Quarterly Commentary

3Q 2021


  • Wage pressure, logistics and transportation, higher commodity prices, and supply chain constraints have hampered earnings and forward guidance for many companies. Continued impacts from the global pandemic in developing countries have also exacerbated supply issues, as many suppliers and manufacturers are in these countries. We expect to see some of these risks and pressures begin to alleviate in 2022.
  • Semiconductor shortages have had widespread negative implications for many end markets, including automotive, medical, industrial, and defense. However, product demand remains robust, which gives us confidence that we will see a recovery in 2022. Semiconductor shortages should remain elevated for an extended period, and this supports our bullish investment thesis in semiconductor capital equipment stocks.
  • These business interruptions have negatively impacted global growth while simultaneously supporting persistent inflationary pressures. We expect inflation to remain elevated in 2022 but expect a reduction in the inflation rate after that, as economic activity normalizes from the pandemic aftershocks.
  • Small-cap value stocks, specifically the energy and financial sectors, have outperformed relative to growth stocks. As an asset class, small-cap growth stocks have been under selling pressure since the highs set in February 2021.



  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned -3.53% and -3.69%, respectively, in 3Q21, outperforming the Russell 2000 Index –4.36%. YTD as of September 30, NESIX returned 15.95%, and NESGX returned 15.35%, exceeding the Russell 2000’s 12.41%. (Standardized performance on p. 3.)
  • The Fund’s 3Q21 performance was a result of the continued contribution from Aspen Aerogels Inc. (ASPN), PDF Solutions Inc (PDFS), Fluidigm Corp. (FLDM), and the announced acquisition of Cornerstone OnDemand Inc (CSOD) by Clearlake Capital Group at a 31% premium.
  • Intevac Inc (IVAC) was the largest detractor in the quarter as its military business opportunity has faced significant delays. The Fund’s other significant detractor was medical aesthetics company Sientra Inc. (SIEN), as the surge in the COVID-19 Delta variant in the U.S. delayed elective and oncology surgeries.


  • We added two well-known semiconductor capital equipment companies to the portfolio – Brooks Automation Inc (BRKS) and Advanced Energy Industries Inc (AEIS).
  • We also added positions in two regional financial institutions as a hedge to a steepening yield curve and higher inflationary risks.
  • We exited many smaller positions to limit the number of portfolio holdings to below 45 positions and redeployed the capital into our concentrated best ideas.


  • We are actively evaluating how company management teams performed throughout these volatile times and the ability of their business models to defend market share, maintain pricing power, and generate cash flow.
  • Many variables impacting investor sentiment should become clearer as the fiscal spending packages in Washington, DC, are completed before year-end. The removal of uncertainty is generally a positive outcome for risk assets.
  • The Federal Reserve should also provide clarity on its near-term market actions. The Fed has historically been highly accommodative, and we expect its approach to continue supporting risk assets. However, we will carefully evaluate the risk of multiple compression to equities if tapering is introduced.