serves because the core of our effort to steadiness draw back safety with upside potential.

Backside Three Detractors

Towards this backdrop, main detractors through the quarter included Levi Strauss & Co., Advance Auto Components, Inc. (AAP), and Goal Company (TGT).

Levi Strauss & Co. is a world attire firm recognized largely for its denim denims, and it distributes its merchandise by way of wholesale and retail channels. The inventory declined through the quarter regardless of quarterly revenues that met expectations and slight will increase in earnings and EBITDA as the corporate’s mainline brick-and-mortar shops carried out properly. Administration decreased full-year steering due largely to points in its U.S. wholesale phase, the place inflationary pressures and provide chain points weighed on the outlook. Administration is assured the corporate will overcome these challenges with minimal worth cuts, particularly as provide chain difficulties ease. The corporate additionally expressed optimism across the upcoming back-to-school season as order fill charges are nearing historic ranges. Individually, gross sales in China rebounded to pre-pandemic ranges, with development seen throughout all channels. Whereas encouraging, we’re monitoring developments and sustaining our place within the firm.

Advance Auto Components, Inc. is a U.S.-based specialty retailer that sells automotive aftermarket components, instruments, and equipment. Working greater than 4,800 shops, the corporate serves each skilled mechanics and do-it-yourself prospects. In the course of the quarter, the corporate reported disappointing monetary outcomes, together with declining gross sales, a shrinking working margin, and earnings per share that dramatically missed expectations. It additionally considerably decreased its dividend. Addressing the underperformance, administration cited elevated investments and an unfavorable product combine, elevating issues about rising worth competitors inside the trade. Furthering the cautious tone, Advance Auto Components decreased its full-year earnings outlook. Regardless of the various points, we maintained our publicity.

Goal Company is a basic merchandise retailer that sells all kinds of merchandise, together with clothes, dwelling items, groceries, and electronics by way of its community of greater than 1,800 shops within the U.S. and Canada and its on-line presence. Already contending with share loss to rivals, Goal slumped through the quarter amid weak spot in discretionary class gross sales, modest development in comparable retailer gross sales and retailer visitors, and a decline in comparable on-line gross sales. Comparatively robust gross sales of shopper staples helped offset the monetary affect and the corporate surpassed quarterly earnings per share expectations. Administration additionally mentioned it trimmed beforehand problematic stock ranges by 16% on a year-over-year foundation however foresees that total stock shrinkage, together with that ensuing from elevated theft exercise, will lower $500 million from the corporate’s full-year income. As we imagine the corporate’s challenges are transitory, we maintained our place.

High Three Contributors

Main particular person contributors inside the second quarter included Microsoft Company, Amazon.com, Inc. (AMZN), and Apple, Inc.

Microsoft Company is a diversified expertise firm that’s reaping the advantages of its technique of integrating its merchandise and tools-both presently and for potential future enterprise development. For instance, whereas spectacular positive aspects in its cloud enterprise fueled quarterly outcomes that exceeded expectations, ends in its gaming and promoting traces surpassed expectations, as did the division that sells the Home windows working system to third-party laptop producers. In the end, budget-conscious prospects are interested in built-in choices. In the meantime, Microsoft is quickly incorporating AI in its enterprise mannequin – past the 100 million customers of its ChatGPT chatbot. Choices similar to GitHub Copilot, which is an already launched AI-powered coding assistant; Workplace 365 Copilot, Copilot for Dynamics 365, Copilot for Viva Interact, and Safety Copilot are anticipated to create new income streams as prospects leverage AI expertise to reinforce productiveness. Happy with the present efficiency and optimistic about future development, we maintained our stake within the inventory.

Amazon.com, Inc. is a world e-commerce chief providing a various vary of shopper and enterprise merchandise along with on-line companies similar to cloud computing, digital streaming, and AI-enhanced options. Market expectations for Amazon improved through the quarter attributable to prospects of an acceleration within the firm’s net companies development and an upward flip in retail margins. Though the net companies division has been quickly affected by cloud optimizations, reductions, and ties to unprofitable tech firms, we imagine the impacts largely stem from prospects’ overinvestment through the pandemic and can finally show transitory. As we stay enthusiastic concerning the long-term outlook for Amazon’s net companies, we proceed to personal the inventory.

Apple, Inc. is a multinational expertise firm that designs, develops, and sells shopper electronics, laptop software program, and on-line companies. The corporate’s high-profile merchandise embody the iPhone, iPad, Mac laptop, Apple Watch, and companies similar to iTunes, Apple Music, and iCloud. In the course of the quarter, the corporate reported income, earnings, and gross margins that exceeded expectations due largely to robust iPhone gross sales. It additionally introduced its second $90 billion inventory repurchase program in a yr and upped its dividend. On the product entrance, the corporate unveiled its mixed-reality headset, the Apple Imaginative and prescient Professional, through the quarter. Priced at $3,499 and set to begin transport in early 2024, we imagine market adoption will likely be gradual, and the corporate’s main revenue sources will stay the iPhone and App Retailer for the foreseeable future. As we imagine these product traces will proceed to offer strong basic development, we maintained our publicity to Apple through the quarter.

Total, the Fund continues to largely be managed in a sector-agnostic manner, given our funding philosophy and method. Due to this fact, adjustments in sector weights through the quarter usually mirrored the efficiency of underlying holdings.

Outlook

Though traders largely cheered the Fed’s late-period resolution to halt its rate-hike marketing campaign, we remained cautious. Whereas the pause appeared to maneuver the central bankers nearer to a full cease on the speed will increase, which might be good day

constructive, the potential for an financial slowdown or recession amid labor market softening and decreased shopper spending continued to run excessive. As did the probability of declining company earnings, which traditionally has led to fairness market volatility. Though, such circumstances can doubtlessly result in compelling shopping for alternatives.

Regardless of the appreciable unknowns, we proceed to be ok with our conservative method of shopping for high-quality companies that we imagine will compound worth over the long run. Moreover, believing that out of volatility, alternative is born, we’re usually comfy with a lot of the portfolio’s positioning, together with our possibility exercise designed to offset a portion of the market’s potential draw back. No matter whether or not circumstances are good or poor, we persist with our playbook and prudently work to handle danger by leveraging deep basic company-level analysis reasonably than macroeconomic assessments. In the meantime, our cost stays to prioritize danger over return, even when which means buying and selling some incremental market upside for draw back safety. Via the mix of inventory choice and our lined name technique, we imagine our disciplined and conservative method to deploying capital is right for a market in transition.

Thanks to your continued partnership with ArrowMark.

Fund Whole Efficiency (As of 6/30/2023)

Share Class	Ticker	Gross Expense Ratio	Internet Expense Ratio	Inception Date	Three Month	1 12 months	Three 12 months3	5 12 months3	10 12 months3	Since Inception3,4
Class A Shares – No Load	MUTF:MRAEX	1.54%	1.54%	11/15/13	3.42%	11.05%	8.32%	10.21%	12.23%	8.93%
Class A Shares – With Load	MRAEX	1.54%	1.54%	11/15/13	-2.50%	4.65%	6.21%	8.91%	11.57%	8.58%
Class C Shares	MUTF:MRCEX	2.17%	2.00%	7/1/15	3.28%	10.60%	7.86%	9.76%	11.77%	8.77%
Investor Class Shares	MUTF:MRIEX	1.19%	1.19%	11/15/13	3.41%	11.38%	8.70%	10.57%	12.52%	9.20%
Legacy Class Shares	MUTF:MEIFX	1.20%	1.20%	1/31/05	3.56%	11.52%	8.70%	10.60%	12.63%	9.60%
S&P 500 Index2	–	–	–	–	8.74%	19.59%	14.60%	12.31%	12.86%	9.64%

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Previous to December 30, 2022, the Meridian Hedged Fairness Fund was often called the Meridian Enhanced Fairness Fund.

The Fund’s efficiency knowledge represents previous efficiency and doesn’t assure future outcomes. Present efficiency could also be decrease or increased than the efficiency knowledge proven. The funding return and principal worth of an funding will fluctuate in order that you might have a achieve or loss upon sale. You possibly can get hold of efficiency knowledge present to the newest month-end at Meridian Funds.

¹Listed holdings are offered for example examples of the securities the Fund has purchased and don’t symbolize the entire Fund’s holdings or future investments. Details about the Fund’s holdings shouldn’t be thought of funding recommendation. There is no such thing as a assure that the Fund will proceed to carry anybody specific safety or keep invested in anybody specific sector. Holdings are topic to vary at any time and are as of the date proven above.

² The Fund’s Index, the S&P 500® Index, is a generally acknowledged market-capitalization-weighted index of 500 broadly held fairness securities, designed to measure broad U.S. fairness efficiency. One can not straight spend money on an index.

³Efficiency is annualized.

⁴Since inception returns are calculated utilizing the Fund’s Legacy class inception date of 1/31/05.

A Class: Previous to 7/1/15, the A-Class was named Advisor Class. The historic efficiency proven for intervals previous to inception on 11/15/13 was calculated utilizing historic Legacy class efficiency as adjusted for estimated class-specific bills for distribution, shareholder servicing, and sub-transfer company charges with out consideration of any expense limitation or waivers. The annual gross expense ratio is 1.54% as of 12/30/22. The annual web expense ratio is 1.54% as of 12/30/22. If the category had been supplied previous to 11/15/13, the precise efficiency and bills could have differed from the quantities proven. Efficiency proven for sophistication A shares with load contains the Fund’s most gross sales cost of 5.75%. C Class: The historic efficiency proven for intervals previous to inception on 7/1/15 was calculated utilizing historic Legacy class efficiency as adjusted for estimated class-specific bills, for distribution, shareholder servicing, and sub-transfer company charges, with out consideration to any expense limitation or waivers. The annual gross expense ratio is 2.17% as of 12/30/22. The annual web expense ratio is 2.00% after a recoupment of 0.17% as of 12/30/22. If the category had been supplied previous to 7/1/15, the precise efficiency and bills could have differed from the quantities proven. Investor Class: The historic efficiency proven for intervals previous to inception on 11/15/13 was calculated utilizing historic Legacy class efficiency as adjusted for estimated class-specific bills for shareholder servicing and sub-transfer company charges with out consideration of any expense limitation or waivers. The annual gross expense ratio is 1.19% as of 12/30/22. The annual web expense ratio is 1.19% as of 12/30/22. If the category had been supplied previous to 11/15/13, the precise efficiency and bills could have differed from the quantities proven. Legacy Class: Legacy class shares of the Fund are now not accessible for buy by new traders, besides below sure restricted circumstances that are described within the Assertion of Further Data. The annual gross expense ratio is 1.20% as of 12/30/22. The annual web expense ratio is 1.20% as of 12/30/22.

Traders ought to contemplate the funding goal and insurance policies, danger issues, costs, and ongoing bills of an funding rigorously earlier than investing. The prospectus incorporates this and different info related to an funding within the fund. Please learn the prospectus rigorously earlier than you make investments or ship cash. To acquire a prospectus, please contact your funding consultant or entry the web site at Meridian Funds.

Principal Funding Dangers

There are dangers concerned with any funding. The principal dangers related to an funding within the Fund, which may adversely have an effect on its web asset worth, yield, and return, are set forth beneath. Please see the part “Additional Data About Principal Dangers” within the Prospectus for a extra detailed dialogue of those dangers and different elements you must rigorously contemplate earlier than deciding to spend money on the Fund. An funding within the Fund could lose cash and isn’t a deposit of a financial institution or insured or assured by the Federal Deposit Insurance coverage Company or another governmental company. Funding Technique Danger: The Funding Adviser makes use of the Fund’s principal funding methods and different funding methods to hunt to attain the Fund’s funding goal of long-term development of capital. There is no such thing as a assurance that the Funding Adviser’s funding methods or securities choice methodology will obtain that funding goal. Fairness Securities Danger: Fairness securities fluctuate in worth and worth in response to many elements together with historic and potential earnings of the issuer and its monetary situation, the worth of its property, basic financial circumstances, rates of interest, traders’ perceptions, and market liquidity. Market Danger: The worth of the Fund’s investments will fluctuate in response to the actions of particular person firms and the final inventory market and financial circumstances. Consequently, the worth of your funding within the Fund could also be roughly than your buy worth. Progress Securities Danger: As a result of development securities sometimes commerce at a better a number of of earnings than different varieties of securities, the market values of development securities could also be extra delicate to adjustments in present or anticipated earnings than the market values of different varieties of securities. As well as, development securities, at occasions, could not carry out in addition to worth securities or the inventory market basically and could also be out of favor with traders for various intervals of time. Small Firm Danger: Typically, the smaller the capitalization of an organization, the larger the danger related to an funding within the firm. The inventory costs of small-capitalization and newer firms are inclined to fluctuate greater than these of bigger capitalized and/or extra established firms and customarily have a smaller marketplace for their shares than do giant capitalization firms. Overseas Securities Danger: Investments in overseas securities could also be topic to extra dangers than these related to U.S. investments, together with foreign money fluctuations, political and financial instability, and variations in accounting, auditing, and monetary reporting requirements. Overseas securities could also be much less liquid than home securities so the Fund could, at occasions, be unable to promote overseas securities at fascinating occasions or costs. As well as, rising market securities contain larger danger and extra volatility than these of firms in additional developed markets. Vital ranges of overseas taxes are additionally a danger associated to overseas investments. Choices Danger: Choices on securities could also be topic to larger fluctuation in worth than an funding within the underlying securities. Buying and writing put and name choices are extremely specialised actions and entail nice than unusual investments. Glossary: Alpha: A measure of efficiency on a risk-adjusted foundation. Alpha compares the volatility (worth danger) of the Fund to the risk-adjusted efficiency of the benchmark Index. Free money circulation is a measure of an organization’s monetary efficiency, calculated as working money circulation minus capital expenditures. Choices are monetary derivatives bought by an possibility author to an possibility purchaser. The contract gives the customer the precise, however not the duty, to purchase (name possibility) or promote (put possibility) the underlying asset at an agreed-upon worth throughout a sure time frame or on a selected date. CBOE Volatility Index (VIX): The VIX Index is a monetary benchmark designed to be an up-to-the-minute market estimate of the anticipated volatility of the S&P 500 Index, and is calculated by utilizing the midpoint of real-time S&P 500® Index (SPX) possibility bid/ask quotes. Worth-to-earnings: A valuation ratio of present share worth in comparison with its per-share working earnings over the earlier 4 quarters. Foundation Level: A typical unit of measure for rates of interest and different percentages in finance. One foundation level is the same as 1/100th of 1%, or 0.01%, or 0.0001, and is used to indicate the share change in a monetary instrument.

ALPS Distributors, Inc., a member FINRA, is the distributor of the Meridian Mutual Funds, suggested by ArrowMark Colorado Holdings, LLC. ALPS, Meridian, and ArrowMark are unaffiliated.

The statements and opinions expressed on this commentary are as of the date of the commentary. All info is historic and never indicative of future outcomes and is topic to vary.

Authentic Put up

Editor’s Observe: The abstract bullets for this text had been chosen by Searching for Alpha editors.

Editor’s Observe: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.