Pear Tree Funds N-CSRCertified annual shareholder report (management investment company)

For the fiscal year ended March 31, 2023, the market backdrop was challenging for our style of investing in smaller sized growth companies. Macro concerns, including inflationary pressures, rising interest rates, trade disputes with China, war in Ukraine, bank failures, political polarization and a slowing economy have caused investors to seek the relatively safe haven of stocks of larger companies. Heightened investor trepidation causes shrinking investment horizons and falling valuations of high growth companies. While the Fund trailed its main benchmark, it outperformed the Wilderhill Clean Energy Index (1), which returned (37.60)% over the same trailing one-year period. The Fund’s outperformance versus this more thematic benchmark is due to stock selection. The three biggest contributors to Fund performance over the past year were SMA Solar Technologies AG (a German manufacturer of solar inverters), SunOpta Inc. (a manufacturer of organic foods and non-dairy milk products) and Nibe Industrier AB (a Swedish manufacturer of heat pumps). Our largest detractors were Aspen Aerogels (a manufacturer of high efficiency insulation products used in industrial products and electric vehicles), Kornit Digital Ltd. (a manufacturer of digital printers used in the textile industry), and Generac Holdings (a manufacturer of backup generators and related energy storage products).

Our trading activity is often targeted at the underlying volatility in our portfolio companies -- trim when they advance too much and add when they fall too much. Given the weakening economy and difficult financing environment, we sold companies with weaker balance sheets such as Sunnova and Sunrun. Other sales included solar inverter manufacturer SMA Solar Technologies AG and energy software provider PSI Software AG. New purchases included wind energy related companies Vestas and TPI Composites, battery company Enovix and water company Zurn Elkay Water Solutions.

We are constructive on the outlook for the Fund. The fundamental underpinnings for clean technology stocks are strengthening: technology advances continue to drive down costs and customer demand continues to rise. In addition to helping to solve for our world’s environmental problems, our portfolio companies produce products and services that slow inflationary pressure and reduce business risk for their customers. While the demand case continues to strengthen, the relative valuations of our portfolio companies are as inexpensive as we can recall.

Outperformance was due to absolute gains in Industrials and Consumer Discretionary, where the Fund was overweight. Detractors included Information Technology (IT), Consumer Staples and Financials. At the country level, the portfolio had notable results in France, Japan and Sweden; decliners included Norwegian banks, Taiwan tech companies and Irish food suppliers.

Post-pandemic travel/work reopening drove demand at Elis SA, the French laundry service. The company resumed hotel/office services, while maintaining its defensive volumes. Elsewhere in Industrials, Tecnoglass Inc. had impressive organic growth, concentrating on U.S. lucrative geographies; a strong supply chain helped capture business from competitors.

In the Consumer Discretionary sector, D’Ieteren Group hired a new CEO for Belron, their global glass repair business. The CEO has a long tenure integrating M&A activities, which will be a boon for Belron as it continues its acquisitive growth initiatives. Jumbo, the Greek toy company, had impressive earnings with sales up due to brick-and-mortar expansion into other countries.

Technip Energies, a French energy engineering company, had solid momentum in its New Energy order book, partnering with Baker Hughes and Shell on energy construction that lower emissions. The company also landed sizeable project management/engineering awards with Middle East oil companies.

Several IT stocks were impacted by industry-wide weakness, including AEM Holdings, Tripod Technology and Elite Material, the latter of which was also penalized for a COVID-induced plant shutdown in Shanghai. In consumer staples, Greencore Group, Nomad Foods and C&C Group dropped on higher input costs and eroding consumer confidence in Europe.

Canada’s goeasy was down when the federal government capped the annual interest rate on loans at 35% from the previously allowable 47%. The company still expects earnings growth even with this new policy. Loan loss provisions at Nordic banks are set to climb in 2023, as macro-economic challenges (rising interest rates) weigh on commercial real estate exposure. The Fund’s Norwegian banks fell on this expectation.

We strategically repositioned the Fund, adding more defensive companies and reducing weightings in economically sensitive sectors and geographies. The Fund exited a dozen stocks, with capital reallocated to new purchases including: Future PLC, a U.K. publishing company; Open House Group, a Japanese affordable single-family home developer; CIE Automotive, the Spanish auto components manufacturer; the aforementioned Technip Energies NV; German discount brokerage firm, flatexDEGIRO; and France-based Rubis, which distributes petroleum and LPG products in the Caribbean and North Africa.

The Fund had absolute positive performance in Industrials, Materials and both consumer sectors, offset by notable declines in Financials and Information Technology (IT). At the country level, holdings in France, Italy, Japan, Mexico and Sweden boosted results, as did single stocks in Greece, Belgium, Spain and Singapore. The U.K.’s economic scheme met with skittish investors and a currency depreciation; most U.K. stocks fell on the news. Holdings in Taiwan also underwhelmed.

Industrial sector gains were led by JAC Recruitment Co., the Japanese staffing firm, which recorded impressive earnings in its domestic recruitment division. Mexican airport holdings recovered strongly as vacation travel resumed to local hotspots.

Jumbo SA, the Greek retailer of baby/children products, led the Consumer Discretionary sector. Among other sector stocks posting double-digit gains, Australia’s footwear company, Accent Group, noted resilient purchasing power among its young consumer base. Games Workshop Group announced a contract with Amazon to develop TV and film content based on their Warhammer 40k intellectual property. Conversely, Collins Foods reported lower profits because of higher cost headwinds in Australia and Europe.

SOL Group, the Italian industrial gases supplier, was the single largest contributor for the period, announcing robust full year 2022 results. In Consumer Staples, Canada’s Alimentation Couche-Tard Inc. posted strong net earnings, increasing merchandise and service revenues and good fuel margins on successful cost controls.

Financials detracted most. Muangthai Capital lost ground as the Thailand motorcycle financing company saw consumer loan originations slow. Canada’s goeasy was down when the federal government capped the annual interest rate on loans at 35% from the previously allowable 47%. FirstRand was down on a weakening South African economy. Among IT companies, Elite Material Co. was hurt by a weakening demand for electronic devices and a COVID-induced plant shutdown in Shanghai. Other IT decliners included Tripod Technology Corp., Know IT AB and Hansen Technologies.

During the period, the Fund exited nearly a dozen stocks, most of which were sold as they reached Polaris’ upper valuation limits. Capital was reallocated to new buys including Future PLC, a U.K. publishing company; Singapore commercial bank, United Overseas; U.K. concrete landscape manufacturer, Marshalls PLC; British foodservice company, SSP Group; DFDS, the world’s largest ferry operator; SOL SpA, an Italian industrial gas/medical service company; and Fullcast Holdings, a temporary staffing firm out of Japan. A number of banks were also added to the portfolio, as were five new Consumer Discretionary stocks.