VAM Funds (Lux) Commentaries

May 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 health care and information technology sectors. Holdings in the consumer staples and real estate sectors detracted from relative returns. At month end, the Fund was underweight the health care sector and overweight the consumer staples sector.

 

The holding that contributed the most to the Fund’s return during the month was Kratos Defense & Security Solutions, Inc. (ticker: KTOS-US). Kratos is a provider of unmanned systems and government systems solutions, primarily to the US government. The strong performance was attributed to the company reporting stronger-than-expected earnings per share for its March 2019 quarter and providing a positive update on some the company’s defence programs.

 

The holding that detracted the most from the Fund’s return during the month was Crocs Inc. (ticker: CROX-US). Crocs Inc. is a leader in innovative casual footwear. While first quarter 2019 revenue and earnings were ahead of consensus and full year guidance was reiterated, margins were guided below consensus for second quarter 2019, implying a more back-end loaded earnings trajectory for 2019. This, along with tariff fears, pressured the stock and the Manager reduced its position as a result.

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 health care sectors. Holdings in materials and utilities detracted from relative returns. At month end, the Fund was overweight the information technology sector and underweight the materials sector.

 

The holding that contributed the most to the Fund’s return during the month was Roku, Inc. Class A (ticker: ROKU-US). Roku is a leading provider of internet-enabled devices and content for live audio and video streaming. They are a top beneficiary of the ongoing “cutting the cord” move away from traditional cable television providers, and strategically positioned to benefit from the shift to digital video services. In early May, they reported very strong first quarter results with continued strong growth in new user accounts and streaming metrics. This led to outsized stock performance as there were concerns of slowing trends, which proved to be unfounded. All growth metrics tracked by the company actually accelerated substantially above both company and analyst consensus estimates.

 

The holding that detracted the most from the Fund’s return during the month was Ingevity Corporation (ticker: NGVT-US). Ingevity is a specialty chemical manufacturer supplying the adhesive, detergents, agricultural and metal industries. The stock has been a long-term holding for the Manager, since its initial public offering (“IPO”) in May of 2016, repeatedly reporting better-than-expected sales and earnings growth every quarter. In early May, they reported first quarter results that missed consensus expectations with slower revenue growth for the first time in three years. This led to significant short-term underperformance in the share price. The Manager reduced its weighting, but continues to hold a position, as it believes the intermediate to longer-term outlook for the company remains intact.

VAM US Mid Cap Growth Fund

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

 

The holding that contributed the most to the Fund’s return during the month was Roku, Inc. Class A (ticker: ROKU-US). Roku is a leading provider of internet-enabled devices and content for live audio and video streaming. They are a top beneficiary of the ongoing “cutting the cord” move away from traditional cable television providers, and strategically positioned to benefit from the shift to digital video services. In early May, they reported very strong first quarter results with continued strong growth in new user accounts and streaming metrics. This led to outsized stock performance as there were concerns of slowing trends, which proved to be unfounded. All growth metrics tracked by the company actually accelerated substantially above both company and analyst consensus estimates.

 

The holding that detracted the most from the Fund’s return during the month was Ingevity Corporation (ticker: NGVT-US). Ingevity is a specialty chemical manufacturer supplying the adhesive, detergents, agricultural, and metal industries. The stock has been a long-term holding for the Manager, since its initial public offering (“IPO”) in May of 2016, repeatedly reporting better-than-expected sales and earnings growth every quarter. In early May, they reported first quarter results that missed consensus expectations with slower revenue growth for the first time in three years. This led to significant short-term underperformance in the share price. The Manager reduced its weighting, but continues to hold a position, as it believes the intermediate to longer-term outlook for the company remains intact.

VAM US Large Cap Growth Fund

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

 

The holding that contributed the most to the Fund’s return during the month was Total System Services, Inc. (ticker: TSS-US). The company is an American credit card processor, merchant acquirer and bank credit card issuer. The stock traded positively following the report that payment technology company, Global Payments would be acquiring TSS for about $21.5 billion. The deal is expected to close during the fourth quarter of 2019.

 

The holding that detracted the most from 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. The stock declined due to an increase in macro activity including US-China trade-talk tensions.

VAM Emerging Markets Growth Fund

The VAM Funds (Lux) – Emerging Markets Growth Fund performance was aided by holdings in the consumer discretionary and financials sectors, as well as in China and India. Exposures to materials and utilities, as well as in Taiwan and Malaysia, detracted from relative returns. As of month end, the Fund was underweight in China and underweight in Taiwan.

 

The holding that contributed the most to the Fund’s return during the month was HDFC Bank Limited Sponsored ADR (ticker: HDB-US). HFDC Bank is a leading bank in India offering diversified banking services across the country. The stock performed strongly again during the month on a combination of supportive macro and micro trends. On the macro level, the recent elections were taken positively by the market and the company specifically was rewarded for its superior momentum in deposit mobilisation relative to peers, given challenging liquidity conditions for many players in the sector.

 

The holding that detracted the most from the Fund’s return during the month was Tencent Holdings Ltd. (ticker: 700-HK). Tencent, a digital platform and gaming company, underperformed in May. The stock was negatively impacted by weakness in the domestic advertising market and China’s stock market broadly selling off due to escalating trade war tensions. Tencent also reported their first quarter results during the month, which were mixed versus consensus expectations.

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 United States and Brazil. Exposures in materials and energy services, as well as in the Germany and Norway, detracted from relative returns. As of month end, the Fund was underweight in the United States and overweight in Germany.

 

The holding that contributed the most to the Fund’s return during the month was Roku, Inc. Class A (ticker: ROKU-US). Roku is a leading provider of internet-enabled devices and content for live audio and video streaming. They are a top beneficiary of the ongoing “cutting the cord move” away from traditional cable television providers, and strategically positioned to benefit from the shift to digital video services. In early May, they reported very strong first quarter results with continued strong growth in new user accounts and streaming metrics. This led to outsized stock performance as there were concerns of slowing trends, which proved to be unfounded. All growth metrics tracked by the company actually accelerated substantially above both company and analyst consensus estimates.

 

The holding that detracted the most from the Fund’s return during the month was Ingevity Corporation (ticker: NGVT-US). Ingevity is a specialty chemical manufacturer supplying the adhesive, detergents, agricultural and metal industries. The stock has been a long-term holding for the Manager, since its initial public offering (“IPO”) in May of 2016, repeatedly reporting better-than-expected sales and earnings growth every quarter. In early May, they reported first quarter results that missed consensus expectations with slower revenue growth for the first time in three years. This led to significant short-term underperformance in the share price. The Manager reduced its weighting, but continues to hold a position, as it believes the intermediate to longer-term outlook for the company remains intact.

VAM International Real Estate Equity Fund

The VAM Funds (Lux) – International Real Estate Equity Fund performance was aided by exposures in Hong Kong and Germany, while exposures in Japan and Macau detracted from relative returns. As of month end, the Fund was underweight Hong Kong and underweight Japan.

 

The holding that contributed the most to the Fund’s return during the month was Mitsubishi Estate Company, Limited (ticker: 8802-JP). When reporting full year results, the company announced notable improvement regarding shareholder returns which was appreciated by the market. The company announced sizable share buyback (to buy back up to 4.7% shares outstanding) and chose not to renew “takeover defense measures” scheduled to expire end 2019. Fundamental trends remain healthy in Japan property markets, with the office market posting low vacancy rates and improving rents.

 

The holding that detracted the most from the Fund’s return during the month was Sands China Ltd. (ticker: 1928-HK). Sands China is a leading Macau integrated resorts owner and operator. Share price performance in May was weak for the company and sector, as concerns of escalation in trade war between US and China led to a deterioration of investor sentiment. Market and company fundamental outlook remains intact with strong medium-term growth expectations for mass market growth, as continuously improving infrastructure development comes online, rising disposable incomes, with industry sustaining strong free cash flow generation.

VAM International Opportunities Fund

The VAM Funds (Lux) – International Opportunities Fund performance was aided by holdings in the information technology and health care sectors, as well as in Italy and Canada. Exposures to the communication services and materials sectors, as well as in Austria and Norway, detracted from relative returns. As of month end, the Fund was overweight Italy and overweight Norway.

 

The holding that contributed the most to the Fund’s return during the month was Nihon Unisys, Ltd. (ticker: 8056-JP). Nihon Unisys is a leading provider of information technology consulting services and implementations in Japan. They were early pioneers in the DX (digital transformation) wave, upgrading legacy systems across multiple industries from finance to manufacturing to automotive, and are now considered the ‘go to’ solutions provider. They are benefitting from accelerating growth in higher margin services as these industries seek to improve their technology and efficiency after years of underinvestment. In mid-May, they reported very strong fourth quarter results, with better-than-expected profitability driven by consulting implementations and stronger future bookings allowing them to raise their outlook for the second half of the year. Given the strong underlying trends in their end markets, the Manager believes these raised expectations will prove to be conservative.

 

The holding that detracted the most from the Fund’s return during the month was ams AG (ticker: AMS-CH). AMS provides technology hardware devices such as sensors, microphones, and noise cancelling/low power consumption semiconductors to the smartphone, tablet and auto industries. After working through a yearlong inventory correction that had negatively impacted their revenue and profit structure, the Manager believed fundamentals had troughed and it was inflecting positively exiting the first quarter of 2019. The company did, in fact, report stronger-than-expected first quarter results in late April. However, the company gave a somewhat cautious outlook due to ongoing weakness in some end markets, but more importantly due to increasing uncertainty in the US-China trade war and the potential negative implications for demand, particularly in China, as trade restrictions continue to escalate. The Manager continues to hold its position as it believes once the trade conflict reaches some sort of compromise, the company stands to benefit from a recovery in their end markets.

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 May 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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