Mid Cap Growth Commentary

December 31, 2009

The Driehaus Mid Cap Growth Composite (the “Strategy”) performed in line with its benchmark, the Russell Midcap Growth Index (the “Index”), during the fourth quarter.

At quarter end, the Strategy’s two largest underweightings versus the Index were in the Financials and Industrials sectors. A combination of the Strategy’s underweight allocation in both sectors and stock selection in the Industrials sector contributed to return; however, stock selection in the Financials sector detracted from return.

As a result of accelerating sales and increased earnings growth rates, the Strategy’s two largest overweightings versus the Index were in the Consumer Discretionary and Materials sectors. A combination of the Strategy’s overweight allocation in both sectors and stock selection in the Consumer Discretionary sector detracted from return; however, stock selection in the Materials sector contributed to return.

Key detractors from return over the quarter included holdings in the Consumer Discretionary, Health Care and Financials sectors.  Contributing to return over the quarter were holdings in the Industrials, Materials and Information Technology sectors. 

Driehaus Capital Management LLC (the “Adviser”) continues to monitor low inventories in the Information Technology sector.  If this continues to persist, it may provide better margins for the semi-conductor and technology areas relative to past cycles. Combine this with any demand/sell-through rebound or any pent up demand from the low levels of spending during the recent recession and it might prove beneficial to the sector.  Additionally, there appears to be a growing shift in e-commerce spending, increase in broadband usage, and an increase in smartphone usage, which the Adviser looks to capitalize on.

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 mid cap 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 Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values.  The performance data includes reinvested dividends. The performance data includes reinvested dividends. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 30% of the total market capitalization of the Russell 1000 Index.