VAM Funds (Lux) Commentaries

March 2019 (click to download)

VAM US Micro Cap Growth Fund

The VAM Funds (Lux) – US Micro Cap Growth Fund performance benefitted from holdings in the information technology and financials sectors. Holdings in the industrials and healthcare sectors detracted from relative returns. At month end, the Fund was overweight the information technology sector and underweight the health care sector.

 

The holding that contributed the most to the Fund’s return during the month was Zscaler, Inc. (ticker: ZS-US). Zscaler is a leading cloud-based SaaS (software as a service) internet, mobile and network security provider. The broader software sector has been performing very strongly for several quarters (years in fact) with Zscaler specifically benefitting from an accelerating shift to SaaS-based solutions for mobile and network security, allowing them to continue to increase market share and post better-than-expected results each of the last several quarters. They reported stronger-than-expected second quarter results in late February (stronger top and bottom line, accelerating bookings and raised guidance once again) which led to the stock’s strong outperformance over the past month.

 

The holding that the detracted the most from the Fund’s return during the month was ShotSpotter, Inc. (ticker: SSTI). ShotSpotter is the leader in gunshot detection solutions that help law enforcement identify, locate and deter gun violence. The stock declined due to a secondary offering of 386,000 shares at a 5% discount. The Manager added to its position in the portfolio to take advantage of the lower price.

VAM US Small Cap Growth Fund

The VAM Funds (Lux) – US Small Cap Growth Fund performance was aided by holdings in the information technology and consumer discretionary sectors. Holdings in materials and health care detracted from relative returns. At month end, the Fund was overweight the consumer discretionary sector and underweight the industrials sector.

 

The holding that contributed the most to the Fund’s return during the month was Zscaler, Inc. (ticker: ZS-US). Zscaler is a leading cloud-based SaaS (software as a service) internet, mobile and network security provider. The broader software sector has been performing very strongly for several quarters (years in fact) with Zscaler specifically benefitting from an accelerating shift to SaaS-based solutions for mobile and network security, allowing them to continue to increase market share and post better-than-expected results each of the last several quarters. They reported stronger-than-expected second quarter results in late February (stronger top and bottom line, accelerating bookings and raised guidance once again) which led to the stock’s strong outperformance over the past month.

 

The holding that detracted the most from the Fund’s return during the month was RH (ticker: RH). RH is a curator of home furnishings in the luxury lifestyle market. Its share price fell after reporting first quarter results. After having given preliminary guidance for fiscal year 2020 January (“FY20”) a few months prior, the FY20 outlook was reduced due to weak sales trends during the intervening weeks. As a result, the Manager sold its position in the portfolio.

VAM US Mid Cap Growth Fund

The VAM Funds (Lux) – US Mid Cap Growth Fund performance benefitted from holdings in the information technology and consumer discretionary sectors. Holdings in the consumer staples and energy sectors detracted from relative returns. At month end, the Fund was overweight the consumer discretionary sector and underweight the industrials sector.

 

The holding that contributed the most to the Fund’s return during the month was Zscaler, Inc. (ticker: ZS-US). Zscaler is a leading cloud-based SaaS (software as a service) internet, mobile and network security provider. The broader software sector has been performing very strongly for several quarters (years in fact) with Zscaler specifically benefitting from an accelerating shift to SaaS-based solutions for mobile and network security, allowing them to continue to increase market share and post better than expected results each of the last several quarters. They reported stronger-than-expected second quarter results in late February (stronger top and bottom line, accelerating bookings, and raised guidance once again) which led to the stock’s strong outperformance over the past month.

 

The holding that detracted the most from the Fund’s return during the month was DexCom, Inc. (ticker: DXCM-US). DexCom, Inc. is a medical devices company commercialising best-in-class continuous glucose monitoring wearable devices for patients with diabetes. Shares fell during the month as expectations and enthusiasm built for the competitive launch from one of DXCM’s rivals (ABT). The ABT launch is expected between now and mid-2019, and there is uncertainty regarding whether the competitor’s technical capabilities and/or regulatory status will be inferior to or equal to DXCM’s, thus increasing uncertainty. As a result of these technical dynamics, the Manager reduced its position in the portfolio.

VAM US Large Cap Growth Fund

The VAM Funds (Lux) – US Large Cap Growth Fund performance benefitted from holdings in the information technology and utilities sectors. Holdings in consumer discretionary and financials sectors detracted from relative returns. At month end, the Fund was overweight the information technology sector and underweight the communication services.

 

The holding that contributed the most to the Fund’s return during the month was Apple Inc. (ticker: AAPL-US). Apple, Inc. engages in the design, manufacture and marketing of mobile communication, media devices, personal computers and portable digital music players. Apple was a positive contributor during the month of March due to a combination of a positive market environment and various company announcements. The company announced multiple product offerings including a credit card, video subscription services, as well as updates to some of its computer and IPAD offerings.

 

The holding that detracted the most from the Fund’s return during the month was Carnival Corporation (ticker: CCL-US). Carnival engages in the operation of cruise ships. Carnival was a detractor in the month of March during which the company reported earnings. While the company’s first quarter earnings were generally in line with expectations, analysts seemed to be underwhelmed with second quarter and fiscal year guidance including FX/fuel headwinds and mixed commentary around demand.

VAM Emerging Markets Growth Fund

The VAM Funds (Lux) – Emerging Markets Growth Fund performance was aided by holdings in the financials and communication services sectors, as well as in South Korea and India. Exposures to consumer discretionary and real estate, as well as in Hong Kong and China, detracted from relative returns. As of month end, the Fund was overweight Indonesia and underweight South Korea.

 

The holding that contributed the most to the Fund’s return during the month was HDFC Bank Limited Sponsored ADR (ticker: HDB-US). HDFC Bank is a leading private sector bank in India. The company benefitted from improving sentiment toward India ahead of the upcoming election and increased expectations that the central bank would continue to ease monetary policy. The bank continues to post above-market asset growth rates.

 

The holding that detracted the most from the Fund’s return during the month was Galaxy Entertainment Group Limited (ticker: 27-HK). Galaxy is a leading casino operator in Macau and is well positioned for value improving performance (VIP) and mass-premium traffic. The stock rallied 12% in January and February, and gave back some of those gains in March. Reasons for the giveback could include a tougher comparison base year over year in terms of gaming revenue and traffic, as well as growing concerns over competition from properties set to open in 2019, ahead of Galaxy’s new updates. The Manager continues to hold this name in the portfolio.

VAM World Growth Fund

The VAM Funds (Lux) – World Growth Fund performance was aided by exposures in the information technology and consumer discretionary sectors, as well as in the United States and Denmark. Exposures in consumer staples and materials, as well as in Brazil and South Korea, detracted from relative returns. As of month end, the Fund was overweight Brazil and underweight the United States.

 

The holding that contributed the most to the Fund’s return during the month was Zscaler, Inc. (ticker: ZS-US). Zscaler is a leading cloud-based SaaS (software as a service) internet, mobile and network security provider. The broader software sector has been performing very strongly for several quarters (years in fact) with Zscaler specifically benefitting from an accelerating shift to SaaS-based solutions for mobile and network security, allowing them to continue to increase market share and post better-than-expected results each of the last several quarters. They reported stronger-than-expected second quarter results in late February (stronger top and bottom line, accelerating bookings and raised guidance once again) which led to the stock’s strong outperformance over the past month.

 

The holding that detracted the most from the Fund’s return during the month was ORION CORP. (ticker: 271560-KR). Orion Corp is a South Korean based consumer staples company with operations in snacks, beverages and confectionery related items. Early signs of a consumer rebound in the second half of 2018 quickly fizzled out with weakening global trade and a weakening domestic economy (South Korea is highly dependent on global trade, which has been weakening for months due to the ongoing US/China trade war, etc.). As a result of the softer macro trends, the company reported weaker-than-expected results in mid-February which led to weakness in the stock for several weeks. Encouragingly, as global data looks poised to improve, the Manager expects a strengthening of the company’s fundamentals as we enter the summer and in to the second half of the year. The Manager continues to hold this name in the portfolio.

VAM International Real Estate Equity Fund

The VAM Funds (Lux) – International Real Estate Equity Fund performance was aided by exposures in South Africa and Japan, while exposures in the United Kingdom and Brazil detracted from relative returns. As of month end, the Fund was overweight Germany and Brazil, and underweight Japan and China.

 

A top contributor was Sumitomo Realty & Development, a leading Japan property company with strong positions in core office and condominium markets in Japan. The company outperformed given higher returns versus sector peers. Fundamentally, the Tokyo physical office market has been consistently improving for several years, with low vacancy rates and rising rental prospects, while the outlook for condos will be less robust. Investors have been sluggish to reward the Japanese developers shares, due to company’s low capital returns policies versus other sectors and historical valuation discounts to net asset value (“NAV”).

 

The biggest detractor was Capital and Regional plc. The United Kingdom based shopping centre operator struggled following disappointing full year results. The company reported NAV declines. It cut the dividend (fiscal year dividend -34% year over year) to preserve cash for capital expenditure and mitigate leverage. The company trades at a substantial discount to NAV, however, poor operating trends, negative investor sentiment on UK retail and rebasing of forward expectations have led to further share price weakness. The Manager continues to hold this name in the portfolio.

VAM International Opportunities Fund

The VAM Funds (Lux) – International Opportunities Fund performance was aided by holdings in the information technology and materials sectors, as well as in Japan and the Netherlands. Exposures to the industrials and communication services sectors, as well as in India and the United Kingdom, detracted from relative returns. As of month end, the Fund was overweight Canada and underweight Japan.

 

The holding that contributed the most to the Fund’s return during the month was Giant Manufacturing Co., Ltd. (ticker: 9921-TW). Giant Mfg. is a leading Taiwanese based manufacturer and distributor of bicycles globally with a strong sales presence across Asia, Europe and North America. After several years of a downcycle, the long anticipated upcycle recovery in the global bicycle market began in earnest in the fall of last year. With this acting as a tailwind, along with Giant’s increasing presence in e-bike’s (especially popular in Europe), a recovery taking hold in China, and the shift to higher margin products, the company reported stronger-than-expected results in November of 2018 and then again in March of this year. Two quarters in a row of stronger results have caught investor attention and given the market confidence that the long-awaited recovery and acceleration has finally commenced and is sustainable.

 

The holding that detracted the most from the Fund’s return during the month was Kinaxis, Inc. (ticker: KXS-CA). Kinaxis is a Canadian (Ottawa) based enterprise and supply chain management cloud software service provider. Similar to Zscaler, it is benefitting from a strong broad-based demand environment for software across a range of industries as companies attempt to increase efficiency, streamline operations, improve profitability and security, etc. Although the demand environment is quite robust, nothing in business is perfectly linear. Software order trends can and often will be quite lumpy from quarter to quarter, despite a strong secular spending trend. The company reported slightly disappointing results in late February due to “timing of large orders” but gave a reassuring outlook for the remainder of the year. Nevertheless, the market and its never-ending focus on the short term punished the stock for a few weeks due to the softer headline results. The Manager is confident in it delivering for the rest of the year and has maintained its position despite the short-term volatility.

Sources: Driehaus Capital Management LLC, FactSet Research Systems, Inc., Reuters and Bloomberg.

 

Featured securities were the top contributor to or detractor from return and were held by the Fund at some point during the month of March 2019. The performance numbers for the Fund are provided by VAM Funds (Lux). The performance discussed above represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance quoted.

 

The information presented is intended for the sole and exclusive use of VAM Funds and contains confidential information that should only be relied on by the intended recipient.

 

Disclaimer

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