VAM Funds (Lux) Commentaries

VAM US Micro Cap Growth Fund*

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

The holding that detracted the most from the Fund’s relative returns during the month was Springworks Therapeutics, Inc. (Ticker: SWTX-US). Springworks Therapeutics, Inc. is a development stage drug company focused on oncology. During the last week of May, SWTX released two separate datasets for its lead asset. The first dataset was a randomised, controlled phase three trial in which SWTX showed a highly statistically significant benefit. The second dataset was a phase one trial that left investors confused due to immature data, sending shares down. The Manager trimmed the position modestly.

The holding that contributed the most to the Fund’s relative returns during the month was Matador Resources (Ticker: MTDR-US). Matador Resources Company is engaged in the exploration and production of oil and gas primarily the Delaware and Eagle Ford basins in Texas. The stock was a top contributor in May as it moved higher along with the price of oil which increased 9.5% during the month. The Fund continues to hold a position in MTDR.

VAM US Small Cap Growth Fund

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

The holding that detracted the most from the Fund’s relative returns during the month was Springworks Therapeutics, Inc. (Ticker: SWTX-US). Springworks Therapeutics, Inc. is a development stage drug company focused on oncology. During the last week of May, SWTX released two separate datasets for its lead asset. The first dataset was a randomised, controlled phase three trial in which SWTX showed a highly statistically significant benefit. The second dataset was a phase one trial that left investors confused due to immature data, sending shares down. The Manager trimmed the position modestly.

The holding that contributed the most to the Fund’s relative returns during the month was Livent Corporation (Ticker: LTHM-US). Livent Corporation is engaged in the production of lithium for use in electric vehicle batteries. The stock was a top contributor in May as the company reported 1Q22 EBITDA 25% above consensus expectations and raised 2022 EBITDA guidance by 77%. Upside in the quarter was driven by very strong re-pricing of lithium contracts as electric vehicle manufacturers continue to increase production. The Fund added to its position in LTHM during the quarter.

VAM US Mid Cap Growth Fund

Holdings in the consumer services and health care sectors detracted from relative returns. Performance benefitted from holdings in the industrials and financials sectors. At month end, the Fund was underweight the information technology and health care sectors, and overweight the industrials and the materials sectors.

The holding that detracted the most from the Fund’s relative returns during the month was Springworks Therapeutics, Inc. (Ticker: SWTX-US). Springworks Therapeutics, Inc. is a development stage drug company focused on oncology. During the last week of May, SWTX released two separate datasets for its lead asset. The first dataset was a randomised, controlled phase three trial in which SWTX showed a highly statistically significant benefit. The second dataset was a phase one trial that left investors confused due to immature data, sending shares down. The Manager trimmed the position modestly.

The holding that contributed the most to the Fund’s relative returns during the month was Diamondback Energy, Inc (Ticker: FANG-US ). Diamondback Energy, Inc. is engaged in the exploration and production of oil and gas primarily in the Permian Basin in Texas. The stock was a top contributor in May as it moved higher with the price of oil which increased 9.5% during the month. The Fund continues to hold a position in FANG.

VAM US Large Cap Growth Fund

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

The holding that detracted the most from the Fund’s relative returns during the month was Public Storage (Ticker: PSA-US). Public Storage operates as a real estate investment trust, which engages in acquiring, developing, owning and operating self-storage facilities. Although the company reported positive earnings, the stock traded down as its guidance increase may have been less than expected.

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, 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 energy and the information technology sectors, as well as Indonesia and Taiwan, detracted from relative returns. Performance was aided by holdings in the financials and the consumer discretionary sectors, as well as in Saudi Arabia and India. At month end, the Fund was underweight China and Taiwan, and overweight the United States and Canada.

The holding that detracted the most from the Fund’s relative returns during the month was Taiwan Semiconductor Manufacturing Co., Ltd. (2330-TW). The local shares (Taiwan-listed) of TSMC outperformed the Index in May. The Fund owns TSMC but holds the ADR line (US-listed). Therefore, the local shares detracted from relative performance. Despite fears over smartphone, and PC demand weakness and pockets of rising inventory, TSMC continues to post strong growth driven by robust demand for high-performance computing chips.

The holding that contributed the most to the Fund’s relative returns during the month was EPAM Systems, Inc. (EPAM-ID). EPAM is an IT services company that has historically had a large employee footprint in Ukraine, Russia and Belarus. The stock sold off sharply at the onset of the Ukraine war as investors feared both temporary disruption to delivery as well as permanent impairment of the business. The stock outperformed in May after the company reported its Q1 results early in the month. The company has been able to execute much better than feared; it was quick to relocate employees and their families, and is now scaling delivery capabilities in other locations such as India and Latin America. It held an investor day later in the month where it had multiple clients speak to how effectively EPAM has managed to sustain its business despite the war. The company guided towards sequential growth throughout 2H22 and plans to reinstate annual guidance in early 2023.

VAM World Growth Fund

Exposures in the consumer services and the information technology sectors, as well as in Japan and Germany, detracted from relative returns. Performance was aided by exposures in the energy and the materials sectors, as well as in the United States and France. At month end, the Fund was underweight Japan and Taiwan, and overweight the United States and France.

The holding that detracted the most from the Fund’s relative returns during the month was Gold Fields Limited Sponsored ADR (Ticker: GFI-US). Gold Fields is a gold mining company with interests in Australia, Ghana, Peru and South Africa. It has world class assets and a very strong production profile with annual gold production of approximately 2 million ounces. The recent pull back in underlying gold prices along with a recently announced acquisition of Canadian-based Yamana Gold Corp has not been viewed favourably by investors given the price they are paying and the market has punished the stock accordingly. The Manager no longer holds the position.

The holding that contributed the most to the Fund’s relative returns during the month was Matador Resources Company (Ticker: MTDR-US). Matador resources is a Texas-based independent oil and gas exploration and production company with assets based in the highly lucrative Eagle Ford shale, as well as several other shale assets across Texas and Louisiana. It is certainly benefitting from underlying commodity price strength in the price of oil, but its assets and production growth profile are very strong as well. It reported better-than-expected results for the Q1 at the end of April and this, combined with ongoing strength of oil prices, led to very strong outperformance of the stock.

VAM International Opportunities Fund

Performance was aided by holdings in the consumer discretionary and information technology sectors, as well as in India and the United Kingdom. Exposures to the utilities and health care sectors, as well as Taiwan and Japan, detracted from relative returns. At month end, the Fund was overweight Canada and France, and underweight India and Japan.

The holding that contributed the most to the Fund’s relative returns during the month was Serco Group plc (Ticker: SRP-GB). Serco Group is a British-based leading provider of outsourcing facilities management services to governments and international corporations with operations across Europe and the UK, the US, Middle East and many parts of Asia. Not only benefitting from the reopening of both government and commercial/industrial industries, given its leading position, it also has very strong pricing power and is able to pass on nearly all of its cost inputs, thus, preserving margins during inflationary environments. It recently reported very strong results and gave a favourable outlook for the rest of the year which the Manager views as very reassuring while there is great uncertainty regarding earnings trajectories for most industries globally.

The holding that detracted the most from the Fund’s relative returns during the month was VERBIO Vereinigte BioEnergie AG (Ticker: VBK-DE). Verbio is the leading producer of biodiesel and bioethanol fuels based in Germany and serving many markets globally. It recently just started its expansion into the US which the Manager believes will be a very strong market for the company long term. The drawdown in the stock was caused by proposals for German legislation and the political environment banning the use of corn and grains for use in biofuels thus, potentially, undermining its entire business model. The Manager’s research shows its operation deals entirely with non-food grade inputs (i.e. not feedstock), but it will be some time until the government distinguishes between the two, and their operations are at risk and in limbo during this time. The Manager has exited the position but it is something it may consider in the future once the political environment has calmed and drafted its final legislation.

VAM Global Infrastructure Fund

Volatility in financial markets continued throughout May, with fears that rising interest rates will increase the likelihood of a recession. Listed infrastructure remains an attractive allocation in this environment, with secure, inflation-linked cash flows that are backed by high-quality counterparties. Whilst changes in interest rates have caused a re-assessment of company valuation, the Manager continues to view the real asset focused part of the sector as attractively valued and well-positioned to reward long-term investors.

The roll-out of renewable energy across the US continues to represent an attractive investment opportunity for the Fund. Government support for new projects continues to grow, a factor that is being further supported by corporate demand for clean energy. The Fund’s holding in Clearway Energy Inc “CWEN” provides exposure to this theme. CWEN is an asset owner that does not take development risk, however, the company benefits from a partnership with its parent, Clearway Group, which is one of the largest developers of renewable energy projects in the US. CWEN selectively acquires operational projects that have been developed by its parent. During May, French energy company, TotalEnergies, announced a significant investment in Clearway Group. The news is a positive for CWEN as the deal will provide additional growth capital for project development, increasing the flow of operational assets that CWEN could select to invest in, securing the long-term outlook for the company.

The UK-listed infrastructure sector continues to be an attractive market for the Fund to invest in. The sector generally trades with relatively lower volatility and provides exposure to traditional infrastructure assets that benefit from a high degree of inflation linkage. Deal activity in the sector has picked up in recent months and, during May, portfolio holdings HICL Infrastructure (“HICL”) and BBGI Global Infrastructure (“BBGI”) announced new investments. HICL has invested in a French fibre company, ADTIM, having previously signalled an intention to increase investments in the digital infrastructure sector. ADTIM is an independent fibre network providing rural areas in the south of France with 18,300km of broadband infrastructure. The deal provides a growth opportunity for HICL as fibre is increasingly rolled out across France. BBGI announced an investment in the A7 motorway in Germany, which runs between Bordesholm and Hamburg. The project benefits from availability-linked payments, meaning that BBGI is paid for the road simply being available for use and not on road usage.

*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 May 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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