VAM Funds (Lux) Commentaries
October 2023 (click here to download)
VAM US Micro Cap Growth Fund*
The Fund’s holdings assigned to the health care and energy sectors were the largest source of positive relative returns. At month end, the Fund was underweight the health care and information technology sectors, and overweight the industrials and consumer discretionary sectors.
The holding that detracted the most from the Fund’s relative returns during the month was Aehr Test Systems (Ticker: AEHR-US). Aehr Test Systems engages in the design, manufacture and marketing of test and burn-in products to the semiconductor manufacturing industry. The company was a top detractor from the Fund as its top customer for wafer level burn-in test equipment forecasted weaker revenue trends from the electric vehicle end market with plans to moderate spend on capital equipment in 2024. The Manager reduced its weighting in the Fund as slowing spend by its leading customer presents a downside risk to 2024 estimates.
The holding that contributed the most to the Fund’s relative returns during the month was Structure Therapeutics, Inc. Sponsored ADR (Ticker: GPCR-US). Structure Therapeutics, Inc. Sponsored ADR is a clinical stage biopharmaceutical company developing oral, small molecule therapies to treat cardiometabolic diseases. The company was a top contributor after releasing multiple ascending dose data in September that showed that their drug achieved a profile competitive with, and potentially better, than alternatives further ahead in clinic. In October, the market got increasingly familiar with the data, and the potential for this treatment, driving the stock up >40%.
VAM US Small Cap Growth Fund
Holdings in the financials and information technology sectors detracted from relative returns. The Fund’s holdings assigned to the energy and health care sectors were the largest source of positive relative returns. At month end, the Fund was underweight the consumer discretionary and health care sectors, and overweight the consumer staples and energy 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. The company was a top detractor after reporting third quarter 2023 earnings in which gross written premiums decelerated and missed expectations. This deceleration was primarily due to seasonality where the segment of the market for which pricing is going up the most, catastrophe-exposed property, typically renews in second quarter, thus, boosting growth in that quarter, while the absence of writing new property business in the third quarter caused deceleration. Investors were caught off guard by this seasonal dynamic, causing the stock to decline. The Manager made no changes to the position.
The holding that contributed the most to the Fund’s relative returns during the month was Structure Therapeutics, Inc. Sponsored ADR (Ticker: GPCR-US). Structure Therapeutics, Inc. Sponsored ADR is a clinical stage biopharmaceutical company developing oral, small molecule therapies to treat cardiometabolic diseases. The company was a top contributor after releasing multiple ascending dose data in September that showed that their drug achieved a profile competitive with, and potentially, better than alternatives further ahead in clinic. In October, the market got increasingly familiar with the data and the potential for this treatment, driving the stock up >40%.
VAM US Mid Cap Growth Fund
Performance benefitted from holdings in the health care and energy sectors. Holdings in the information technology and industrials sectors detracted from relative returns. At month end, the Fund was overweight the industrials and consumer staples sectors, and underweight the consumer discretionary and health care sectors.
The holding that contributed the most to the Fund’s relative returns during the month was Structure Therapeutics, Inc. Sponsored ADR (Ticker: GPCR-US). Structure Therapeutics, Inc. Sponsored ADR is a clinical stage biopharmaceutical company developing oral, small molecule therapies to treat cardiometabolic diseases. The company was a top contributor after releasing multiple ascending dose data in September that showed that their drug achieved a profile competitive with, and potentially better, than alternatives further ahead in clinic. In October, the market got increasingly familiar with the data and the potential for this treatment, driving the stock up >40%.
The holding that detracted the most from the Fund’s relative returns during the month was Chart Industries, Inc. (Ticker: GTLS-US). Chart Industries, Inc. is an independent global leader in the design, engineering and manufacturing of process technologies and equipment for gas and liquid molecule handling. The company was a top detractor after reporting third quarter 2023 results that missed consensus revenue and earnings per share estimates by ~13% and 14% respectively. Despite this miss, the company reduced its fiscal year 2023 guidance by less than this amount when factoring divestitures, and reiterated fiscal year 2024 revenue and EBITDA guidance that was 8% and 15% above estimate. Investors believe the company’s outlook for 2024 is too optimistic which pressured the stock. Last year, the company made a large acquisition that was very unpopular with investors. However, the company is tracking ahead on revenue and cost synergies and leverage targets for this acquisition. After the recent sell-off, the company’s trading is at a very reasonable valuation compared to its historical valuation range, and is a less cyclical company. The Manager continues to hold a position in Chart Industries, Inc.
VAM US Large Cap Growth Fund
The VAM Funds (Lux) – US Large Cap Growth Fund performance benefitted from holdings in the consumer discretionary and energy sectors. At month end, the Fund was underweight the industrials and health care sectors, and was overweight the financials and communication services sectors.
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 Fund as it did not meet the model’s criteria which includes a combination of valuation, revision, momentum, and duration factors.
The security that detracted the most from the Fund’s relative returns during the month was General Motors Company (Ticker: GM-US). General Motors Company engages in the designing, manufacturing, and selling of trucks, crossovers, cars, and automobile parts and in providing software-enabled services and subscriptions. The stock declined, as uncertainty around the strike had a negative impact. However, overall, the company did report solid earnings and cash flow given robust pricing.
VAM Emerging Markets Growth Fund
Exposures to the information technology and financials sectors, as well as Taiwan and China, detracted from relative returns. Performance was aided by holdings in industrials and consumer discretionary sectors, as well as in South Korea and India. At month end, the Fund was underweight South Korea and China, and overweight Mexico and Brazil.
The holding that detracted the most from the Fund’s relative returns during the month was Bank Mandiri (Ticker: BMRI-ID). Bank Mandiri is a large, diversified bank in Indonesia. The bank has performed very well all year, with margins positive and loan volumes recovering on improved asset quality. The stock pulled back in October, along with many other southeast Asian financial stocks.
The holding that contributed the most to the Fund’s relative returns during the month was New Oriental Education & Technology Group, Inc. Sponsored ADR (Ticker: EDU-US). New Oriental Education & Technology Group, Inc. is an afterschool tutoring and pan-education service provider in China. With the macro recovery and ease of policies among municipal governments, the company has seen a strong demand recovery for its revised tutoring business. The company is set to finish restructuring and gain operating leverage through continued market share growth. The company is also doing a share buyback program. These factors have led to a positive share price performance.
VAM World Growth Fund
Exposures in the financials and information technology sectors, as well as the United States and Japan, detracted from relative returns. Performance was aided by exposures in the energy and health care sectors, as well as in Mexico and the United Kingdom. At month end, the Fund was underweight Australia, and the United States and overweight Mexico and Japan.
The holding that detracted the most from the Fund’s relative returns during the month was Chart Industries, Inc. (Ticker: GLTS-US). Chart Industries, Inc. is an independent global leader in the design, engineering and manufacturing of process technologies and equipment for gas and liquid molecule handling. The company was a top detractor after reporting third quarter 2023 results that missed consensus revenue and earnings per share estimates by ~13% and 14% respectively. Despite this miss, the company reduced its fiscal year 2023 guidance by less than this amount when factoring divestitures, and reiterated fiscal year 2024 revenue and EBITDA guidance that was 8% and 15% above estimate. Investors believe the company’s outlook for 2024 is too optimistic which pressured the stock. Last year, the company made a large acquisition that was very unpopular with investors. However, the company is tracking ahead on revenue and cost synergies and leverage targets for this acquisition. After the recent sell-off, the company’s trading is at a very reasonable valuation compared to its historical valuation range, and is a less cyclical company. The Manager continues to hold a position in Chart Industries, Inc.
The holding that contributed the most to the Fund’s relative returns during the month was Align Technology, Inc. (Ticker: ALGN-US). Align Technology, Inc. is a US based medical device company specialising in nearly invisible clear teeth aligners and scanners for dental practitioners. In late October, they reported worse-than-expected third quarter results, and gave weaker guidance for the balance of the year, citing slower consumer spending and higher costs. The Manager does not hold the stock, and given its substantial drawdown following the weaker-than-expected guidance, this led to strong relative outperformance, as it is a holding in our Index.
VAM International Opportunities Fund
Exposures in the consumer discretionary and health care sectors, as well as Germany and India detracted from relative returns. At month end, the Fund was overweight Germany and Canada, and underweight Australia and India.
The holding that contributed the most to the Fund’s relative returns during the month was Fugro NV (Ticker: FUR-NL). Fugro NV is a Dutch provider of geotechnical and geophysical capture and advisory services for subsea and subsurface data to energy, infrastructure, and water-end markets. The company is currently seeing dual growth drivers from traditional oil and gas catchup investment, as well as, leading renewables work which is driving 23% top line and 28% backlog growth. Additionally, leverage from additional scale and pricing power is driving margin improvement from 4-5% to 10%, resulting in bottom line growth of 20% and higher. The Team believes that consensus revenue growth of only 10% is underestimating the company’s growth potential, given its 18% backlog growth and the 60% growth in its renewables business.
The holding that detracted the most from the Fund’s relative returns during the month was AIXTRON SE (Ticker: AIXA-DE). Aixtron is a German-based leading supplier of semiconductor manufacturing equipment used to produce complex semiconductors for LED’s, lasers, solar cells, telecom, and auto applications. After reporting stronger results for the last several quarters in late October, they reported slightly weaker-than-expected third quarter results. Guidance for the remainder of the year and for next year was left unchanged however, as they are in the process of ramping shipments of new advanced next generation equipment and their order pipeline continues to see strong demand trends. The Manager view the sell off as overdone, and continues to like the company’s medium to longer-term position in this semi equipment sector.
VAM Funds (Lux) – VAM Global Infrastructure Fund
A sizeable increase in long-term bond yields continued the pressure on listed real assets during the month, with the yield curve flattening in anticipation of a “higher for longer” interest rate environment. The FCM Investment Team continue to view the clarity of future interest rates as a key factor in real asset valuations, with stock market discounting companies until the risk of significantly higher interest rates clears.
Portfolio companies continued to perform well despite tougher economic conditions. Equinix (“EQIX”), an owner and developer of cloud-neutral data centre platforms around the world delivered strong quarterly results and raised AFFO per share and adjusted EBITDA guidance for FY23 after delivering a stronger-than-expected quarter. This was driven by strong demand and pricing improvements, despite minor FX impacts. The strong demand and performance over the quarter enabled a 25% increase in the quarterly dividend to $4.26 per share, showcasing a resilient portfolio in the current environment. Heighted global data centre demand benefits the leasing of EQIX’s existing assets and instills confidence in new properties and the future pipeline. Furthermore, EQIX is well-positioned to capitalise on the growing interest in artificial intelligence, providing a sustained tailwind for the future.
Transurban Group (“TCL”), an Australian-based toll road operator with urban toll networks across Australia and North America has recently released its September quarter 2023 update. The company has delivered its highest ever quarterly Average Daily Traffic (ADT) of 2.5m trips per day. This includes trips completed by motorists and truck drivers on TCL’s roadways in Australia, Canada, and the United States. The increase in ADT figures across TCL’s portfolio not only mirrors the ongoing post-COVID recovery, but also, underscores the company’s commitment to its long-term ADT growth strategy.
In the renewables sector, Greencoat Renewables PLC (“GRP”) announced an agreement to acquire an additional 22.5% stake in the Butendiek offshore wind farm from an affiliate of Siemens Pension Trust for ~€168m. Butendiek, which is in Germany’s exclusive economic zone in the North Sea, hosts 80 Siemens Gamesa 3.6MW turbines and has been in operation since 2015. GRP had previously acquired a 22.5% stake in Butendiek, as such, the further investment announced today takes GRP’s stake of the 228MW asset to ~39%, which is ~112MW of net installed capacity. Increasing its ownership stake in Butendiek enables GRP to expand its presence in a familiar asset, contributing to the contracted revenues in its portfolio. Octopus Renewables Infrastructure Trust (“ORIT”) entered into a conditional agreement to sell its Krzecin and Kuslin onshore wind farms in Poland. The polish projects became operational in 2022, and have a combined capacity of 59MW. ORIT expects to receive net proceeds of between PLN 470m and PLN 490m (~£88m to £92m). This represents a 14-19% premium over the holding value of the wind farms of £77m as at 30 June 2023. Completion of the transaction is expected to realise an IRR of 20-25% over the lifetime of ORIT’s investment. This accretive sale demonstrates the strength of ORIT’s net asset value (NAV), and strong buyer appetite for renewable energy assets.
*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 October 2023. 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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