VAM Funds (Lux) Commentaries
April 2023 (click here to download)
VAM US Micro Cap Growth Fund*
The Fund’s holdings assigned to the consumer discretionary and consumer staples sectors were the largest source of positive relative returns. Holdings in the information technology and communication services sectors detracted from relative returns. At month end, the Fund was overweight the consumer staples and industrials sectors, and underweight the financials and energy sectors.
The holding that contributed the most to the Fund’s relative returns during the month was Nuvalent, Inc. (Ticker: NUVL-US). Nuvalent, Inc. is a clinical stage biopharmaceutical company developing novel drugs to treat solid tumours. In April, data presented at a medical meeting as well as an investigator commentary were both perceived as positive for a data read-out coming in the second half of 2023 which caused the company’s stock to appreciate. The company will present first-in-man data on its ALK inhibitor in the second half of 2023, which the Manager expects to be positive.
The security that detracted the most from the Fund’s relative returns during the month was Prometheus Biosciences, Inc (Ticker: RXDX-US). Prometheus Biosciences, Inc is a clinical stage biopharmaceutical company developing novel drugs to treat inflammatory bowel disease. In April, RXDX accepted a take-over offer from Merck (MRK), causing the company’s stock to trade up substantially. Although RXDX was a positive contributor for the Fund, it was a larger weighting for the benchmark which made it a top detractor for the month.
VAM US Small Cap Growth Fund
At month end, holdings assigned to the consumer staples and industrials sectors were the largest source of positive relative returns. Holdings in the information technology and health care sectors detracted from relative returns. At month end, the Fund was overweight the consumer discretionary and industrials sectors, and underweight the energy and health care sectors.
The holding that contributed the most to the Fund’s relative returns during the month was Nuvalent, Inc. (Ticker: NUVL-US). Nuvalent, Inc. is a clinical stage biopharmaceutical company developing novel drugs to treat solid tumours. In April, data presented at a medical meeting as well as an investigator commentary were both perceived as positive for a data readout coming in the second half of 2023 which caused the company’s stock to appreciate. The company will present first-in-man data on its ALK inhibitor in the second half of 2023, which the Manager expects to be positive.
The holding that detracted the most from the Fund’s relative returns during the month was Impinj, Inc. (Ticker: PI-US). Impinj, Inc. engages in the development and sale of RAIN, a Radio Frequency Identification (“RFID”) solution used for inventory management, asset tracking and item authentication in the retail, health care, supply chain and logistics industries. The company was a top detractor after reporting first quarter 2023 revenues 2% higher and issued guidance for second quarter 2023 revenues 3% lower than consensus expectations. The guidance shortfall versus expectations was driven by delays in deployment schedules at two large customers by a few months. The Manager reduced weighting in the Fund as it awaits better clarity on the timeline of the deployment schedule in the second half of 2023.
VAM US Mid Cap Growth Fund
Holdings in the information technology and health care sectors detracted from relative returns. Performance benefitted from holdings in the consumer discretionary and industrials sectors. At month end, the Fund was underweight the materials and health care sectors, and overweight the consumer discretionary and the industrials sectors.
The holding that detracted the most from the Fund’s relative returns during the month was ON Semiconductor Corporation (Ticker: ON-US). ON Semiconductor Corporation engages in the provision of power and sensing solutions, and technologies for electrification of the automotive industry. ON was a top detractor for the month as peers in the industry signalled an expected slowdown for automotive chip shipments in the second half of 2023. The Manager reduced the weighting in the Fund to account for this end market update and a weakening technical backdrop for the sub-sector.
The holding that contributed the most to the Fund’s relative returns during the month was Inspire Medical Systems, Inc (Ticker: INSP-US). Inspire Medical Systems, Inc. is a commercial stage medical device company that sells an implantable electrical stimulation device that improves symptoms associated with sleep apnea. This spring, there has been greater clarity regarding competitor profiles which has both reduced uncertainty and the risk that competitors (Nyxoah, Livanova) will eclipse INSP. Along with this, strong launch execution into a massively underpenetrated TAM (total addressable market) helped drive positive price appreciation for the month and made it a top contributor.
VAM US Large Cap Growth Fund
Holdings in the industrials and health care sectors detracted from relative returns. Performance benefitted from holdings in the consumer discretionary and information technology. At month end, the Fund was underweight the consumer staples and health care sector,s and overweight the financials and communication services sectors.
The holding that detracted the most from the Fund’s relative returns during the month was Eli Lilly and Company (Ticker: LLY-US). Eli Lilly and Company engages in the discovery, development, manufacture and sale of pharmaceutical products. The company was not owned by the Fund as it did not meet the model’s criteria which includes a combination of valuation, revision, momentum and duration factors.
The holding that contributed the most to the Fund’s relative returns during the month was Tesla, Inc. (Ticker: TSLA-US). Tesla, Inc. engages in the design, development, manufacture, and sale of fully electric vehicles and energy generation and storage systems. The company was not owned by the portfolio as it did not meet the model’s criteria which includes a combination of valuation, revision, momentum and duration factors.
VAM Emerging Markets Growth Fund
The VAM Emerging Markets Growth Fund performance was aided by holdings in the consumer discretionary and energy sectors, as well as in China and Hong Kong. Exposures to the consumer staples and information technology sectors, as well as Saudi Arabia and Taiwan detracted from relative returns. At month end, the Fund was overweight India and Mexico, and underweight South Korea and Taiwan.
The holding that contributed the most to the Fund’s relative returns during the month was Alibaba Group Holding Limited (Ticker: 9988-HK). Alibaba Group Holding Limited is China’s leading internet platform in providing e-commerce, cloud, entertainment and business solutions. The company’s stock declined more than 18% in April due to a slower-than-expected reopening of China and an increasing level of competition coming from other e-commerce platforms such as PDD. The Fund underweighted the company with the view that the core e-commerce sector would see low growth, while the rest of the business segments struggle to break even. The underweight position has contributed to the performance.
The holding that detracted the most from the Fund’s relative returns during the month was Proya Cosmetics Co., Ltd. Class A. Proya Cosmetics Co., Ltd. is a leading domestic cosmetics brand in China targeting the mass market. The Manager remains confident that the company will continue to gain market share in China’s beauty segment from a current 2% market share. Sales are expected to continue to increase at 20%+ over the next three years, and operating margins are set to improve and reach ~18% level by 2025. Despite very strong first quarter 2023 results, the company’s stock underperformed mainly due to the fact that foreign ownership reached a maximum of 26% of the float. Additionally, valuation is not as cheap as some other consumer names that have been more affected by the Covid lockdowns and, thus, could benefit more from a recovery.
VAM World Growth Fund
Exposures in the industrials and health care sectors, as well as in Israel and Germany, detracted from relative returns. Performance was aided by exposures in the information technology and communication services sectors, as well as in France and the United Kingdom. At month end, the Fund was underweight United States and Australia, and overweight Germany and United Kingdom.
The holding that detracted the most from the Fund’s relative returns during the month was Nordex SE (Ticker: NDX1-DE). Nordex is a German-based manufacturer and installer of alternative energy wind turbines and control systems. It should be a major beneficiary of ongoing alternative energy and green initiatives by several European countries and the US, but it continues to experience very inconsistent order flow and company specific execution has become an issue the last couple quarters, despite a relatively strong demand environment. At the end of March, it reported weaker than expected results and gave lacklustre guidance for the balance of the year, citing supply chain and internal operational issues. The Manager continues to like the name long-term, but has exited the position until more clarity asserts itself.
The holding that contributed the most to the Fund’s relative returns during the month was Edenred SA (Ticker: EDEN-FR). Edenred is a French-based leading provider of digital services and payments platform, specifically offering prepaid vouchers to corporations to reward and retain employees with various products and services such as vouchers for restaurants, childcare, energy, and utility services, etc. across greater Europe and Latin America. Essentially, it provides incentive benefits for corporations to pass on to employees for loyalty and retention. Especially during the past two years’ inflationary pressures, its services have been highly coveted by employers to help employees with rising costs of just about everything. In mid-March it gave a very strong first quarter update and raised guidance for the second half of the year, which led to strong outperformance for the company.
VAM International Opportunities Fund
Exposures in the consumer discretionary and materials sectors, as well as Brazil and India detracted from relative returns. Performance was aided by holdings in the health care and information technology sectors, as well as in South Korea and United Arab Emirates. At month end, the Fund was underweight Australia and India, and overweight Germany and the United Kingdom.
The holding that detracted the most from the Fund’s relative returns during the month was Nordex SE (Ticker: NDX1-DE). Nordex is a German-based manufacturer and installer of alternative energy wind turbines and control systems. It should be a major beneficiary of ongoing alternative energy and green initiatives by several European countries and the US, but it continues to experience very inconsistent order flow and company- specific execution has become an issue the last couple quarters, despite a relatively strong demand environment. At the end of March, it reported weaker than expected results and gave lacklustre guidance for the balance of the year, citing supply chain and internal operational issues. The Manager continues to like the name long-term, but has exited the position until more clarity asserts itself.
The holding that contributed the most to the Fund’s relative returns during the month was MonotaRO Co., Ltd. (Ticker: 3064-JP). MonotaRO Co., Ltd. is a Japanese-based specialty online retailer providing machine tools, machine parts, engine parts and factory consumable goods mainly to a broad-based end market of industrial and automotive companies. It is essentially a one-stop catalog for thousands of industrial tools and parts which can deliver product next day to any of their customers in Japan. In mid-April it reported much stronger than expected first quarter results and provided an upbeat outlook for the remainder of the year bucking the macroeconomic trend of slowing industrial growth seen across Europe and the US.
VAM Global Infrastructure Fund
Performance diverged by geography in April, with positive performance being driven by European companies and negative performance coming from North American-listed companies.
Cellnex, which owns a pan-European portfolio of communications infrastructure, was the most significant contributor to performance, returning 6.74% during the month. Over the past year, the company’s share price has come under pressure from the rising interest rate environment and fears over the future of the company’s growth, which have been fuelled by intensive M&A activity in recent years. This provided the opportunity to increase the Fund’s position in the company, making it a top five holding. The FCM team views the company’s portfolio quality as excellent and was supportive of the company’s announced strategic shift towards organic growth. Clarity on strategy, a newly appointed CEO and a refreshed board have rejuvenated the company’s share price in recent months, and the outlook is supported by excellent cash flow visibility.
The Fund’s renewable energy investments in North America were a drag on performance during the month. The sector has underperformed over the past year, with markets adjusting valuations for a higher interest rate environment. Specifically, recent fears have been driven by concerns that an increasing cost of capital will limit earnings growth from new investments. As a reminder, the Fund’s renewable energy holdings should be thought of as platforms of renewable energy projects which generate a high degree of contracted cash flows from operational assets. On this basis alone, the company appears to be attractively valued and should be able to continue making accretive investments despite the more challenging environment. With this in mind, the FCM team views the sector as well positioned to deliver attractive returns.
With respect to outlook, valuations remain below their long-term averages and the growth characteristics of underlying companies remains robust. As has been the case since launch, the investment process continues to focus on earnings quality from well-run companies in structurally supported sectors.
*Fund is currently closed to new subscriptions.
Sources: Driehaus Capital Management LLC, Foresight Capital Management, 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 April 2023. 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.
South African Investors: This is a Section 65 approved fund under the Collective Investment Schemes Control Act 45, 2002 (CISCA). Boutique Collective Investments (RF) (Pty) Ltd is the South African Representative Office for this Fund. Boutique Collective Investments (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002).
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