VAM Funds (Lux) Commentaries

August 2021 (click here 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 industrials sectors. Holdings in the consumer discretionary and health care sectors detracted from relative returns. At month end, the Fund was overweight the information technology and consumer discretionary sectors and underweight the industrials and health care sectors.

The holding that contributed the most to the Fund’s relative returns during the month was Nuvalent, Inc. Class A (NUVL-US). Nuvalent is a development-stage drug company focused on cancer. The company came public on 29 July 2021 through an IPO and the Fund participated, receiving a top allocation in the offering. As a result of the Fund’s positioning, Nuvalent contributed during the month.

The holding that detracted the most from the Fund’s relative returns during the month was Dynavax Technologies Corporation (DVAX-US). The company is a commercial-stage manufacturer of vaccines and vaccine adjuvants. During the month, several of Dynavax’s commercial partners made progress with COVID vaccines, in which Dynavax’s adjuvant is being used. The Fund is underweight Dynavax and the effect was that Dynavax detracted from relative performance during the month.

VAM US Small Cap Growth Fund

Holdings assigned to the information technology and health care sectors benefitted from the Fund’s positive relative returns. The Fund’s holdings assigned to the consumer discretionary and communication services sectors detracted from relative returns. At month end, the Fund was underweight the information technology, health care, communication services and consumer discretionary sectors.

The holding that contributed the most to the Fund’s relative returns during the month was monday.com Ltd. (MNDY-US). Monday.com is a low code/no code enterprise workflow management software platform vendor. In August, monday.com reported second quarter 2021 results with revenues 13% better than expected and issued guidance 15% above consensus estimates for third quarter 2021. Additionally, the earnings report showed strong leverage with monday.com’s timeline to profitability, brought forward by a year, from second half 2023 to second half 2022. The Manager took modest profits on strength post earnings results.

The holding that detracted the most from the Fund’s relative returns during the month was Springworks Therapeutics, Inc. (SWTX-US). Springworks is a development-stage drug company focused on cancer. During the month a large shareholder sold a block of stock and the executing broker placed it poorly. As supply and demand of the equity equilibrated, the stock stabilised. The Manager took no action, but Springworks detracted from the Fund.

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 staples sectors. Holdings in the communication services and consumer discretionary sectors detracted from relative returns. At month end, the Fund was overweight the information technology, consumer discretionary, and communication services sectors and underweight in the consumer staples sector.

The holding that contributed the most to the Fund’s relative returns during the month was monday.com Ltd. (MNDY-US). Monday.com is a low code/no code enterprise workflow management software platform vendor. In August, monday.com reported second quarter 2021 results with revenues 13% better than expected and issued guidance 15% above consensus estimates for third quarter 2021. Additionally, the earnings report showed strong leverage with monday.com’s timeline to profitability, brought forward by a year, from second half 2023 to second half 2022. The Manager took modest profits on strength post earnings results.

The holding that detracted the most from the Fund’s relative returns during the month was Springworks Therapeutics, Inc. (SWTX-US). Springworks is a development-stage drug company focused on cancer. During the month a large shareholder sold a block of stock and the executing broker placed it poorly. As supply and demand of the equity equilibrated, the stock stabilised. The Manager took no action, but Springworks detracted from the Fund.

VAM US Large Cap Growth Fund

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

The holding that contributed the most to the Fund’s relative returns during the month was Albertsons Companies, Inc. Class A (ACI-US). Albertsons Cos., Inc. engages in the operation of food and drug retail stores. The company appreciated from positive readthroughs of the company’s industry as well as broker upgrades, and a new president and CFO.

The holding that detracted the most from the Fund’s relative returns during the month was Take-Two Interactive Software, Inc. (TTWO-US). Take-Two Interactive Software, Inc. engages in the development, publishing and marketing of interactive software games. The company traded lower as the company reported positive numbers, but only reaffirmed previous given guidance as the majority of the street expected further increase.

VAM Emerging Markets Growth Fund

Exposures to the industrials and utilities sectors as well as Brazil and Taiwan detracted from relative returns. Performance was aided by holdings in the consumer discretionary and materials sectors, as well as in Argentina and China. At month end, the Fund was overweight Argentina and Brazil.

The holding that detracted the most from the Fund’s relative returns during the month was Vamos Locacao de Caminhoes, Maquinas e Equipamentos SA (VAMO3-BR). Vamos is a truck rental company based in Brazil, with a fleet of 15,000 trucks and units of equipment, making it larger than the next three competitors combined, as the company estimates that they have 80% market share. The market is highly underpenetrated at 1.1% versus 17% in the US. Following a period of strong earnings delivery and share price appreciation since the company’s IPO, Vamos shares corrected last month as a result of rising political and macroeconomic risk in Brazil, which led to rising bond yields and a higher equity risk premium, particularly for small cap companies like Vamos.

The holding that contributed the most to the Fund’s relative returns during the month was Alibaba Group Holding Ltd. (9988-HK). Alibaba continued to sell off in August as the pace of new regulatory announcements seemed to accelerate. In particular, investors were concerned over a potential higher tax rate and an investigation into the top government official in Alibaba’s home city. A myriad of other regulations were also announced targeting Alibaba’s peer companies. The company reported its quarterly results in the beginning of the month, which showed a slowdown in revenue growth and a reconfirmed commitment to invest heavily, which is depressing profitability.

VAM World Growth Fund

The VAM Funds (Lux) – World Growth Fund performance was aided by exposures in the information technology and industrials sectors, as well as in Israel and Canada. Exposures in the health care and communication services sectors, as well as in the United States and the United Kingdom, detracted from relative returns. At month end, the Fund was overweight Israel and the United States.

The holding that contributed the most to the Fund’s relative returns during the month was monday.com Ltd. (MNDY-US). Monday.com is a low code/no code enterprise workflow management software platform vendor. In August, monday.com reported second quarter 2021 results with revenues 13% better than expected and issued guidance 15% above consensus estimates for third quarter 2021. Additionally, the earnings report showed strong leverage with monday.com’s timeline to profitability, brought forward by a year, from second half 2023 to second half 2022. The Manager took modest profits on strength post earnings results.

The holding that detracted most from the Fund’s relative returns during the month was Roku, Inc. Class A (ROKU-US). Roku is a leading provider of internet-enabled devices, and content for live audio and video streaming. It is 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 the new era of “content is king” for media and entertainment service providers, it is quickly growing into the dominant provider of streaming video services. It has reported better-than-expected results for several quarters in a row and is just now expanding aggressively to certain international countries across Europe and Asia. There was no specific negative news to cause the stock’s underperformance recently. It has just been a shift away from stay-at-home beneficiaries, in favour of reopening plays.

VAM International Opportunities Fund

Exposures to the industrials and financials sectors, as well as in Japan and the Netherlands, detracted from relative returns. Performance was aided by holdings in the consumer discretionary and utilities sectors, as well as in Canada and Taiwan. At month end, the Fund was overweight Canada and underweight Japan.

The holding that detracted the most from the Fund’s relative returns during the month was THK Co., Ltd. (6481-JP). THK is a Japanese-based leading manufacturer of industrial linear motion systems used in robotics, machine tools and semiconductor equipment. It has been experiencing very strong demand trends for the last several quarters in all of its divisions and the Manager expects that to continue as it views the drivers of its business as more structural in nature especially in the areas of factory automation and semiconductor production. Recent underperformance was driven by some fear by the market that its near-term order cycle might be peaking after several strong quarters of pent up demand and strong order flow. The Manager believes that fear is misplaced and it will continue to report stronger results well in to 2022.

The holding that contributed the most to the Fund’s relative returns during the month was Zooplus AG (ZO1-DE). Zooplus is the largest online/internet pet supply retailer in Europe. Already a very strong growth story, its trends accelerated throughout much of the past 18 months as more and more consumers shift to online shopping. The driver of such strong stock performance recently, however, was a takeover offer announced by a US-based PE firm in mid-August at a 40% premium to its existing share price. Since that time, competing bids have also been announced. The Manager expects to see continued strong interest in the company.

VAM Global Infrastructure Fund

During the month, three material portfolio changes were made by the investment team. The portfolio has been recalibrated to align with the Manager’s outlook, and to take advantage of sub sector valuation changes and opportunities. The Fund has gradually increased its exposure to digital infrastructure since launch, with digital infrastructure assets acting as a critical part of modern society. In line with this, Radius Global Infrastructure (“RADI”) was added to the portfolio during August. RADI is a US listed infrastructure company that owns digital infrastructure rental streams. RADI’s business model is to be a landlord to highly creditworthy telecommunication companies by owning and leasing land to these businesses to locate their equipment. This space is used to house mission critical telecommunications equipment such as cell towers or rooftop communication devices. The strength of these entities as a counterparty is a crucial part in the investment case for RADI. Over 80% of the rent received by the company is paid by an investment grade counterparty and 99% of rents have some form of annual upward only rent review, primarily from CPI. The market for these sites remains highly fragmented, and the investment team believes that RADI’s management team has the specialist expertise to aggregate the sites into an attractive and well-diversified portfolio.

Secondly, Assura (“AGR”) has been added to the portfolio. AGR is a London listed owner of primary health care facilities such as GP surgeries and physio centres across the UK. The company’s portfolio benefits from long, c.20 year plus, leases, which are ultimately backed by the NHS, making the cash flow profile extremely robust. Ageing stock across the primary care sector means that the company is well-positioned to utilise its development expertise to continue to grow the portfolio and earnings. The Manager felt that recent share price weakness presented an opportune moment to enter what is an attractive long-term investment with defensive credentials, given the high-quality cash flows and continued growth opportunity that exists for the business.

Finally, the Fund has fully exited its holding in Canadian listed Brookfield Infrastructure Partners (“BIP”) as the company no longer satisfied evaluation against the Fund’s Sustainable Investment Criteria. In February 2021 the company announced a bid for listed fossil fuel pipeline business Inter Pipeline Ltd, with BIP management identifying their tar sands pipelines as financially attractive assets. Tar sands are considered to be one of the most environmentally-destructive forms of fossil fuels and the Fund’s management team immediately engaged with BIP senior management to oppose the deal. Despite engagement, the deal completed in the penultimate week in August, at which point the Fund liquidated its holding in full. The outlook for traditional infrastructure sectors remains strong with growing policy support from governments around the world acting as a substantial tailwind.

*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 August 2021. 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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