Quarterly Commentary

1Q 2021


  • In 1Q21, the S&P 500 returned 6.17%.  There was a significant rotation out of growth into value late in the quarter – the S&P 500 Value Index returned 10.58% in Q1 while the S&P 500 Growth Index finished up 2.06%.

Source: Zephyr Informais


  • We believe accommodative policies have long provided tailwind for equities. In the “Semi-Annual Report on Monetary Policy to the Senate,” Fed. Reserve Chairman Powell said, “following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time…we will continue to increase our holdings of Treasury securities and agency mortgage-backed securities at least at their current pace…The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.”1
  • In 1Q21, top-performing industries were energy, materials, financials and consumer discretionary.
    The market is anticipating recovery from the pandemic recession as vaccinations, which started in mid-December, have now reached over 30% of the US population.2

  • In mid-March, the $1.9T American Rescue Plan Act became law. Congress and the Biden Administration quickly turned to consideration of a $2.5trillion infrastructure bill. The Administration plans to raise taxes in the fall. It’s possible that $4.4T of stimulus spending may push the equity markets higher despite the pending tax increases.3


  • The Fund’s Institutional (NEEIX) and Retail classes (NEEGX) returned 7.39% and 7.30%, respectively, in 1Q21, out-performing the S&P 500’s 6.17% and underperforming the Russell 2000’s 12.70%.
  • For the 2nd quarter in a row, the Fund’s greater-than-benchmark exposure to high quality and low exposure to value factors hurt the Fund’s relative performance.  It was value’s largest outperformance vs. growth in 2 decades.
  • The Fund’s 1Q21 outperformance relative to the S&P 500 was the result of being invested in outperforming consumer discretionary and technology stocks.
  • At 15% turnover, the Fund does not rotate in or out of sectors, but invests in companies we believe can outperform over the long-term.
  • The Fund’s top 3 contributors were CarMax, Inc. (KMX), Entegris Inc. (ENTG), and Aspen Aerogels Inc. (ASPN). The market sees CarMax as a beneficiary of a reopening economy. We see it as the long-term winner in the multi-channel, previously-owned car market. Entegris benefited from the big semiconductor industry news described below. Aspen Aerogels rose as the market began to better understand its opportunity as a supplier of thermal protection insulation to the electric vehicle battery market. Aspen’s products can prevent thermal runaway in lithium-ion EV batteries.
  • PDF Solutions, Inc. (PDFS) was the leading detractor in 1Q21. We believe PDF is well-positioned to be the leading, big data analytics supplier to the semiconductor industry.


  • Big news in the semiconductor industry – We’ve long felt the semiconductor industry has moved beyond a cyclical, PC-driven  industry to one of strategic importance. In March, Intel Corp. (INTC) announced plans to invest $20B in new plants in Arizona.  In early April, Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) announced it will spend $100B of capex over 3 years. Also, the Biden Administration’s proposed a $2.5T infrastructure bill includes $50B for the semiconductor industry. All of these investments will require advanced semiconductor manufacturing equipment.
  • We have more invested dollars behind this theme than any other in the portfolio. At March 31, 2021, 31.8% of Needham Growth Fund’s net assets were invested in semiconductor and semiconductor equipment companies.
  • The Fund targets investments we perceive to have significant, unrecognized growth opportunities. COVID-19 is hastening 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.


1- https://www.federalreserve.gov/newsevents/testimony/powell20210223a.htm
2- https://www.npr.org/sections/health-shots/2021/01/28/960901166/how-is-the-covid-19-vaccination-campaign-going-in-your-state
3- https://www.statista.com/chart/24395/composition-of-the-american-rescue-plan-act/
4 – https://www.morningstar.com/funds/xnas/neagx/portfolio
5 – https://on.spdji.com/rs/838-LDP-483/images/dashboard-sp-500-factor-2021-03.pdf?mkt_tok=ODM4LUxEUC00ODMAAAF8LZpNDm5JAptod3ony9ed5LobGYtWkGHjXk0Q41dIszR0rA90o3dSkah2qdbaki_bl9SZh1zyGR6aotqCxSztuqExC7lpjbILiIFNKYgC