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Needham Aggressive Growth Fund: 2Q20 Commentary

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MARKET REVIEW

  • In 2Q20, U.S. equities rallied from their worst quarter since 2008; S&P 500 returned 20.54%; Russell 2000 returned 25.42%. YTD at June 30, the S&P 500 returned -3.08%; Russell 2000 returned -12.98%.
  • The March 23 market bottom was coincident with the Fed’s announcement of unlimited quantitative easing and the House’s passage of The CARES Act. The S&P 500 returned 41.28% since this bottom through June 30.
  • The U.S. healthcare system held up to a peak of hospitalizations in mid-April. The world’s ability to adapt to COVID-19 has steadily improved.
  • 1Q20 earnings and 2Q20 guidance were better than expected.
  • During the quarter, low leverage and high quality factors outperformed, while small size, low volatility, high yield and value factors underperformed1. The top industry contributors were software and tech hardware2.

PORTFOLIO REVIEW

  • In 2Q20 and year-to-date, the Fund significantly outperformed, due to almost all of its top holdings outperforming their sectors. The Fund’s overweight in information technology and its underweights in consumer staples, financials, energy, retail and utilities were all contributors to performance3.
  • The Fund’s Institutional (NEAIX) and Retail classes (NEAGX) returned 35.07% and 34.85%, respectively, in 2Q20. YTD as of June 30, NEAIX returned 12.96% and NEAGX returned 12.68%, considerably outperforming the S&P 500’s -3.08% and Russell 2000’s -12.98% YTD results.
  • The Fund’s top two contributors were two of its largest positions, PDF Solutions Inc. (PDFS) and Entegris Inc. (ENTG). Both companies provide technology for advanced semiconductor manufacturing.
  • Vicor Corporation (VICR) was the third leading contributor and designs power conversion devices used to distribute power efficiently through a data center.
  • All three of these companies benefit from the build-out of data centers. For an interesting view of the importance of data centers, read Digital Cathedrals by Mark Mills. E-commerce and other online offerings, which accelerated in response to the global pandemic, are enabled by data centers.
  • The top ten holdings represented 68.62% of net assets and nine of the top ten holdings outperformed their sectors in the second quarter.
  • None of the Fund’s positions were material detractors in 2Q20.

THE OPPORTUNITY

  • We target companies we perceive to have significant, unrecognized growth opportunities. COVID-19 is hastening revolutionary development in technology and life sciences that will improve our quality of life. The Fund is a long-term investor in companies that build the infrastructure necessary to bring these developments to market.
  • For years, we have been underweight financials, utilities, commodity and consumer-facing companies. We believe the underlying technology infrastructure is less vulnerable to economic cycles.
  • The Fund’s greater-than-benchmark exposure to high quality stocks (defined by Morningstar to include profitability and moderate leverage) was helpful for the Fund’s performance this quarter. We seek current and growing profitability and sound balance sheets in stocks we hold, and believe that during a time of significant uncertainty this may continue to provide benefits for our shareholders.

1 – FTSE Russell. Market Maps Monthly Performance Report, June 2020.
2 – FTSE Russell. Market Maps Monthly Performance Report, June 2020.
3 – FactSet, Top Down Attribution, Portfolio Analysis 3.0.

Next Insight

Average annual returns as of 6/30/20 are found at: https://www.needhamfunds.com/mutual-funds/aggressive-growth-fund/

The Needham Aggressive Growth Fund inception date is 9/4/01.
**Performance for any periods prior to the inception date of Institutional Class Shares are based on the historical performance of the Retail Class Shares adjusted to assume the expenses associated with Institutional Class Shares.

The Needham Aggressive Growth Fund's Gross Expense Ratio is 2.17% for the Retail Class and 1.90% for the Institutional Class. The
Needham Aggressive Growth Fund's Net Expense Ratio is 1.98% for the Retail Class and 1.43% for the Institutional Class. The Net
Expense Ratio reflects a contractual agreement by the Fund’s investment adviser to waive its fee and/or reimburse the Fund
through May 1, 2021 to the extent the Gross Expense Ratio exceeds 1.85% and 1.18% of the average daily net assets of Retail Class
Shares and Institutional Class Shares (Expense Cap). The Expense Cap excludes taxes, interest, brokerage, dividends on short
positions, fees and expenses of “acquired funds,” extraordinary items and shareholder redemption fees but includes the
management fee. 

The information presented in this commentary is not intended as personalized investment advice and does not constitute a
recommendation to buy or sell a particular security or other investments.
This message is not an offer of the Needham Growth Fund, the Needham Aggressive Growth Fund or the Needham Small Cap
Growth Fund. Shares are sold only through the currently effective prospectus. Please read the prospectus or summary prospectus
and consider the investment objectives, risks and charges and expenses of the Funds carefully before you invest. The prospectus
and summary prospectus contain this and other information about the Funds and can be obtained on our website,
www.needhamfunds.com.
Investment returns and principal value will fluctuate, and when redeemed, shares may be worth more or less than their original
cost. Performance data quoted represents past performance, and does not guarantee future results. Current performance may be
higher or lower than these results. Performance current to the most recent month-end may be obtained by calling our transfer
agent at 1-800-625-7071. Total return figures include reinvestment of all dividends and capital gains.
All three of the Needham Funds have substantial exposure to small and micro capitalized companies. Funds holding smaller
capitalized companies are subject to greater price fluctuation than those of larger companies.
Needham & Company, LLC, member FINRA/SIPC, is the distributor of The Needham Funds, Inc.
Portfolio holdings are subject to change.
The source of the data for each of the Russell 2000 Index and the Russell 3000 Index (together, the "Indexes") is the London Stock
Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2019. All rights in the Indexes vest in
the relevant LSE Group company which owns the Index. The Indexes are calculated by or on behalf of FTSE International Limited
or its affiliate, agent or partner. Neither the LSE Group nor its licensors accept any liability for any errors or omissions in the
Indexes; no party may rely on the Index returns shown; and the LSE Group makes no claim, prediction, warranty or representation
about the Fund or the suitability of the Indexes with respect to the Fund. No further distribution of data from the LSE Group is
permitted without the relevant LSE Group company's express written consent. The LSE Group is not connected to the Fund and
does not promote, sponsor or endorse the Fund or the content of this prospectus.