VAM Funds (Lux) Commentaries

October 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 discretionary and financials sectors detracted from relative returns. At month end, the Fund was overweight the information technology, financials and consumer discretionary sectors, and underweight in the health care sector.

The holding that contributed the most to the Fund’s return during the month was Reata Pharmaceuticals, Inc. (ticker: RETA). Reata Pharmaceuticals, Inc. is a development stage drug company focused on diseases associated with metabolic dysfunction. In October, Reata released high level details from a phase 3 study in patients with Friedreich’s Ataxia, indicating the study had succeeded. Shares of Reata have rallied over 100% on the news, and the Manager has reduced the position modestly in light of this outperformance.

The holding that detracted the most from the Fund’s return during the month was James River Group Holdings Ltd (ticker: JRVR-US). James River Group owns and operates a group of specialty insurance and reinsurance companies. The stock declined in response to an announcement that James River Group would cease writing insurance for its largest client, Uber Technologies, and that it would need to increase loss reserves for commercial auto policies written in prior years. The Manager felt that commercial auto losses may continue to get worse and necessitate additional reserves, so the Manager sold its position.

VAM US Small Cap Growth Fund

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

The holding that contributed the most to the Fund’s return during the month was Reata Pharmaceuticals, Inc. (ticker: RETA). Reata Pharmaceuticals, Inc. is a development stage drug company focused on diseases associated with metabolic dysfunction. In October, Reata released high level details from a phase 3 study in patients with Friedreich’s Ataxia, indicating the study had succeeded. Shares of Reata have rallied over 100% on the news, and the Manager has reduced the position modestly in light of this outperformance.

The holding that detracted the most from the Fund’s return during the month was Enphase Energy, Inc. (ticker: ENPH-US). Enphase Energy is a solar inverter manufacturer. The company reported earnings in October and guided US residential revenues to be flat sequentially. These results were below market expectations, resulting in some multiple compression, causing the stock to decline. The Manager maintains a position in Enphase Energy as the core inverter business remains robust and it looks forward to its new energy management platform, Ensemble Solution, to be released in early December. Ensemble has potential to be a disruptive solution and a material upside driver in the year 2020.

VAM US Mid Cap Growth Fund

The VAM Funds (Lux) – US Mid Cap Growth Fund performance benefitted from holdings in the consumer discretionary and health care sectors. At month end, the Fund was overweight the consumer discretionary and industrials sectors. The Fund was underweight the health care and information technology sectors.

The holding that contributed the most to the Fund’s return during the month was Roku, Inc. (ticker: ROKU). Roku is an ‘Over The Top’ streaming platform company. Although there was no company specific news to drive strong performance during October, the stock rallied sharply, reversing much of the September market related sell-off as its decline was not based on company specific fundamentals.

The holding that detracted the most from the Fund’s return during the month was Enphase Energy, Inc. (ticker: ENPH-US). Enphase Energy is a solar inverter manufacturer. The company reported earnings in October and guided US residential revenues to be flat sequentially. These results were below market expectations, resulting in some multiple compression, causing the stock to decline. The Manager maintains a position in Enphase Energy as the core inverter business remains robust and it looks forward to its new energy management platform, Ensemble Solution, to be released in early December. Ensemble has potential to be a disruptive solution and a material upside driver in the year 2020.

VAM US Large Cap Growth Fund

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

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 sale of smartphones, personal computers, tablets, wearables and accessories, and other variety of related services. Apple was up during October, after the company posted better-than-expected fiscal fourth quarter revenue and earnings per share against what analysts noted were fairly elevated expectations.

The holding that detracted the most from the Fund’s return during the month was Progressive Corporation (ticker: PGR-US). Progressive Corp. is an insurance holding company which engages in the provision of personal and commercial auto insurance, residential property insurance, along with other specialty property-casualty insurance and related services. Progressive was down during October as discussion around its earning release was mixed with lower underlying margins and net investment income noted negatives.

VAM Emerging Markets Growth Fund

The VAM Funds (Lux) – Emerging Markets Growth Fund performance was aided by holdings in the industrials and health care sectors, as well as in Saudi Arabia and China. As of month end, the Fund was underweight in Saudi Arabia and underweight in South Korea.

The holding that contributed the most to the Fund’s return during the month was Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. (ticker: TSM-US). Taiwan Semiconductor Manufacturing is the world’s largest independent semiconductor foundry. The stock outperformed in October on the back of strong third quarter earnings. They are seeing strong growth as a result of the adoption of the new 5G wireless standard and high-performance computing. They meaningfully raised their capex guidance, which is a bullish signal for future demand.

The holding that detracted the most from the Fund’s return during the month was PagSeguro Digital Ltd. Class A (ticker: PAGS-US). PagSeguro is a Brazilian merchant acquirer and payment processor. The stock underperformed in October after third quarter results disappointed (higher costs and slightly softer volume growth). The stock was also pressured due to the announcement that its controlling shareholder was further reducing its stake.

VAM World Growth Fund

The VAM Funds (Lux) – World Growth Fund performance was aided by exposures in the health care and consumer discretionary sectors, as well as in Brazil and Hong Kong. Exposures in industrials and information technology sectors, as well as in Japan and Germany, detracted from relative returns. As of month end, the Fund was overweight in Brazil and underweight in Japan.

The holding that contributed the most to the Fund’s return during the month was Roku, Inc. (ticker: ROKU). Roku is an ‘Over The Top’ streaming platform company. Although there was no company specific news to drive strong performance during October, the stock rallied sharply, reversing much of the September market related sell-off as its decline was not based on company specific fundamentals.

The holding that detracted the most from the Fund’s return during the month was Enphase Energy, Inc. (ticker: ENPH-US). Enphase Energy is a solar inverter manufacturer. The company reported earnings in October and guided US residential revenues to be flat sequentially. These results were below market expectations, resulting in some multiple compression, causing the stock to decline. The Manager trimmed its position but continues to maintain a small position as it believes in the medium-term outlook for the company and its recently launched new energy management platform, Ensemble Solution. Ensemble has the potential to be a disruptive solution and a material upside driver in the year 2020.

VAM International Real Estate Equity Fund

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

The holding that contributed the most to the Fund’s return during the month was Cyrela Brazil Realty SA Empreendimentos e Participacoes (ticker: CYRE3-BR). Cyrela is a leading Brazilian middle-high income homebuilder with large exposure to Sao Paolo (the most attractive market in Brazil housing sector). Following a pause in the share performance during August and September, Cyrela shares rallied during October. The share price strength was driven by improvement in sector sentiment, including additional capital raisings within the Brazilian homebuilder sector. New mortgages linked to inflation and increased mortgage availability, improving affordability, and new launches market supporting growth.

The holding that detracted the most from the Fund’s return during the month was Sumitomo Realty & Development Co., Ltd. (ticker: 8830-JP). Sumitomo Realty and Development is one of the major Japanese developers. Shares slightly underperformed during the month, as investors favoured Japanese real estate investment trusts over developers. Overall performance has lagged year-to-date on some concerns over deceleration on return of equity. Valuation remains attractive at material discounts to net asset value. More supportive shareholder policies for developers may help close the discount.

VAM International Opportunities Fund

The VAM Funds (Lux) – International Opportunities Fund performance was aided by holdings in the information technology and financials sectors, as well as in Japan and Spain. As of month end, the Fund was underweight Japan and overweight the United Kingdom.

The holding that contributed the most to the Fund’s return during the month was Li Ning Company Limited (ticker: 2331-HK). Li Ning is the leading designer and manufacturer of sports apparel, equipment and shoes in China. The company has been experiencing very strong top and bottom line growth for the past few years as consumption, the growth of the middle class, and increasing awareness of exercise and a more fit lifestyle proliferate in China. There was no company specific news to drive strong performance during the month, just the continuation of strong trends since reporting better-than-expected results and outlook in mid August.

The holding that detracted the most from the Fund’s return during the month was Ubisoft Entertainment SA (ticker: UBI-FR). Ubisoft is a global leading developer and distributor of video games and educational software. In late October, the company reported weaker-than-expected second quarter results and gave a weaker outlook, citing falling demand for some of their hit titles, as well as delays in some of their new game launches that were expected to drive the next leg of growth for the company. The Manager has substantially reduced its position with plans to exit the position entirely eventually.

Sources: Driehaus Capital Management LLC, FactSet Research Systems, Inc., Reuters, Yahoo Finance 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 October 2019.
The performance numbers for the Funds 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.

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