Quarterly Commentary

3Q 2020


  • U.S. equities rallied for the second quarter in a row; S&P 500 returned 8.93%; Russell 2000 returned 4.93%. YTD at September 30, the S&P 500 returned 5.57%; Russell 2000 returned -8.69%.
  • 3Q20 U.S. GDP estimates called for 32% quarter-on-quarter growth, well ahead of the initial 12% estimate on July 311
  • In late August, the Federal Reserve adopted new policy that allows inflation over 2%, providing a tailwind to equities2
  • The Federal Reserve’s balance sheet increased to $7T in late September, up from $4.2T in early March, providing another tailwind to asset prices. After the 2008 Great Financial Crisis, it took five years for the balance sheet to expand by $3T.
  • During the 3rd quarter, high-quality and long-term momentum factors outperformed, while small-size, high-yield and value factors underperformed3
  • The top industry contributors were software and tech hardware. Utilities, telecommunications and energy were underperforming sectors.


  • The Fund’s Institutional (NEEIX) and Retail classes (NEEGX) returned 9.14% and 9.02%, respectively, in 3Q20. YTD at September 30, NEEIX returned 16.20%; NEEGX returned 15.77%, considerably outperforming the S&P 500’s 5.57% and Russell 2000’s -8.69% YTD results.
  • The Fund’s greater-than-benchmark exposure to high quality stocks helped 3Q20 performance. Our portfolio companies’ above average return-on-capital and below average leverage are a cause for Morningstar’s high quality ranking4.
  • In 3Q20, relative to the S&P 500, the Fund’s allocation underweights in energy, telecommunications, real estate and utilities contributed. The Fund rarely invests in these sectors as they do not meet our growth and quality criteria. The Fund’s allocation to life science tools contributed, while its underweight allocation to technology hardware detracted from performance.
  • Consumer discretionary stocks, led by the hospitality industry, accelerated in 3Q20 as the market anticipated a return to normalcy. These stocks rarely match our quality investment criteria, so the Fund was underweight.
  • The Fund’s top contributor was its largest holding, Thermo-Fisher Scientific Inc. (TMO), which saw strong organic growth from its COVID-19 response, including PCR-based tests and services and equipment for life sciences research.
  • Aspen Aerogels Inc. (ASPN) and Entegris Inc. (ENTG) were also major contributors. The market began to recognize Aspen Aerogel’s potential to supply aerogels for use in thermal control in lithium-ion batteries. Entegris provides technology for advanced semiconductor manufacturing.
  • Gilead Sciences, Inc. (GILD) was the leading detractor in 3Q20; its hepatitis C and HIV franchises suffered due to the healthcare system’s priority of treating COVID-19.

    NEEIX Morningstar Factor Profile


  • We target companies 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 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.
  • Greater-than-benchmark exposure to high quality stocks positions the Fund for outperformance in future periods of market weakness.
  • We seek current and growing profitability and sound balance sheets in the stocks we hold, and believe that during times of uncertainty, this may continue to benefit our shareholders.