Portfolio Drivers: Consumer Discretionary and Industrials

Key Takeaways

» The strategy seeks 30 mid-cap stocks between $2 and $25 billion in market capitalization with value and momentum characteristics.

» Following its most recent rebalance, the portfolio is diversified across 8 of 11 sectors; its largest weighting is in Consumer Discretionary.

» Drivers of performance over this next year could be the overall growth of the economy, the health of the consumer, and the strength of energy and industrial related stocks.

» The Fund’s median price-to-sales ratio is attractive at 0.9x as of October 31, 2026, half of the Russell Midcap® Index’s 1.7x.

What is the Fund’s investment strategy?

The Cornerstone Mid Cap 30 Fund utilizes a formula to select 30 domestic, mid-cap stocks with market capitalizations between $2 and $25 billion that exhibit both value and momentum characteristics. The formula selects stocks with higher year-over-year earnings, positive stock price appreciation, and lower price-to-sales ratios. The universe of mid-cap stocks is screened using these criteria, and the portfolio is rebalanced annually, generally in the fall. Each stock is weighted equally at approximately 3.3% of the portfolio at the onset of the rebalance, although stock price movements can cause relative weights to change over time.

What is the median market capitalization of the Fund’s holdings following the most recent rebalance?

The Fund selects its holdings from a universe of stocks with market capitalizations ranging from $2 billion to $25 billion. As of October 31, 2026, the median market cap of the Fund was $8.3 billion, up slightly from last year’s $7.8 billion after the rebalance in 2025. We continue to believe that small and mid-cap stocks offer attractive returns as well as diversification compared to the larger stock universe.

Would you please discuss the composition of the Fund?

Following the most recent annual rebalance in the fall of 2026, the Fund’s holdings include stocks representing 8 of the eleven GICS (Global Industry Classification System) sectors with the exceptions being Communication Services, Real Estate, and Utilities, which are three of the smallest sectors in the index. The three largest sector exposures are Consumer Discretionary, Industrials and Energy, each with six holdings. This year, we retained one of the 30 holdings from last year’s portfolio, The Cheesecake Factory. Inc. (CAKE), which we refer to as a “keeper”. Finally, while the Fund overall remains highly concentrated in merely 30 stocks, we note that this year’s portfolio is diversified across 18 different GICS sub-industries.

How does the Fund’s portfolio differ from its benchmark?

In general, the Fund typically differs greatly from the Russell Midcap® Index and maintains a high Active Share, which measures how much a mutual fund’s holdings differ from its benchmark. As of October 31, 2026, the Fund’s Active Share is currently 98.7%, on a scale where 100% means that there is no position in common with the index.

On a sector basis, Consumer Discretionary is the most overweight compared to the benchmark. We believe Consumer Discretionary stocks could continue to benefit from an improving economy and continued strong employment and wage trends. Energy is the second most significantly overweight sector. We believe that given geopolitical uncertainty as well as continued strong demand, the prospect of elevated energy prices could provide a positive backdrop for energy related companies. Further, if the economy remains strong and the AI buildout continues, energy companies would likely benefit from continued firm demand for oil, natural gas and related products. Additionally, the Fund is slightly overweight Industrials and significantly underweight Information Technology, further emphasizing the Fund’s differentiation.

Are there common investment themes in the current portfolio?

With over 41% of the portfolio concentrated in the Industrials and Consumer Discretionary sectors, we believe that primary drivers of relative performance this year will include the overall growth of the economy as well as the health of the consumer. While the Fed is expected to continue to raise interest rates, according to data compiled by Bloomberg, we believe that the prospect of reduced inflationary pressure could provide meaningful relief to consumers. In addition, the Energy sector, which is currently 18% of the portfolio, could provide additional strong performance and could be a differentiating factor of the overall relative performance of the Fund.

Would you please discuss the relative valuation of the Fund’s holdings compared with the benchmark?

Attractive valuation is an important part of the Fund’s stock selection process. The Fund uses price-to-sales as its primary valuation metric because it is a simple metric, it can be universally applied, and it is difficult for companies to manipulate. The Fund selects stocks with price-to-sales ratios below 1.5x. The median price-to-sales ratio of the portfolio was 0.9x as of October 31, 2026, compared to 1.7x for its benchmark index, the Russell^® Midcap Index.

The Fund’s holdings are also trading at a discount in terms of price-to-earnings. The Fund’s median estimated forward price-to-earnings ratio was 14.4x as of October 31, 2026, versus 19.2x for its benchmark index.