Management Commentary: April 2024
Dear Investors,
We began the year with a bit of a pause in the markets after the torrid finish to 2023 in the major indexes. But over the last several months, stocks resumed their climb, albeit at a more modest pace. This resilience – in the markets and in the broader economy - has been especially impressive because interest rates have risen across the yield curve and the timeline for future rate cuts has been repeatedly pushed back. However, it appears more likely now that we will eventually settle at rate levels that are higher than we’ve been accustomed to for the last several years. Even with these higher rates, we still believe that a healthy economy is likely in the cards, and will be most beneficial to the smaller, higher growth companies that we favor.
The Jacob Internet Fund added two new positions in the quarter, Phreesia and Semtech. Phreesia offers a subscription software platform for medical offices, helping them handle a variety of time-consuming tasks, such as scheduling, clinical support, and billing. Many doctor offices still utilize a more manual patient registration process, which includes those dreaded clipboards and brochures, but Phreesia has been very successful in rapidly signing up new customers to adopt its technology. Late last year, Phreesia announced it would be easing up on growth to focus more on client monetization and become cash flow positive this year, which led to a significant decline in the stock. Our belief is that growth will remain quite robust with additional products coming to market, such as the recent launch of its first medication adherence module. This expectation, combined with the stock’s discounted valuation, gives us the opportunity to invest in Phreesia at what we consider favorable prices.
The other new position in the quarter, Semtech, is a broad-ranging semiconductor company offering chips applicable to many Internet of Things and cloud platforms, including impressive design wins with AI server customers that operate in popular hyperscale data centers. The company’s low-power and high-signal-quality solutions are ideal for customers struggling with capacity issues on today’s overloaded networks. Unfortunately, an inefficient operating structure and misguided acquisitions have kept Semtech from realizing the full potential of its market opportunity. This leads us to the main reason for our investment: The hiring of Paul Pickle as Semtech’s new CEO, who came over from one of our longstanding holdings (Lantronix). An industry veteran, Paul took over a similarly challenging situation at Lantronix and quickly streamlined operations, improved the balance sheet, and signed many large contracts, revitalizing the company’s growth and solidifying its profitability. We believe that Paul will likely execute a similarly successful strategy at Semtech and are hoping to benefit once again as its share price reflects his progress.
The Jacob Small Cap Growth fund also added positions in Phreesia and Semtech in the quarter.
The Jacob Discovery fund added no new positions in the quarter.
The Jacob Forward ETF also added positions in Phreesia and Semtech 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 29, 2024.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of February 29, 2024.
Click here to view the holdings for the Jacob Discovery Fund, as of February 29, 2024.
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.