Management Commentary: April 2023
Dear Investors,
After enduring a steep selloff to end 2022, the new year began with a degree of optimism and a significant rebound in most market indices. Unfortunately, these positive feelings ended up being short-lived as it became clear that inflation was in fact not declining as fast as expected, leading to more strident messaging from the Fed that they would still be aggressively raising rates until more progress was made. This messaging, combined with related troubles emerging from some regional banks, contributed to a market reversal mid-quarter with investors uncertain how these new developments could affect economic growth. Stock valuations remain depressed across many sectors, mainly reflecting market sentiment rather than actual business results. Smaller growth stocks suffered some of the most extreme declines as investors have sought to reduce their risk exposure. While we do expect volatility to remain elevated, we expect that higher stock prices will over the longer term prove to be justified for those companies that can deliver both strong revenue growth and earnings leverage. We believe that many of the fund’s holdings will ultimately emerge from this difficult period in an even better competitive position, and eventually exit this downturn with more streamlined cost structures that will enable a rapid increase in profitability.
Jacob Internet Fund
The Jacob Internet Fund added two new positions in the quarter, Braze and TrueCar. Braze is a leading marketing technology company that enables companies to engage with customers using contextual messages in a real-time, relevant fashion. As it’s become increasingly challenging to obtain third-party data, companies have prioritized maximizing their own information flow to run their business successfully. While the customer marketing software market is quite competitive, Braze has one of the most robust, most mobile-friendly technology stacks in the industry, servicing more than 1,000 clients, reaching more than 3.5 billion end users, thanks in part to a strong partner network that includes several major system integrators.
TrueCar is a well-known third-party marketing and lead-generation technology company for automobile dealers. After undergoing some significant operational hiccups several years ago that culminated with the loss of its largest customer, the company has recently stabilized the business and gotten back into the good graces of the dealer community, while still providing value to the automobile buying customer. With a new leadership team and its new TrueCar+ program, which gives consumers the ability to go through the whole car buying process, including financing, without even stepping into the dealership, we believe the company is well-positioned to start growing its dealership count again and take advantage of an auto industry that is likely at the tail end of a tumultuous period, where supply chain issues led to a very limited amount of inventory of new cars and extremely high used car pricing. Macroeconomic weakness could limit the upside in the near-term, but with the valuation of TrueCar trading at a small premium to the cash they have on the balance sheet, we like the risk-reward at these levels.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund also added a position in Braze in the quarter.
Jacob Discovery Fund
The Jacob Discovery Fund also added a position in TrueCar in the quarter:
Jacob Forward ETF
The Jacob Forward ETF also added positions in Braze in the quarter.
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.
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, 2023.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of February 28, 2023.
Click here to view the holdings for the Jacob Discovery Fund, as of February 28, 2023.
Click here to view the current holdings for the Jacob Forward ETF.
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.