Small Cap Recovery Growth Commentary

December 31, 2009

The Driehaus Small Cap Recovery Growth Composite (the “Strategy”) outperformed its benchmark, the Russell 2000 Growth Index (the “Index”), by 262 basis points during the fourth quarter. 

Key contributors to return for the fourth quarter included holdings in the Consumer Discretionary and Materials sectors. Performance for the quarter was constrained by stock selection in the Financials and Energy sectors.

At quarter end, the Strategy was overweighted to the Consumer Discretionary and Energy sectors and underweighted to the Information Technology and Health Care sectors versus the Index.

The Consumer Discretionary sector represented the largest weighting in the Strategy. The Strategy increased its exposure to the Consumer Discretionary and Health Care sectors over the quarter.  Exposure to the Information Technology and Financials sectors was reduced over the quarter.

During the quarter, the Strategy identified many interesting themes including: technology companies levered to the growth in applications utilizing light emitting diodes (LED) technology, including LED televisions; weight loss companies which saw reinvigorated growth via new distribution channels; an improvement in the U.S. advertising outlook causing many media stocks to rise from depressed levels; and materials companies levered to improved global growth (especially in China) driving appreciation in industrial metal prices and related companies.

NOTES

Sources: Driehaus Capital Management LLC, FactSet, Morgan Stanley Capital International and Standard & Poor’s Global Industry Classification Standard, Russell Indices, and the Wall Street Journal.

The performance numbers represent a composite of small cap recovery growth accounts managed by Driehaus Capital Management LLC.  These numbers are estimated for the period as all underlying accounts have not yet been reconciled. All rates of return include reinvested dividends and other earnings and are net of fees and brokerage commissions. The performance data shown above represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted.

The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The performance data includes reinvested dividends. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index.