Quarterly Commentary

• In 2Q21, Russell 2000 returned 4.29% and the S&P 500 returned 8.55%.

Source: Informa Intelligence, Inc.

• 10-year U.S. Treasury rates fell from 1.75% to 1.5% after a one-year increase from near 1.0%. The decrease helped equities in the second quarter.
• Inflation – Oil rose 18.1% and a basket of other commodities increased 9.4% in Q2. Core CPI rose 0.7% month-over-month in May and 0.9% in April. Labor and inventory shortages and supply chain disruptions are prevalent, supporting the idea that this inflation is temporary as economies recover from COVID-19 shutdowns.
• On inflation – We note that Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
• At the June 17, Federal Reserve Board Meeting Chairman Powell said, “You can think of this meeting that we had as the ‘talking about talking about’ meeting,” in consideration of a future increase in interest rates. Other than Paul Volcker, we believe that Federal Reserve Board Governors have a history of accommodative policies which have long provided a tailwind for equities and are unlikely to change.
• In 2Q21, top-performing industries were technology, energy, and healthcare. The post-pandemic recovery is underway. Approximately 2/3 of U.S. adults are now fully vaccinated.

• The Fund’s Institutional (NEAIX) and Retail classes (NEAGX) returned 10.59% and 10.41% respectively in 2Q21, outperforming the S&P 500 and the Russell 2000.
• The Fund’s 2Q21 outperformance, relative to the Russell 2000, was a result of stock selection. The Fund’s leading contributors were in the industrial, industrial technology, and technology sectors. Most of these holdings have insignificant weightings in the Russell 2000. The Fund’s lack of exposure to the underperforming financial sector was also a minor contributor to performance.
• The Fund’s top 3 contributors were Smith-Midland Corporation (SMID), Aspen Aerogels Inc. (ASPN), and Vicor Corporation (VICR). Smith-Midland manufactures concrete road barriers. It has strong growth in its high-margin barrier rental and licensing businesses. Aspen Aerogels manufactures aerogel-based insulation; in October, it announced a contract to supply its Pyrothin thermal barriers to a major North American automobile manufacturer to prevent thermal runaway in Lithium-ion batteries for Electric Vehicles (EVs). Vicor supplies power conversion devices, which reduce power consumption in data centers and other markets, including for EVs.
• MKS Instruments Inc. (MKSI) and Form Factor Inc. (FORM) were the top detractors although their losses were small relative to the top contributors.
• With the decline in interest rates, growth factors outperformed for the first time in 3 quarters. The Fund’s outperformance was supported by its greater-than-benchmark exposure to quality and growth factors and low exposure to value factors.
• With 11% turnover, the Fund does not rotate into or out of sectors, but invests in companies we believe can outperform over the long-term.

• Many of our top small-cap portfolio holdings have made multi-year investments that we believe position them to deliver growth and positive returns over the next few years. We believe if these investments succeed, they could provide a hedge to macroeconomic factors such as inflation.
• Vicor, PDF Solutions Inc. (PDFS), Aspen Aerogels, KVH Industries Inc. (KVHI), Super Micro Computer Inc. (SMCI), GSE Systems, Inc. (GVP), and Oil-Dri Corporation (ODC) are some of the Fund’s major holdings making such investments.
• We are also optimistic about the short- and long-term opportunities in the semiconductor manufacturing equipment industry, which represents about one-third of the Fund’s investments.
• The Fund targets investments we perceive to have significant, unrecognized growth opportunities. COVID-19 hastened the revolutionary development in technology and life sciences; the Fund is a long-term investor in companies that enable the research and manufacturing to bring these developments to market. Semiconductor manufacturing is an important example.
• Greater-than-benchmark exposure to high-quality stocks might position the Fund for outperformance in future periods of market weakness.