The fourth quarter of 2024 was characterized by continued volatility in the U.S. small/mid-cap growth sector.  Building on the momentum from the third quarter, when the Russell 2500® Growth Index rose by +6.99%, the market faced both opportunities and challenges in the final quarter of 2024.  Factors such as the election, the Fed’s monetary policy, and geopolitical tensions played significant roles in shaping market dynamics.  Despite pulling back from intra-quarter gains as high as +11.99%, the Russell 2500® Growth Index still ended in the black, rising +2.43% in the fourth quarter.  This brings the index’s 2024’s total gains to +13.90% for the year.  Hood River’s bottom-up, fundamental research process continued to demonstrate its resilience in the quarter despite the volatile markets – the Hood River New Opportunities Fund gained +7.86% in the fourth quarter, outpacing the benchmark by +543 basis points (“bps”).  This brings the strategy’s since inception performance to +31.70%, or +1863 bps ahead of the benchmark. A table of longer-term performance is provided below.

	Q4 2024	Since Inception
New Opportunities Fund (Inst)	7.86%	31.70%
Russell 2500® Growth Index	2.43%	13.07%
HRNOX vs Benchmark	5.43%	18.63%

Performance quoted represents past performance for the Fund’s institutional class shares and there is no guarantee of future results.  The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost.  Current performance may be higher or lower than the performance data quoted above.  Please call 800-497-2960 to obtain current and the most recent month-end performance data.  Short term performance may reflect conditions that are unsustainable and may not be repeated or consistently achieved in the future.  An investment should not be made based solely on returns.  The gross expense ratio: 7.05%; net expense ratio (contractual through August 5, 2027) 0.95%.  Performance would have been lower without limitations in effect.  Fund inception: 08/05/2024.

The fund’s outperformance in the fourth quarter was almost entirely driven by stock selection (+490 bps), with industrials, financials, and consumer discretionary representing the most significant contributors.  Healthcare and information technology detracted in the quarter.  Sector weightings for the fourth quarter were also additive to alpha.

Expanding on the fourth quarter volatility mentioned earlier, the pullback in the last few weeks of 2024 was similar to the rotation we witnessed in July: lower market cap, cyclical, and lower momentum names outperformed while positive earnings revision stories were out of favor.

One of the most significant market-affecting events of the quarter was undoubtedly the U.S. elections.  As mentioned in our Q3 commentary, we did not specifically adjust our portfolio based on any election outcomes.  However, we remained vigilant in avoiding any implicit biases.  While we did slightly underperform the day after the election, we regained the lost ground in the subsequent weeks.

The Federal Reserve also influenced market movements in the fourth quarter by hinting at a more gradual decrease in interest rates than previously anticipated.  The Fed’s approach is grounded in data, and currently, the data does not support a more rapid rate cut.  Despite a recent decline from previous highs, inflation remains moderately above the central bank’s targeted rate of 2%.  With the economy performing well and the yield curve showing a positive slope, there is no immediate pressure to decrease rates, in our view.  Additionally, potential tariffs on imports from certain countries proposed by the new administration could spur inflationary pressures, prompting the Fed to await further developments and their potential effects.

Portfolio positioning heading into 2025 is fairly tight to the benchmark’s sector weights as no sector is more than +/- 150 bps of the Russell 2500® Growth Index.  This is not a reflection of attempting to stay tight to the benchmark but merely a reflection of where we are finding the best ideas.

After speaking with 100s of management teams during the quarter, it is evident that many companies are optimistic about the potential opportunities in 2025. The incoming administration in Washington is expected to prioritize deregulation which should streamline permitting processes and cut through bureaucratic red tape. This shift is anticipated to have positive impacts broadly on the economy.  Some examples could include increasing energy supply, improving merger and acquisition activity, and accelerating commercial loan growth. Overall, there is a noticeable improvement in sentiment and we are eager to see how this translates into tangible results for the year 2025.

Lastly, regarding valuations, the S&P 500® Index (“S&P 500”) is getting a little pricey in our view: it is trading at 23.9x 2025 and 21.2x 2026 earnings, which are top-quartile multiples for the index.  Large cap stocks also look expensive on other metrics, such as cyclically-adjusted P/E ratios.  Conversely, although the Russell 2500® Growth Index’s absolute valuation of 19.4x ’26 earnings is slightly higher than normal, it is not too far from normal.  In relative terms, small-mid cap growth appears much more attractive than the S&P 500, trading at an 8% discount to the S&P 500 for 2026 compared to a more typical premium of 20%.  Additionally, we expect the deregulation mentioned earlier to benefit small businesses, further supporting our favorable outlook on small-mid caps as we head into 2025.

We sincerely appreciate your ongoing trust and partnership with Hood River. We look forward to connecting with many of you in the upcoming months.  Please do not hesitate to contact our marketing team with any inquiries or assistance — thank you again for your support.

Brian Smoluch & David Swank

Basis Points (“bps”) is a unit of measure used to describe the percentage change in the value of an investment. Price/Earnings Ratio (“P/E”) is defined as the proportion of a company’s share price to its earnings per share.  Alpha is defined as the excess return versus the benchmark when adjusted for risk. Earnings are a company’s profit after taxes.  Yield curve is a line that pots the yields or interest rates of bonds that have equal credit quality but different maturity dates.  The slope of the yield curve predicts the direction of interest rates and the economic expansion or contraction that could result.  The S&P 500 Index is a market-capitalization weighted index of 500 leading publicly traded companies in the U.S.

Investment Considerations:

All investing includes risk, including the loss of principal.  The Fund invests in small-cap and mid-cap securities which present a great risk of loss than large-cap securities, and in growth companies which can be more sensitive to the company’s earnings and more volatile than the stock market in general.  The Fund may also invest in foreign securities which are subject to risks including currency fluctuations, economic and political change and differing accounting standards.  The Fund may invest in derivatives and IPOs, which are highly volatile.  The Fund is a recently organized investment company with no operating history.  As a result, prospective investors have no track record or history on which to base their investment decision.  Additional risk information may be found in the prospectus.

All information in this report is as of December 31, 2024, unless otherwise indicated.  The benchmark is the Russell 2500 Growth Index, defined as an unmanaged, capitalization weighted index featuring 2500 stocks from the Russell 3000 universe that have small and mid-cap market capitalizations. Index returns include dividends and/or interest income and do not reflect fees or expenses. In addition, unlike the composite, which periodically maintains a cash position, the Russell 2500® Growth Index is fully invested.   Investors cannot directly invest in an index.

Investors should carefully consider the Fund’s investment objective, risks, charges, and expenses before investing.  For a prospectus, which contains this and other important information about the Fund, please call 800-497-2960.  Please read the prospectus carefully before investing or sending money.

The Hood River New Opportunities Fund is distributed by Quasar Distributors, LLC.  Hood River Capital Management LLC serves as the advisor to the Hood River New Opportunities Fund.

NOT FDIC INSURED-NO BANK GUARANTEE-MAY LOSE VALUE