Quarterly Commentary

4Q 2021


  • Wage pressure, logistical transportation, higher commodity prices, and supply chain constraints continued to hamper earnings and forward guidance for many companies. The pandemic continues to exacerbate supply issues in developing countries, where many suppliers and manufacturers are located. We expect to see some of these risks and pressures begin to alleviate in 2022 as the Omicron variant abates.
  • Semiconductor shortages have had widespread negative implications for many end markets, including automotive, medical, industrial, and defense. However, demand remains robust, which gives us confidence that we will continue to see a recovery in 2022. We expect semiconductor shortages to stay elevated for an extended period, which supports our bullish investment thesis in semiconductor capital equipment stocks.
  • Supply chain 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.



  • The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned -3.63% and -3.79% respectively in 4Q21, underperforming the Russell 2000 Growth Index’s 0.01 return%.
  • For the year ended December 31, 2021, the Fund’s Institutional (NESIX) and Retail classes (NESGX) returned 11.74% and 10.98%, respectively, outperforming the Russell 2000 Growth Index’s 2.83%.
  • Contributors to the Fund’s 4Q21 performance were Neophotonics (NPTN), Limelight Networks (LLNW), Aspen Aerogels (ASPN), and Photonics (PLAB).
  • Fluidigm Corp. (FLDM) was the most significant detractor in 4Q21, as it evaluates long-term strategic options for its business. The other underperformer of significance was Telos Corp. (TLS). Its new CFO reset guidance, and the implementation of the announced TSA contract is slow to deploy.
  • As an asset class, small-cap growth stocks have been under selling pressure since the highs set last February. Small-cap value stocks outperformed small-cap growth throughout 2021. Energy and financial sectors continued to outperform technology and other growth industries.
  • The Fund exited many small positions to reduce the number of portfolio holdings and redeployed the capital into our concentrated best ideas.


  • Following the current market repricing and near-term multiple contractions, small-cap companies should benefit longer-term from improved global growth; revenue prospects should provide leverage in business models and drive improved earnings and cash flow.
  • We continue to like the semiconductor capital equipment industry, including portfolio holdings FormFactor (FORM), Veeco Instruments (VECO), and MKS Instruments (MKSI), and the Fund’s many small-cap holdings that are suppliers to these businesses. Investment in semiconductors has many growth drivers that provide nice long-term tailwinds to the sector.
  • The recently passed Infrastructure Investment and Jobs Act will provide substantial funding for expansion in industries such as broadband, wireless communications, and optical components. Optical suppliers such as portfolio holdings Infinera (INFN) and II-VI (IIVI) should also benefit from this buildout. The Federal Reserve has communicated its more hawkish stance and will raise interest rates and taper monetary accommodation. We expect multiple compression to occur along with higher volatility. We will be patient during this process and will look to invest in companies with strong management teams, solid balance sheets, and an ability to generate cash flow and profits.