Quarterly Commentary

1Q 2023


  • Inflation continues to improve from extremely high levels and we expect the Federal Reserve to end rate increases in the coming months. Global economic growth should continue to slow, and the inversion of the interest rate yield curve indicates a higher probability of a global recession. Energy, housing, food, and labor costs remain significant headwinds to lower inflation.
  • Recent U.S. dollar weakness should positively impact the future corporate earnings of companies that sell overseas. As we’ve mentioned previously, a weak dollar should improve the outlook for U.S. risk assets.
  • Corporate layoffs have accelerated as management teams prepare for a weaker economy and slower business opportunities.
  • We expect mergers and acquisitions to increase as companies recognize the impact of higher capital costs and the need for consolidation.
  • Volatility continues as the markets digest earnings and future monetary policy risks. Labor issues, logistical transportation, higher commodity prices, and supply chain constraints have hampered earnings and forward guidance for many companies.
  • Unfortunately, geopolitical risks are expected to persist for an extended period.


  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned 5.67% and 5.55%, respectively, in the first quarter, slightly underperforming the Russell 2000 Growth’s 6.07%.
  • Small-cap stocks have been in a bear market since March 2021. However, we became more constructive on equities over the last few months as equity valuations collapsed, the dollar weakened, and tax loss selling abated in 2023.
  • The Fund experienced a significant, positive market move in January. We raised cash levels starting in February and continued to reduce exposure throughout the remainder of the quarter. Unfortunately, the January outperformance evaporated as the small-cap asset class sold off and the Fund experienced some negative stock-specific news.
  • Companies with solid management teams that can capitalize on revenue prospects should provide leverage in business models and drive earnings and cash flow. Strong balance sheets are extremely important during economic downturns.
  • The Fund’s top five performers in 1Q23 were: Sumo Logic, Inc. (SUMO), Zuora, Inc. (ZUO), Standard BioTools, Inc. (LAB), Yext, Inc. (YEXT), and FormFactor, Inc. (FORM).
  • The Fund’s top five detractors on 1Q23 were: Aspen Aerogels, Inc. (ASPN), Telos Corp. (TLS), ViewRay, Inc. (VRAY), Upland Software, Inc. (UPLD), and ADTRAN Holdings, Inc. (ADTN).
  • In January 2023, Sumo Logic, Inc. announced its acquisition by Francisco Partners. This is a perfect example of a management team that was improving operations but realized that it is more prudent to consolidate based on economic circumstances and higher costs of capital.


  • The financial meltdown we experienced in March reminded us of the fragility of our financial system and the interconnectedness of financial institutions. While we are relieved the system did not collapse like in 2008, we are still concerned about ripple effects from the crisis and the lower expected liquidity for both retail investors and the financial markets.
  • Capital markets remain challenged, and companies needing to raise funds are finding that the cost of capital is substantially higher than in past years. This higher cost of capital weighs substantially on equity valuations.
  • The CHIPS and Science Act passed in July 2022 has not provided the benefit we had expected, as government conditions have kept companies from applying for the program. Until these conditions are amended, we don’t expect a significant boost from this Act.
  • Technology remains a long-term strength of the economy, and there are major secular trends that remain firmly in place to support continued growth. Areas of long-term investment that we continue to like are mobile electrification, communications infrastructure, defense, AI, cloud computing, 5G devices and wireless connectivity, software and security, and specialty material manufacturers.