Quarterly Commentary

3Q 2022


  • In 3Q22, the Russell 2000 Growth returned 0.24%, the Russell 2000 returned -2.19% and the S&P 500 returned -4.88%.
  • In July, when investors believed the Federal Reserve might end its rate-raising cycle, the Russell 2000 Growth returned 11.20%and the S&P 500 returned 9.22%. In late July, the Federal Reserve raised interest rates 75 basis points (bps). The markets were down moderately in August. In September, the markets gave back their July gains. The Federal Reserve raised rates another 75 bps in late September to 3.00% – 3.25%. The Fed has indicated plans to increase rates to 4.25% – 4.50% by year-end.


  • 3Q22 was shocking in many ways. We continued to see atrocities from the Russian assault on civilians in Ukraine. European countries sought to end their dependence on Russian natural gas, which resulted in electricity price spikes. Countries and regions must shorten supply chains and become self-sufficient in energy and manufacturing.
  • Year-over-year inflation was 8.5% in July 2022 and 8.3% in August. After June 2022, these are the highest levels since 1981.1
  • Real gross domestic product (GDP) decreased by 0.6% in 2Q22 after declining by 1.6% in 1Q22.2 A slow economy should rein in inflation. However, as 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.”3 U.S. government spending over the last four years has led to an increase in the money supply.


  • The Fund’s Institutional (NEAIX) and Retail (NEAGX) classes returned 1.56% and 1.37%, respectively, in 3Q22, outperforming the Russell 2000 Growth’s 0.24% return.
  • Eight of the Fund’s top ten contributors were outside its top ten holdings. The top contributor was Sharps Compliance (formerly SMED), a medical and pharmaceutical waste processor that was acquired by Aurora Capital Partners at a 207% premium.
  • Smith-Midland Corporation (SMID) was the second largest contributor. Smith-Midland manufactures road barriers and other concrete products.
  • The Fund’s top detractor was Unisys Corporation (UIS), which reported a shortfall in legacy software revenues. Unisys trades at 4x estimated 2023 earnings.
  • Bright Horizons Family Solutions Inc. (BFAM) was the second largest detractor. It reported an earnings and guidance shortfall due to recruiting difficulties and slower-than-anticipated enrollment growth. We increased the size of this position in 1H22.
  • The Fund closed the quarter with 14.0% cash.
  • With 12% turnover, the Fund does not rotate into or out of sectors but invests in companies we believe can outperform over the long term.


  • The Fund added one new holding, nLight, Inc. (LASR). nLight manufactures fiber lasers for industrial and defense applications. It is adding manufacturing capacity in its Camas, WA facility and focusing on business outside of China. China now comprises 10% of its revenue, down from over 25% a few years ago.
  • We took advantage of market weakness to add to many of the Fund’s positions, including:
    • Photronics, Inc. (PLAB), which manufactures photomasks to fabricate semiconductors and flat-panel displays. Photronics announced a strong quarter ending July 31. However, it slightly reduced guidance and the stock fell as a power outage in Korea caused a large customer to defer some deliveries. We estimate Photronics is trading at 5x earnings, excluding its $6/share cash position.
    • Mativ, Inc. (MATV), which makes filtration media and paper and packaging products. Mativ was created by the July 2022 merger of Neenah, Inc. and Schweitzer-Maudit. We estimate Mativ trades at 8x earnings.
  • The Fund exited two positions through takeovers. NeoPhotonics (formerly NPTN) was acquired by Lumentum Holdings, Inc. (LITE) and Sharps Compliance by Aurora Capital Partners.


  • We believe the public markets are not adequately recognizing the value in many of our holdings. Vacasa, Inc. (VCSA) is an example. Vacasa, a vacation rental property management company, went public via SPAC in December 2021. It reported strong results in August and the stock price increased before falling back to where it began the quarter. Vacasa is valued at just $1.3 billion, with $800 million cash. It collects cash from customers before paying its vendors. As a result, Vacasa generated $350 million of cash in 1H22. We believe Vacasa is perceived as “just another SPAC,” despite its strategic advantages, low valuation, and cash generation. Vacasa is a 0.98% position and we doubled our position earlier in the year.
  • Many of our largest portfolio holdings have made multi-year investments that position them to deliver growth and positive returns over the next few years. We believe if these investments succeed, they could provide a hedge against macroeconomic factors such as inflation.
  • The Fund targets investments that 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 research and manufacturing to bring these developments to market.