Quarterly Commentary

2Q 2023


  • Inflation has improved, but the headwinds of elevated costs in housing, food, and labor remain. We anticipate that the Federal Reserve will end rate increases in the coming months, which should allow the economy to digest the impact of higher interest rates.
  • Global economic growth should continue to slow as the impact of the higher cost of capital slowly filters throughout the economy. The inversion of the interest rate yield curve indicates a higher probability of a recession, although the timing is difficult to predict.
  • Corporate layoffs continue as management teams prepare for the possibility of a weaker economy and slower business opportunities.
  • Companies continue to adjust inventory levels to meet new end demand and higher cost of capital to retain inventory levels. Lingering disruptions from the pandemic continue to have ripple effects throughout supply chains, and we expect that a downturn would rebalance inventories.
  • Unfortunately, geopolitical risks will persist for an extended period.


  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned -2.83% and -2.63%, respectively, in the second quarter, significantly underperforming the Russell 2000 Growth’s 7.05%.
  • I want to address the extreme disappointment the Fund suffered from ViewRay (VRAY), a long-time holding of the Fund, and an unprecedented event in my 18 years of portfolio management. ViewRay experienced a perfect storm of liquidity pressures. We were hopeful that the announced strategic review would have led to a sale of the company to a larger platform; however, after months of efforts, that was not the final result. The rapid and shocking decline of VRAY serves as a valuable lesson for future high-growth small-cap companies that may encounter liquidity risks in a tightening economic environment.
  • The market sold off in March, recovered in April, and the theme of artificial intelligence (AI) became a household name. Semiconductors are at the center of this technological advancement, and we believe this theme is one that will persist. Semiconductor capital equipment suppliers should also benefit long-term from AI and from the geographical expansion of semiconductor manufacturing plants away from Taiwan.
  • Companies with solid management teams capable of capitalizing on revenue prospects should provide leverage in business models and drive earnings and cash flow. Strong balance sheets are crucial during economic downturns.
  • Finally, small-cap stocks have begun to share in the market upturn that larger-cap companies have enjoyed year-to-date. We believe there is significant value within the asset class after years of selling pressure and investor avoidance.
  • The Fund’s top five performers in 2Q23 were nLight, Inc. (LASR), Vicor Corp. (VICR), Veeco Instruments, Inc. (VECO), Aspen Aerogels, Inc. (ASPN) and Photronics, Inc. (PLAB).
  • The Fund’s top five detractors on 2Q23 were ViewRay, Inc. (VRAY), Intevac, Inc. (IVAC), Adtran Holdings, Inc. (ADTN), KVH Industries, Inc. (KVHI) and Cambium Networks Corp. (CMBM).


  • 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 that the system did not collapse like in 2008, we remain concerned about potential ripple effects from the crisis and the lower expected liquidity for both retail investors and the financial markets.
  • Capital markets continue to face challenges, and companies needing to raise funds are finding that the cost of capital is substantially higher than in past years. The higher cost of capital weighs substantially on equity valuations.
  • Technology remains a long-term strength of the economy, and several major secular trends 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.