VAM Funds (Lux) Commentaries

December 2022 (click here to download)

VAM US Micro Cap Growth Fund*

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

The holding 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 conditions. In December, the company reported first-ever randomised, controlled data with its TL1A antibody that showed clinical benefit that appears (on cross trial comparison) better than other drug classes in a large inflammatory condition called ulcerative colitis. These were the first randomised, controlled data the Manager had seen with this mechanism and, despite numerous reviews of its preclinical data and mechanistic rationale, the Manager had been unable to predict that this class would look this strong with this dataset and this trial design, and therefore held no exposure in the portfolio. PRTA was up substantially on the news and, as a large position in the benchmark, it was a top detractor. The Manager initiated a position on a follow-on financing based on the strength of the data.

The holding that contributed the most to the Fund’s relative returns during the month was Xenon Pharmaceuticals Inc. (Ticker: XENE-US). Xenon Pharmaceuticals Inc. is a clinical stage biopharmaceutical company developing novel drugs to treat seizure disorders. In December, the company reported clinical data from the open-label extension study of its Phase 2 trial that showed its lead drug XEN1101 continues to drive clinical benefit with a good safety profile two years after patients started treatment. This data provides further evidence that XEN1101 will be able to avoid a safety pitfall that a predecessor drug in the potassium-channel class experienced, allowing investors to have greater confidence in its profile.

VAM US Small Cap Growth Fund

Holdings in the health care and the information technology sectors detracted from relative returns. At month end, holdings assigned to the consumer staples and communication services sectors were the largest source of positive relative returns. At month end, the Fund was underweight the health care and materials sectors, and overweight the information technology and the industrials sectors.

The holding that detracted the most from the Fund’s relative returns during the month was Clearfield, Inc. (Ticker: CLFD-US) Clearfield, Inc. engages in the design and manufacture of fibre optic components/protection. In December, CLFD declined as the company raised capital by selling 1.2 million shares at $100/share to fund capacity expansion and to support growth initiatives. The Manager made no changes to its position as demand conditions remained strong with CLFD’s reported backlog in the most recent quarter more than doubling year-over-year, supporting upside to revenue and earnings estimates versus consensus for 2023.

The holding that contributed the most to the Fund’s relative returns during the month was Xenon Pharmaceuticals Inc. (Ticker: XENE-US). Xenon Pharmaceuticals Inc is a clinical stage biopharmaceutical company developing novel drugs to treat seizure disorders. In December, the company reported clinical data from the open-label extension study of its Phase 2 trial that showed its lead drug XEN1101 continues to drive clinical benefit with a good safety profile two years after patients started treatment. This data provides further evidence that XEN1101 will be able to avoid a safety pitfall that a predecessor drug in the potassium-channel class experienced, allowing investors to have greater confidence in its profile.

VAM US Mid Cap Growth Fund

Holdings in the materials and information technology sectors detracted from relative returns. Performance benefitted from holdings in the energy and the consumer staples sectors. At month end, the Fund was underweight the materials and real estate sectors, and overweight the communication services and the industrials sectors.

The holding that detracted the most from the Fund’s relative returns during the month was Kinsale Capital Group, Inc. (Ticker: KNSL-US). Kinsale Capital Group, Inc. is a specialty insurance group focusing on the excess and surplus lines market. KNSL was a top detractor as the stock lagged after issuing equity in November to fund continued rapid premium growth in a market characterised by accelerating pricing and favourable terms and conditions. The Manager maintained the position.

The holding that contributed the most to the Fund’s relative returns during the month was Mobileye Global, Inc. Class A (Ticker: MBLY-US). Mobileye Global, Inc. engages in the development and deployment of Advanced Driver Assistance Systems (ADAS) and Autonomous Driving (AD) technologies and solutions. In December, MBLY appreciated as the company issued fourth quarter guidance with revenues 10% higher and profitability 40% higher versus consensus expectations, driven by better unit growth and strong ASP gains from early SuperVision product adoption. The Manager added to its position as it expects auto supply chain improvement will support better unit growth and continued SuperVision product adoption will support ASP growth through 2023, resulting in upside to revenues and profitability versus consensus expectations.

VAM US Large Cap Growth Fund

Holdings in the consumer staples and health care sectors detracted from relative returns. Performance benefited from holdings in the consumer discretionary and energy sectors. At month end, the Fund was underweight the health care and the consumer staples sectors, and overweight the financial and communication services sectors.

The holding that detracted the most from the Fund’s relative returns during the month was NRG Energy, Inc. (Ticker: NRG-US). NRG Energy, Inc. engages in the production, sale and distribution of energy and energy services. The stock detracted as the company made an acquisition that was perceived to bring more near-term challenges; sell side firms reduced price targets.

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

Exposures to the consumer discretionary and the communication services sectors, as well as South Korea and China, detracted from relative returns. Performance was aided by holdings in the utilities and real estate sectors, as well as in Hong Kong and Qatar. At month end, the Fund was underweight China and Taiwan, and overweight India and the United States.

The holding that detracted the most from the Fund’s relative returns during the month was Tencent Holdings Ltd. (Ticker: 700-HK). Tencent is an internet and social service platform that offers social networking, music, gaming and e-commerce related services. The stock performed very strongly in December following the abrupt change in Covid policy in China and an unexpected resumption in gaming approvals by the government. The Fund holds a position in the company but is underweight the benchmark given recent material earnings pressures.

The holding that contributed the most to the Fund’s relative returns during the month was AIA Group Limited (Ticker: 1299-HK). AIA is a life insurance company based in Hong Kong, with significant business in mainland China and throughout the ASEAN region. The stock rose sharply in December on positive sentiment towards the likely change in zero Covid policy in China. AIA would see several benefits from such a turn in policy, especially should the Chinese border with Hong Kong finally reopen and allow for sales to resume.

VAM World Growth Fund

Exposures in the materials and the industrials sectors, as well as in the United Kingdom and the United States, detracted from relative returns. Performance was aided by exposures in the communication services and consumer staples sectors, as well as in France and Isle of Man. At month end, the Fund was underweight Australia and the United States, and overweight France and Japan.

The holding that detracted the most from the Fund’s relative returns during the month was Enphase Energy, Inc. (Ticker: ENPH-US). Enphase energy is a US-based leading manufacturer of solar equipment, panels and, most importantly, battery storage packs for solar energy systems. The company has consistently reported very strong quarterly revenue and earnings per share growth over the past two years which has driven the stock to be one of the strongest performers in the solar sector over that time. There was no specific news to cause the negative drawdown; the Manager thinks it is just a very volatile and high beta name that was caught up in a bout of profit- taking after strong gains over the past few months.

The holding that contributed the most to the Fund’s relative returns during the month was Ipsos SA (Ticker: IPS-FR). Ipsos is a French-based global market data research company offering advertising, marketing, media/public relations and social media research and analysis to just about every industry and end market in Europe, Asia, the US and Latin America. Its services are designed for customer engagement and measurement, experience, and help promote customer retention. It essentially conducts customer surveys and reviews to help organisations increase the customer experience, ultimately leading to stronger sales and retention data. There was no specific news to drive the recent outperformance, just a continuation of strong trends in an otherwise dull market environment which led to outsized positive relative performance during the fourth quarter.

VAM International Opportunities Fund

The VAM Funds (Lux) – International Opportunities Fund performance was aided by holdings in the financials and information technology sectors, as well as in Isle of Man and Canada. Exposures in the consumer discretionary and industrials sectors, as well as the United Kingdom and Netherlands, detracted from relative returns. At month end, the Fund was overweight France and Germany, and underweight India and Australia.

The holding that contributed the most to the Fund’s relative returns during the month was ABCAM PLC (Ticker: ABC-GB). Abcam is a Uk-based biotech company that offers research, diagnostic and therapeutic solutions along with one of the world’s largest antibody research and development databases used by global pharmaceutical companies for research and drug development. The company has contracts with many of the world’s leading pharmaceutical companies for cutting edge, next-generation drug development. These are multi-year antibody supply contracts that give the company substantial visibility for its top line growth trends which allows it to continuously reinvest in more research and development.

The holding that detracted the most from the Fund’s relative returns during the month was Fugro NV (Ticker: FUR-NL). Fugro is a Netherlands-based energy services company offering geological data and analysis for energy and engineering markets. It provides data for oil companies to strategically place drilling rig platforms in optimal locations for oil extraction. Its engineering sector provides soil and topographical analysis for the construction of bridges, roads, pipelines, etc. The large drawdown in performance during the month was caused by news of its involvement in a 2019 dam failure in Brazil. Its research was directly blamed for inadequate soil foundation which led to the dam’s failure. The company has subsequently denied any faulty research or wrongdoing and there is an active investigation ongoing. The Manager continues to hold the position, but at a reduced weighting pending an outcome of the investigation.

*Fund is currently closed to new subscriptions.

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 December 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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