VAM Funds (Lux) Commentaries

August 2022 (click here to download)

VAM US Micro Cap Growth Fund*

The Fund’s holdings assigned to the information technology and health care sectors were the largest source of positive relative returns. Holdings in the utilities and energy sectors detracted from relative returns. At month end, the Fund was overweight the consumer staples and consumer discretionary sectors, and underweight the financials and health care sectors.

The holding that contributed the most to the Fund’s relative returns during the month was Global Blood Therapeutics Inc (Ticker: GBT-US). Global Blood Therapeutics Inc is a commercial stage biopharma company selling first-in-class agents to treat the root cause of sickle cell anemia. GBT’s lead asset was approved in November 2019 and, despite early commercial headwinds, has gained substantial commercial traction. In August, GBT announced that Pfizer would be acquiring the company for $5.4b, a 102% premium to where GBT traded, prior to the news leaking.

The holding that detracted the most from the Fund’s relative returns during the month was Chemocentryx, Inc. (Ticker: CCXI-US). Chemocentryx, Inc. is a commercial stage biopharma company selling first-in-class agents to treat a rare auto-immune disease called ANCA vasculitis. The drug was launched in October 2021 and has had a choppy launch to date. Despite this, in August, CCXI announced Amgen would be acquiring the company for $3.7b, or an over 100% premium. The Fund did not own the stock, making CCXI a top detractor.

VAM US Small Cap Growth Fund

At month end, holdings assigned to the health care and information technology sectors contributed the most to the Fund’s positive returns. The Fund’s holdings assigned to the energy and communication services sectors detracted from relative returns. The Fund was overweight the consumer staples and consumer discretionary sectors, and underweight the financials and information technology sectors.

The holding that contributed the most to the Fund’s relative returns during the month was Cytokinetics, Incorporated (Ticker: CYTK-US). Cytokinetics, Incorporated is a clinical stage biopharma company developing agents to treat cardiovascular disease. In August, CYTK benefitted from positive KOL commentary in a high profile journal and M&A speculation on the back of acquisitions of companies with similar profiles as well as explicit commentary from one potential strategic buyer that it was on the lookout for assets in the cardiovascular space. These factors drove the stock higher making it a top contributor for the month.

The holding that detracted the most from the Fund’s relative returns during the month was Bumble, Inc. Class A (Ticker: BMBL-US). Bumble, Inc. Class A is the parent company of Bumble, Badoo and Fruitz. The Bumbleplatform enables people to connect, and build equitable and healthy relationships. BMBL was a top detractor in August after lowering 2022 guidance on its 2Q 2022 earnings report. Revenue guidance was cut due to adverse currency moves and the pushout of some new product launches. The Manager exited the position as a result.

VAM US Mid Cap Growth Fund

The VAM US Mid Cap Growth Fund performance benefitted from holdings in the information technology and materials sectors. Holdings in the energy and communication services sectors detracted from relative returns. At month end, the Fund was overweight the communication services and the consumer staples sectors, and underweight the information technology and financial sectors.

The holding that contributed the most to the Fund’s relative returns during the month was Shockwave Medical, Inc. (Ticker: SWAV-US). Shockwave Medical, Inc. is a commercial stage medical device company selling lithotripsy devices to remove plaque build-ups in arteries. In August, SWAV reported earnings well ahead of consensus expectations and raised full-year guidance above and beyond the second quarter beat, driven by the strength of its product offering in coronary (where substitute products are unable to compete). The strong report drove the stock higher making it a top contributor for the month.

The holding that detracted the most from the Fund’s relative returns during the month was Bumble, Inc. Class A (Ticker: SWAV-US). Bumble, Inc. Class A is the parent company of Bumble, Badoo and Fruitz. The Bumble platform enables people to connect, and build equitable and healthy relationships. BMBL was a top detractor in August after lowering 2022 guidance on its 2Q 2022 earnings report. Revenue guidance was cut due to adverse currency moves and the pushout of some new product launches. The Manager exited the position as a result.

VAM US Large Cap Growth Fund

The VAM US Large Cap Growth Fund performance benefitted from holdings in the health care and information technology sectors. Holdings in the industrials and communication services sectors detracted from relative returns. At month end, the Fund was underweight the industrials and consumer discretionary sectors, and overweight the financial and information technology sectors.

The holding that contributed the most to the Fund’s relative returns during the month was Archer-Daniels-Midland Company (Ticker: ADM-US). Archer-Daniels-Midland Co. engages in the production of oilseeds, corn, wheat, cocoa and other agricultural commodities. The stock appreciated as the company beat expectations and had an upbeat market outlook for the second half of the year. The company benefitted from higher corn oil prices as well as favourable ethanol blending economics.

The holding that detracted the most from the Fund’s relative returns during the month was Meta Platforms Inc. Class A (Ticker: META-US). Meta Platforms, Inc. engages in the development of social media applications. The stock declined as analysts are concerned that the company faces revenue uncertainty regarding total engagement and lower monetising reels.

VAM Emerging Markets Growth Fund

The VAM Emerging Markets Growth Fund performance was aided by holdings in the financials and materials sectors, as well as in Brazil and Canada. Exposures to the communication services and the consumer discretionary sectors, as well as China and Taiwan, detracted from relative returns. At month end, the Fund was overweight the United States and Brazil, and underweight China and Taiwan.

The holding that contributed the most to the Fund’s relative returns during the month was EPAM Systems, Inc. (Ticker: EPAM-US). EPAM outperformed in August following the company’s second quarter results early in the month that beat expectations. The IT services company had 60% of its headcount in Ukraine, Belarus and Russia entering this year which naturally led to a sharp sell-off after the war in Ukraine began. However, the company has a track record of strong execution and it has been very quick to shift headcount to other geographies, and continues to deliver for its customers with minimal disruptions, despite the magnitude of challenges it faced. The most recent results provided more evidence that the company is on the recovery path with the company going so far as to say it expects to return to its historical margin range by the first half of 2023.

The holding that detracted the most from the Fund’s relative returns during the month was Estun Automation Co. Ltd. Class A (NA). Estun, one of China’s leading automation and industrial robotics companies, underperformed in August. The stock was hit by concerns over the impact on demand from Covid-19 lockdowns and weak economic growth in China this year. The company also has exposure to Europe via a prior acquisition of a welding robot company, which makes the company vulnerable to the weak economy there as well as rising power prices and Euro depreciation.

VAM World Growth Fund

Exposures in the energy and industrials sectors, as well as in Australia and France, detracted from relative returns. Performance was aided by exposures in the health care and the information technology sectors, as well as in the United States and Switzerland. At month end, the Fund was underweight Australia and Taiwan, and overweight France and the United Kingdom.

The holding that detracted the most from the Fund’s relative returns during the month was Trainline Plc (Ticker: TRN-GB). Trainline is a UK-based leading provider of online train tickets and retail rail services as well as operating a real time information services platform for riders providing routes, fares, ride times and other services primarily in the UK, but 20% of its revenues is from other European and Asian markets as well. It holds the top market share by a substantial margin for both info services and retail train tickets in the UK and has been benefitting not only from reopening and returning to the office, but monetising its info services unit as well. There was no specific news to cause the recent drawdown; in fact, it reported better-than- expected results in July and gave a positive outlook for the remainder of the year.

The holding that contributed the most to the Fund’s relative returns during the month was Shockwave Medical, Inc. (Ticker: SWAV-US). Shockwave Medical, Inc. is a commercial stage medical device company selling lithotripsy devices to remove plaque build-ups in arteries. In August, SWAV reported earnings well ahead of consensus expectations and raised full-year guidance above and beyond the second quarter beat, driven by the strength of its product offering in coronary (where substitute products are unable to compete). The strong report drove the stock higher making it a top contributor for the month.

VAM International Opportunities Fund

Exposures in the information technology and materials sectors, as well as India and Germany, detracted from relative returns. Performance was aided by holdings in the health care and consumer staples sectors, as well as in Norway and the Netherlands. At month end, the Fund was overweight Canada and France, and underweight India and Austria.

The holding that contributed the most to the Fund’s relative returns during the month was Aker Solutions ASA (Ticker: AKSO-NO). Aker Solutions is a Norway-based leading energy services and equipment provider offering low carbon output oil and gas solutions to the energy exploration and production sectors, as well as alternative and renewable energy solutions. A long-awaited positive catalyst was finally realised in the past two months combining the company’s subsea solutions business into a new joint venture with Schlumberger (a leading US-based energy services provider) and this is expected to unlock tremendous value and growth potential over the next five years. In addition to this, its traditional services business has been experiencing very positive tailwinds in the current high energy price regime as well as its expansion into clean alternatives which it expects to grow to 25% of the total business within the next five years.

The holding that detracted the most from the Fund’s relative returns during the month was Hexatronic Group AB (Ticker: HTRO-SE). Hexatronics Group is a Swedish-based provider of telecom equipment and broadband/fibre connectivity solutions for both public and private telco markets. It is benefitting from very strong infrastructure spending build-outs and upgrades from both the public and private sectors across the Swedish market. It recently reported much stronger-than-expected results and gave a strong outlook for the remainder of the year, prompting analysts to substantially raise their revenue and EPS forecasts for the 2H. This led t o outsized positive returns for most of the 2Q, but the stock fell victim to normal profit-taking after strong gains the previous two months. The Manager believes there is a long runway of strong spending trends ahead and, as a leading player in the industry, the company should enjoy healthy growth for the next several quarters.

VAM Global Infrastructure Fund

As the European winter begins to loom, power prices continue to dominate sentiment and news flow for several of the Fund’s holdings. High power prices have led to increased cash generation for a number of renewable energy projects across Europe, which has benefitted the Fund’s investee companies directly. Northland Power and Boralex released quarterly results in the month that highlighted sizeable earnings growth, driven by higher power prices. Whilst improvements to short-term profitability is a positive, energy security fears act as a further driving force behind the requirement for more clean energy. Despite the prevailing risk of windfall taxes, the long-term investment case for companies that can construct and own these vital pieces of energy infrastructure continues to improve.

The strongest performing stock during August was Infratil (“IFT”), a New Zealand-based infrastructure company. The company has been a long-term conviction hold within the Fund, primarily driven by its best-in-class portfolio of various infrastructure assets. IFT invests in “ideas that matter”, which includes hydro, wind and solar power as well as digital infrastructure assets such as data centres. The management team continually focus on ensuring the portfolio is invested into assets that are well positioned to benefit from long-term structural tailwinds, which aligns well with the FCM investment team’s own thesis. Despite recent strong performance, the Manager continues to think the inherent value of IFT is underappreciated by the market.

In the US, the Inflation Reduction Act became effective during August. The Act is significant in scale, with positive direct and indirect effects on the Fund’s holdings. A sizeable benefit of the Act is the clarity it provides companies. It makes clear the multi-year framework that will be in place for infrastructure, for example the tax equity regime put in place to support the development of renewable energy projects. Over the long term, as we have seen with technologies such as offshore wind, the Act should support technologies such as EV charging and carbon capture to develop to a stage where they are suitable for large-scale investment.

*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 2022. 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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