Management Commentary: April 2022
Dear Investors,
While investors ended last year with hopes of putting the COVID pandemic behind them as cases fell, the emergence of Omicron coupled with a more hawkish Fed led to an inauspicious start to 2022. As the financial markets adjusted to rising inflation and the prospect of higher interest rates, geopolitical issues then moved to the forefront with Russia’s invasion of Ukraine. This tragic development added to the tremendous amount of uncertainty and volatility that were already in the markets. While we share these legitimate concerns, we remain encouraged by current business and consumer spending trends. Ultimately the market should be able to overcome a modest rise in interest rates, which arguably might be helpful in providing some balance to the U.S. economy as it continues to deal with stressed supply chains and an unusually robust job market. Also, hopefully in the not-too-distant future, many of the broader global concerns will subside – including a peaceful resolution to the Ukrainian conflict – and we will see a return to valuations that better reflect a more optimistic economic outlook.
Jacob Internet Fund
The Jacob Internet Fund added two new positions in the quarter, Cvent and Rover. Cvent, an old holding in the fund that was acquired by private equity in 2016, re-entered the public markets through a SPAC last year. Through additional business combinations while privately held, Cvent has returned as an even more dominant leader in the event planning space. Covid obviously had a negative impact on physical events, but Cvent was able to successfully pivot to virtual and now hybrid offerings. While virtual conference providers are plentiful, very few can offer in-person options that meet their large customer requirements. This product breadth and depth positions Cvent to disproportionally benefit from in-person events, which are already beginning to return. Rover, another SPAC that had a rough debut last year, is the clear online leader in pet sitting and boarding services. With ~10% of pet owners paying for commercial pet services, this market still has plenty of room to grow. A recent partnership with Petco highlights the surprising complexity of this business and shows that rather than potential competitors, major pet companies are opportunities for Rover going forward.
Jacob Small Cap Growth Fund
Besides also adding positions in Cvent and Rover, The Jacob Small Cap Growth Fund added one additional holding, Beam Therapeutics. Beam is the next-generation gene editing platform founded in part by industry pioneer David Liu from the Broad Institute at Harvard. The company’s base editing technology allows the company to target and replace mutated, disease-causing genes in a clean, precise way, in theory bypassing some of the toxicity and off-target complications that can arise from first-generation gene editing technologies. The company is in very early stages of development, with its first drug, treating sickle cell disease, expected to hit the clinic later this year, but the platform will have tremendously broad applicability if the technology proves safe and effective.
Jacob Discovery Fund *
The Jacob Discovery Fund added Rover in the quarter as well as Heron Therapeutics, a pain medicine drug developer already owned by other funds in the Jacob family.
Jacob Forward ETF
The Jacob Forward ETF also added new positions in Cvent, Rover and Beam Therapeutics.
Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund
Jacob Forward ETF
Darren Chervitz
Portfolio Manager
Jacob Discovery Fund
Jacob Internet Fund, Small Cap Growth Fund and Discovery Fund Risk Disclosures:
Mutual fund investing involves risk. Principal loss is possible. There are specific risks inherent in investing in the Internet area, particularly with respect to smaller capitalized companies and the high volatility of internet stocks. All three funds may invest in foreign securities, which involve greater volatility and political, economic and currency risks, and differences in accounting methods. These risks are greater in emerging markets. All three funds also invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility.
The Internet Fund may invest in fixed income and convertible securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. In addition, convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.
Investments in micro capitalization companies may involve greater risks, as these companies tend to have limited product lines, markets and financial or managerial resources. Micro cap stocks often also have a more limited trading market, such that the Adviser may not be able to sell stocks at an optimal time or price. In addition, less frequently-traded securities may be subject to more abrupt price movements than securities of larger capitalized companies.
Jacob Forward ETF Risk Disclosure:
Investing involves risk; Principal loss is possible. Please see the prospectus for the risks associated with investing in the Fund.
Click here for a link to the Jacob Forward ETF prospectus.
Click here to view the Jacob Funds prospectus.
*Effective 12/31/20 the Jacob Micro Cap Growth Fund was renamed as the Jacob Discovery Fund.
The information provided herein represents the opinion of Jacob Mutual Funds and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
Click here to view the holdings for the Jacob Internet Fund, as of February 28, 2022.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of February 28, 2022.
Click here to view the holdings for the Jacob Discovery Fund, as of February 28, 2022.
Please note that these fund holdings are subject to change and should not be considered a recommendation to buy or sell any security.
Earnings growth is not representative of the Fund’s future performance.
The Jacob Funds are distributed by Quasar Distributors, LLC.