Quarterly Commentary

1Q 2022


  • Wage pressure, logistical transportation, higher commodity prices, and supply chain constraints continued to hamper earnings and forward guidance for many companies. The pandemic and geopolitical conflicts continue to exacerbate global supply issues. We still expect to see some of these risks and pressures begin to alleviate, however the recovery has been delayed beyond our original expectations.
  • Semiconductor shortages continue to have widespread negative implications for many end markets, including automotive, medical, industrial, and defense. To date, demand remains robust, which gives us confidence that we will continue to see a recovery throughout the year. We expect semiconductor shortages to stay elevated for an extended period, which supports our long-term bullish investment thesis in semiconductor capital equipment stocks.
  • Supply chain interruptions have negatively impacted global growth while simultaneously supporting persistent inflationary pressures. Inflation has remained elevated beyond our original estimates as geopolitical conflicts has exacerbated pressures for commodities. The Federal Reserve has pivoted to more aggressively address inflationary pressures and has generally outlined a plan for higher interest rates and a reduction in their balance sheet holdings which have been and remain headwinds for risk assets.



  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned –11.39% and –11.56% respectively in 1Q22, underperforming the Russell 2000 Index’s -7.53%.
  • Primary contributors to the Fund’s 1Q22 performance were Limelight Networks, Inc. (LLNW) and Benefitfocus (BNFT). Limelight, a content delivery network provider, continued to benefit from its operational transformation. Under a new CEO, it has added security, realigned the sales team, and adopted a customer-centric approach over the past year. Benefitfocus, a software company that manages employee benefits programs, has also transformed under new leadership and has attracted value-oriented investors.
  • As an asset class, small-cap growth stocks have been under selling pressure since the highs set last February. We hope to see supply chain complications improve and inflation risks abate.
  • The Fund exited many of its small positions to reduce the number of portfolio holdings and raised cash.


  • Following the current market repricing and near-term multiple contractions, small-cap companies should benefit longer-term from improved global growth. Revenue prospects should provide leverage in business models and drive improved earnings and cash flow.
  • We continue to like the semiconductor capital equipment industry, including portfolio holdings FormFactor (FORM), Veeco Instruments (VECO), and MKS Instruments (MKSI), and the Fund’s many small-cap holdings that are suppliers to these businesses. Investment in semiconductors has many growth drivers that provide nice long-term tailwinds to the sector.
  • The recently passed Infrastructure Investment and Jobs Act will provide substantial funding for expansion in industries such as broadband, wireless communications, and optical components. Optical suppliers such as portfolio holdings Infinera (INFN) and II-VI (IIVI) should also benefit from this buildout. The Federal Reserve has communicated its more hawkish stance and will raise interest rates and taper monetary accommodation. We expect multiple compression to continue to occur along with higher volatility. We will be patient during this process and will look to invest in companies with strong management teams, solid balance sheets, and an ability to generate cash flow and profits.