Quarterly Commentary

3Q 2023


  • Inflation has improved, but the challenges of elevated costs in housing, food, and labor remain. We anticipate that the Federal Reserve may raise rates one more time, although the long end of the yield curve has risen substantially.
  • The next few quarters should allow the economy to digest the impact of higher interest rates, and global economic growth should continue to slow as the impact of the higher capital costs filters throughout the economy. Liquidity and credit availability have been reduced, which puts pressure on risk assets.
  • 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 lower demand and higher cost of capital.
  • Unfortunately, geopolitical risks have escalated, which we expect will persist for an extended period.


  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned -10.15% and -10.30%, respectively, in the third quarter, underperforming the Russell 2000 Growth’s -7.32%.
  • The Fund continued to be under pressure in the quarter, as small-cap companies remained out of favor with investors. The Fund maintained a high level of cash in expectation of more attractive valuation levels for deployment. We expect the upcoming earnings season to remain challenging and tax loss selling season to further pressure underperforming equities.
  • Finally, after years of selling pressure and investor avoidance, we believe there is significant value within the asset class. We look forward to 2024, as management teams focus on improving cost structures and balance sheets. However, the transition to this improved profile is not over yet.
  • The Fund’s top five performers in 3Q23 were: Standard BioTools, Inc. (LAB), Vicor Corp. (VICR), New Relic, Inc. (NEWR), Aspen Aerogels, Inc. (ASPN) and SiTime Corp. (SITM).
  • The Fund’s top five detractors in 3Q23 were: Cambium Networks Corp. (CMBM), Akoustis Technologies, Inc. (AKTS), nLIGHT, Inc. (LASR), Adtran Holdings, Inc. (ADTN) and KVH Industries, Inc. (KVHI).


  • Higher interest rates are impacting economic activity; companies are focused on their balance sheets and stockpiling cash. Investments are delayed, which impacts supply chains. The recent auto union strikes will pressure activity within their suppliers, and we are hopeful that a resolution will be reached soon.
  • The financial meltdown we experienced in March reminded us of the fragility and interconnectedness of our financial system. Higher interest rates may cause further stress within the regional banking system, but it is hard to predict if we will experience a repeat of March. We remain concerned about the continued 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. Innovation within our portfolio companies continues, and over the long term, we believe these investments will benefit the Fund.