MACRO OBSERVATIONS
- Economic uncertainty abounds until we have clarity surrounding the pace and intensity of the new Administration’s policies.
- Global economies will need to adjust to any new U.S. policies; therefore we could see a near-term slowdown in global trade.
- Significant and swift increases in tariffs will not be good for equities, although company management teams have contingency plans to help mitigate near-term tariff impacts.
- Deregulation should benefit companies that have been burdened with substantial controls and costs.
- M&A opportunities should accelerate with a change at the Federal Trade Commission; this should be positive for small-cap stocks, as there are many that could benefit from consolidation.
- Capital markets should begin to reopen and provide interesting IPO opportunities.
- Inflation pressures remain a risk and could be a headwind to lower short-term rates.
PORTFOLIO PERFORMANCE
- The Fund’s Institutional (NESIX) and Retail classes (NESGX) returned 0.31% and 0.16%, respectively, in the fourth quarter, compared to the Russell 2000 Growth’s 1.70% and the Russell 3000’s 2.63%.
- We believe there is significant value within the small-cap asset class after years of selling pressure and investor avoidance. Management teams continue to focus on improving cost structures and margins, accelerating revenue, and strengthening balance sheets.
- The Fund’s top five performers in 4Q24 were ADTRAN Holdings, Inc. (ADTN), TTM Technologies, Inc. (TTMI), ChartIndustries, Inc. (GTLS), Vicor Corporation (VICR), and MaxLinear, Inc. (MXL).
- The Fund’s top five detractors in 4Q24 were Aspen Aerogels, Inc. (ASPN), PDF Solutions, Inc. (PDFS), Calix, Inc.(CALX), Harmonic, Inc. (HLIT), and Rogers Corporation (ROG).
OUTLOOK
- Elevated real interest rates will continue to impact economic activity as companies focus on their balance sheets and accumulate cash. We expect the Federal Reserve to pause further rate cuts until inflation shows improvement and the new Administration’s policies are clarified.
- Automotive and industrial supply chains are still being worked down as end demand has slowed production rates, which may not improve until later in 2025.
- The Department of Government Efficiency (DOGE) is a concern to companies that benefit from Federal spending programs and until greater clarity is given, government contracts may be at risk.
- Technology remains a long-term strength of the economy, and several major secular trends persist firmly in place to support continued growth. Areas of long-term investment that we continue to like are data centers, communications infrastructure, defense, AI, cloud computing, wireless connectivity, software and security, and specialty material manufacturers. Innovation within our portfolio companies continues and long term, we believe these investments will benefit the Fund.