GREENSPRING F U N D
Dear Fellow Shareholders: During the second quarter of 2016, the net asset value of Greenspring Fund advanced by 2.31%, bringing the total gain for the six months ended June 30 to 6.04%. The Fund’s year-to-date performance compares very favorably to the major market indicies, as the Dow Jones Industrial Average and the S&P 500 Index have gained 4.31% and 3.84%, respectively, while the NASDAQ has suffered a loss of -3.29%. For most of the second quarter, the financial markets were relatively calm, continuing to rebound from the sharp selloff experienced earlier this year. As the quarter progressed, despite mixed economic reports, the global economy continued its slow advance, as most central banks continued to supply liquidity aggressively in an effort to stimulate economic activity and provide a favorable backdrop for investment. The relative calm was broken on June 23, following the United Kingdom’s vote to leave the European Union (“Brexit”). Global equity markets sold off sharply after the vote, as the lack of any precedent for such an event created an atmosphere of heightened uncertainty and investors feared that near-term political turmoil might cause businesses to delay spending plans until the actual effects of Brexit were more fully understood. Conversely, in a flight to safety, investors aggressively purchased government bonds, pushing bond yields to record lows in many parts of the world, including the U.S. After a dramatic two-day sell-off, the equity markets rebounded during the last week of the quarter and recovered almost all the ground lost due to the Brexit vote. The rebound was partly driven by investor perceptions that global Central Banks would provide sufficient liquidity to dampen any ill effects caused by Brexit, allowing the broader global financial environment to remain supportive of financial assets. Furthermore, the instability in China that had spooked markets earlier in the year appeared to be contained and the U.S. economy
August 2016 Greenspring Fund Performance for the Periods Ended June 30, 2016 Quarter Year to Date 1 Year 3 Years* 5 Years* 10 Years* 15 Years* 20 Years* Since inception on 7/1/83* Expense Ratio**
2.31% 6.04% -0.42% 2.01% 4.24% 4.64% 6.02% 6.79% 9.16% 0.96%
* Annualized. ** As stated in Prospectus dated 5-1-16. See note on last page of letter. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 1-800-366-3863 or by visiting www.greenspringfund.com. The Fund imposes a 2.00% redemption fee for shares held 60 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced. continued to plod forward, although its modest growth rate remained below historical standards. In contrast to the equity market, the government bond market did not reverse its post-Brexit movement, as yields continued to hover near record lows, with the majority of short-term European government bonds trading with negative yields.
INFLUENCES on FUND PERFORMANCE Nearly two-thirds of the equity securities held by the Fund produced positive results, with strong returns from a handful of securities more than offsetting the total decline of those few holdings that lost ground during the quarter. During the last few quarters, we have emphasized equity investments in companies that we believe not only have strong future prospects, solid balance sheets and deep management teams, but also derive a significant portion of their revenues from U.S.-based activities. Our decision to focus on domestically-oriented companies contributed positively to the performance of the Fund as several of these companies not only benefitted from growth in the underlying domestic economy, but also were less impacted by the negative effects of the relatively strong U.S. dollar and the turbulence in certain global economies. The equity securities that had the greatest influence on the Fund’s performance during the quarter, in order of magnitude, were Silicon Graphics International, FTI Consulting, Gramercy Property Trust, MasTec, Inc., Republic Services and EOG Resources. With the exception of Silicon Graphics, all of these holdings produced positive returns. Silicon Graphics, a leading manufacturer of highperformance computing systems, reported first quarter earnings in line with investor expectations, but a disappointing near-term outlook caused the stock price to decline. The reduced outlook was due to a change in ordering patterns from a Federal Government agency that resulted in increased uncertainty regarding future sales. Additionally, the expected timing of certain large orders from the Federal Government and two international customers was pushed out to later this year. Despite the recent success of new commercial products and partnerships, the Company’s earnings remain heavily influenced by its business with the Federal Government, which has proven to be difficult to predict on a quarter-byquarter basis. FTI Consulting provides high-level professional consulting services related to financial, economic and legal matters to large corporate and government clients
globally. FTI reported significantly better than expected financial results for the first quarter, driving a substantial increase in its stock price. Although the balance of the year is not likely to be as strong as the exceptional first quarter, FTI raised its earnings guidance for the year. We are encouraged that new management, in place since early 2014, continued to execute on its plan to position the Company for consistent organic growth combined with improving profit margins. Gramercy Property Trust is a real estate investment trust that specializes in acquiring and managing single-tenant, net-leased industrial and office properties. At the end of 2015, Gramercy completed the opportunistic acquisition of Chambers Street Properties with the goal of repositioning the acquired portfolio of properties by selling certain multi-tenant office-oriented properties and redeploying the cash into single-tenant industrial properties. As 2016 progressed, Gramercy moved quickly to dispose of the assets earmarked for sale and has been able to sell assets at a faster pace than anticipated, while achieving attractive prices. At the same time, Gramercy was able to identify and purchase additional properties on a pace consistent with its original plan. Solid fundamental performance, an attractive dividend and significant progress on the asset repositioning plan combined to push Gramercy’s stock price higher during the quarter. Greenspring Fund Top 10 Holdings
Republic Services, Inc. Gramercy Property Trust, Inc. Emcor Group, Inc. Novanta, Inc. MasTec, Inc. Lumos Networks Corp. Discover Financial Services MYR Group, Inc. The AES Corporation Southern National Bancorp of Virginia
% of Net Assets as of 6/30/16
4.5% 4.4% 3.4% 3.1% 3.0% 2.8% 2.8% 2.7% 2.5% 2.4%
MasTec, an engineering and construction company, and Republic Services, a waste management company, both reported first quarter earnings in line with expectations. These companies experienced a solid start to the year and both management teams expressed strong confidence in the fundamental outlook for their businesses over the next several quarters, leading investors to push up their stock prices. The fixed income securities held by the Fund once again provided steady consistent positive performance throughout the quarter, with the vast majority of the securities performing according to our expectations. Often, high yield bond prices move in a similar manner to the equity markets, but with far less volatility. As the equity markets sold off in response to the Brexit vote, prices of many longer dated high yield bonds declined, driving bond yields higher. The short duration nature of many of the fixed income securities held by the Fund, however, insulated the portfolio from much of this price volatility.
Corporation, ServiceMaster Global Holdings and Marriott International. We also purchased additional shares in several existing equity holdings including Kroger Co., Hanesbrands, Inc. and PGT, Inc. at what we considered very attractive prices. We sold all the Fund’s shares in CF Industries Holdings, ESSA Bancorp and Middleburg Financial Corporation, as the shares either reached our calculation of full value or fundamentals shifted, causing us to reevaluate our future valuation outlook. We also trimmed the position size in a number of the Fund’s equity holdings as the share prices continued to post strong gains for the year, including FTI Consulting, Novanta, Inc., MasTec, Inc., CA, Inc., and EOG Resources. Given a less certain outlook, we continued to reduce holdings in Silicon Graphics International, Harmonic, Inc. and Rush Enterprises.
Greenspring Fund Portfolio Allocation as of June 30, 2016
As anticipated, and in similar fashion to recent quarters, a significant number of the Fund’s fixed income holdings were called for redemption, as companies continued to take advantage of the low interest rate environment to refinance higher cost debt. We did sell the Fund’s remaining holdings in the debt of Hanger, Inc., due to what we considered to be a less favorable risk/reward scenario.
Corporate Bonds 16% Common/ Preferred Stocks 70%
PORTFOLIO ACTIVITY During the quarter, we initiated several new common stock positions and purchased additional shares in a number of existing holdings. The most significant new common stock purchases included shares in LKQ
During the second half of 2016, we anticipate that investors will be focused on politics, as the U.S. election begins to take center stage, and the U.K., as well as the broader European Union, begins to deal with the ramifications of Brexit. Despite the fact that politics are inherently unpredictable, it appears that unless a sudden shock disrupts the economy, or conditions improve to a level that pushes the Federal Reserve to raise interest rates, the current slow-growth economic environment may be sustained for quite some time. Expectations for an interest rate increase continue to shift, as the Brexit vote seemed to cause investors to rule out a summer increase, while the more recent recovery in global markets has, once again, raised investor expectations for a rate increase before year-end. Given these various uncertainties, we believe investors should maintain modest expectations.
The market constantly presents challenges for all investors but at the Greenspring Fund we remain focused on our goal of keeping the Fund properly positioned to achieve attractive returns within the current market environment,
while achieving those returns with a reduced level of volatility. We thank you for your investment in Greenspring Fund and your confidence in our continuing efforts to staunchly protect and grow your capital.
Charles vK. Carlson Portfolio Manager and Co-Chief Investment Officer
Michael J. Fusting Co-Chief Investment Officer
**Total Annual Fund Operating Expenses for the Fund will not correlate to the Ratio of Expenses to Average Net Assets shown in the Fund’s most recent Annual Report and in the Financial Highlights section of the Prospectus, which reflects the operating expenses of the Fund and does not include acquired fund fees and expenses. Mutual fund investing involves risk. Principal loss is possible. Small and mid-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Investments by the Fund in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Opinions expressed are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Current and future portfolio holdings are subject to risk. Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration. The Dow Jones Industrial Average is a broad based unmanaged index comprised of 30 actively traded large-capitalization stocks. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The Nasdaq stock market comprises two separate markets, namely the Nasdaq National Market, which trades large, active securities and the Nasdaq Smallcap market that trades emerging growth companies. It is not possible to invest directly in an index.
The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The summary and statutory prospectuses contain this and other information about the Fund, and may be obtained by calling 1-800-366-3863 or visiting www.greenspringfund.com. Please read the Fund’s Prospectus carefully before investing.