Quarterly Commentary

3Q 2022


  • Inflation remains stubbornly high, which encourages the Federal Reserve to set higher interest rates that impact risk assets. Global economic growth is slowing, and the inversion of the interest rate yield curve indicates a higher probability of a global recession.
  • Dollar strength is weighing on U.S. equity markets, which will impact the corporate earnings of companies that sell overseas. Until the Dollar weakens, we are cautious about U.S. risk assets. “Don’t fight the Fed,” as the saying goes.
  • Energy costs remain one of the largest contributors to the historic inflation we face, and we have not seen the peak of food inflation. A true long-term, independent energy policy is needed for the U.S.; the recent further release of the Strategic Petroleum Reserve was a short-term benefit at the expense of the future.
  • 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 will persist for an extended period.



  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned –2.57% and –2.77%, respectively, in 3Q22, underperforming the Russell 2000 Growth’s 0.24%.
  • Small-cap stocks have been in a bear market since March 2021, and near-term caution is necessary because it is not over. After a repricing of the market and multiple contractions, small cap companies should benefit longer-term from improved global growth. Revenue prospects should provide leverage in business models and drive earnings and cash flow.
  • The Fund’s top five performers were: Viewray Inc. (VRAY), AXT Inc. (AXTI), Edgio Inc. (EGIO), Telos Corp. (TLS), and Vicor Corp. (VICR).
  • The Fund’s bottom five performers were: Upland Software Inc. (UPLD), Standard BioTools Inc. (LAB), 8×8 Inc. (EGHT), Benefitfocus Inc. (BNFT), and Zoura Inc. (ZUO).
  • Given the Fund’s under allocation to the energy sector, we were not able to benefit from the tailwinds of surging oil prices. The Fund’s overweight in technology also detracted from performance.


  • Component shortages and overall supply chain challenges remain significant issues for technology companies. The shutdowns in China as a result of its “zero-COVID” approach have had significant near-term impacts on company results.
  • If supply chain risks improve and energy costs decrease, inflation may decline more rapidly than currently projected. If we see improvement in these inflationary pressures, it should help alleviate the monetary actions of the Federal Reserve.
  • Semiconductor shortages have had widespread negative implications for many industries, including automotive, medical, industrial, and defense. Recently, we have observed weakness in PC and handsets, which had negative implications for the semiconductor industry. However, we believe that long term, investors will realize value in the industry.
  • 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.