VAM Funds (Lux) Commentaries

VAM US Micro Cap Growth Fund*

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

The holding that detracted the most from the Fund’s relative returns during the month was Duckhorn Portfolio, Inc. (Ticker: NAPA-US). Duckhorn Portfolio, Inc. is the premier producer of luxury wines in North America. NAPA was a top detractor due to two secondaries by existing holders. The first was a marketed equity offering from NAPA’s top holder, a private equity firm that acquired the company in 2016. The second was a block trade from an unidentified institutional owner.

The holding that contributed the most to the Fund’s relative returns during the month was Kura Sushi USA, Inc. Class A (Ticker: KRUS-US). Kura Sushi USA, Inc. Class A is a technology-enabled Japanese restaurant concept with 37 locations. KRUS was a top contributor due to a strong May 2022 earnings report in which sales, margins and earnings surprised to the upside and positive commentary was provided on sales trends into June and July.

VAM US Small Cap Growth Fund

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

The holding that detracted the most from the Fund’s relative returns during the month was FTI Consulting, Inc. (Ticker: FCN-US). FTI Consulting, Inc. is a consulting firm engaged in the provision of financial, legal, operational, political and regulatory, reputational and transactional services. FCN reported Q2 2022 results that showed an acceleration in hiring and operating expenses after being depressed during COVID. This led to an EPS miss and lowered 2022 EPS estimates. The Manager maintained its position.

The holding The holding that contributed the most to the Fund’s relative returns during the month was Calix, Inc. (Ticker: CALX-US). Calix, Inc. offers broadband communications access systems that enable communications service providers to transform their networks. CALX reported Q2 2022 earnings that were broadly better than expectations on both revenues and earnings, with Q3 2022 revenues guided 7% higher than consensus with better margins. CALX attributed this strength to broad-based demand for its platform from service provider customers and supply chain improvements. The Manager added to its position post this earnings update as the company’s growth prospects remain strong.

VAM US Mid Cap Growth Fund

Holdings in the industrials and consumer discretionary sectors detracted from relative returns. Performance benefitted from holdings in the information technology and communication services sectors. At month end, the Fund was underweight the information technology and financial 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 W. R. Berkley Corporation (Ticker: WRB-US). W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States. WRB was a top detractor as investors grew more cautious regarding the pace of pricing increases relative to the impact of inflation on loss costs. As multiple industry participants have reported a narrowing spread between pricing and costs, the group has come under pressure.

The holding that contributed the most to the Fund’s relative returns during the month was Calix, Inc. (Ticker: CALX-US). Calix, Inc. offers broadband communications access systems that enable communications service providers to transform their networks. CALX reported Q2 2022 earnings that were broadly better than expectations on both revenues and earnings, with Q3 2022 revenues guided 7% higher than consensus with better margins. CALX attributed this strength to broad-based demand for its platform from service provider customers and supply chain improvements. The Manager added to its position post this earnings update as the company’s growth prospects remain strong.

VAM US Large Cap Growth Fund

Holdings in the financials and consumer discretionary sectors detracted from relative returns. Performance benefitted from holdings in the information technology and industrials sectors. At month end, the Fund was overweight the financial and real estate sectors, and underweight the industrials and consumer discretionary sectors.

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 detracted as the company missed revenues slightly and analysts revised their estimates downward with a difficult macro environment, FX and expected monetisation pressures weighing in on expectations.

The holding that contributed the most to the Fund’s relative returns during the month was ON Semiconductor Corporation (Ticker: ON-US). ON Semiconductor Corp. provides industry-intelligent sensing and power solutions, which help the customers to solve the most challenging problems and create cutting edge products. While nothing stock-specific, the security contributed positively as the semiconductor industry bounced back and outperformed the overall Index.

VAM Emerging Markets Growth Fund

The VAM Emerging Markets Growth Fund performance was aided by holdings in the information technology and communication service sectors, as well as in China and Canada. Exposures to the materials and the health care sectors, as well as the United States and India, detracted from relative returns. At month end, the Fund was underweight China and Taiwan, and overweight the United States and Canada.

The holding that contributed the most to the Fund’s relative returns during the month was Tencent Holdings Ltd. (Ticker: 700-HK). Tencent Holdings Ltd. is an internet platform that provides social networking, music, gaming and e-commerce related services. The recent contribution is due to cost reduction measurements such as reduction in headcount, S&M expense and closing none-core businesses, which resulted in inline EBIT in the last quarter. The management expects gaming and ads to see some recovery/catalysts in early 2023 and has recently initiated monetisation for its short video platform which can be a long-term catalyst.

The holding that detracted the most from the Fund’s relative returns during the month was Newmont Corporation (NEM-US). Newmont is a gold mining company. The stock underperformed, as the company reported a weak quarterly result. Earnings missed due to labour and input cost pressures, while slippages in new projects in terms of capex and timing further weighed on the stock.

VAM World Growth Fund

Exposures in the consumer discretionary and the industrials sectors, as well as in Germany and the United States, detracted from relative returns. Performance was aided by exposures in the information technology and the financials sectors, as well as in Hong Kong and Taiwan. At month end, the Fund was underweight Japan and the United States, and overweight France and Canada.

The holding that detracted the most from the Fund’s relative returns during the month was Rheinmetall AG (Ticker: RHM-DE). Rheinmetall is a German-based leading supplier of automotive, electronics, and defence components to the aerospace and defence industries. The auto and electronics businesses have been enjoying a strong cyclical recovery the past few quarters following two years of depressed conditions from the global pandemic. Earlier this year, with the onset of increasing geopolitical tensions throughout Europe, the defence side of the business has experienced substantial new order growth with several European countries increasing their defence spending. The Manager believes this is a major inflection in a new spending and capex cycle for this part of the business and expects very strong trends for the next several quarters. This was a top performing stock last quarter so the Manager believes the recent drawdown is part of normal profit-taking after a strong run.

The holding The holding that contributed the most to the Fund’s relative returns during the month was Calix, Inc. (Ticker: CALX-US). Calix, Inc. offers broadband communications access systems that enable communications service providers to transform their networks. CALX reported Q2 2022 earnings that were broadly better than expectations on both revenues and earnings, with Q3 2022 revenues guided 7% higher than consensus with better margins. CALX attributed this strength to broad-based demand for its platform from service provider customers and supply chain improvements. The Manager added to its position post this earnings update as the company’s growth prospects remain strong.

VAM International Opportunities Fund

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

The holding that detracted the most from the Fund’s relative returns during the month was Rheinmetall AG (Ticker: RHM-DE). Rheinmetall is a German-based leading supplier of automotive, electronics, and defence components to the aerospace and defence industries. The auto and electronics businesses have been enjoying a strong cyclical recovery the past few quarters following two years of depressed conditions from the global pandemic. Earlier this year, with the onset of increasing geopolitical tensions throughout Europe, the defence side of the business has experienced substantial new order growth with several European countries increasing their defence spending. The Manager believes this is a major inflection in a new spending and capex cycle for this part of the business and expects very strong trends for the next several quarters. This was a top performing stock last quarter so the Manager believes the recent drawdown is part of normal profit taking after a strong run.

The holding The holding that contributed the most to 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 buildouts 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 second half of the year. 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

Performance during the month was primarily driven by the Fund’s European holdings, namely, renewable energy firms Scatec and Encavis as well as telecommunications infrastructure firm Cellnex.

Owners of European renewable energy infrastructure have performed well throughout 2022, with the war in Ukraine making energy security a national security priority for many countries. High power prices have improved cash generation for owners of these increasingly critical pieces of infrastructure. Since launch, the Fund has maintained a relatively high weighting towards renewable energy companies that have the financial ability and technical skillset to continually deliver new projects. Such projects are now increasingly in demand, and the FCM team believes the inherent value of businesses that can deliver them is beginning to be more fully recognised. Over the medium to long term, the Manager expects the Fund’s renewable energy holdings to continue to benefit from a wide array of new investment opportunities, which should reward long-term shareholders.

Contrary to other sectors, business activity continues at a pace in many infrastructure markets. In July, Scatec announced that it has begun construction on its largest project to date. The project in South Africa is one of the world’s largest projects to combine solar PV with battery storage to deliver consistent power throughout the day, smoothing out the power generation peaks that come at midday. The project will have a total solar capacity of 540 MW and battery storage capacity of 225MW/1,140MWh, and will provide 150 MW of dispatchable power under a 20-year Power Purchase Agreement. Project investment is expected to total $960m and is aided b y financing from British International Investment, the UK’s state-backed development bank.

Concerns over inflation, rising interest rates and the threat of a global recession continue to weigh on market sentiment; however, the defensive nature of infrastructure and embedded inflation linkage make the Fund well positioned to combat these risks. The quality of cash flow remains high, something the FCM team believes is vitally important in the current environment. The Fund will continue to be positioned in companies that can provide resilient earnings and cash generation throughout the full economic cycle.

*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 June 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.

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