Management Commentary: January 2022
Dear Investors,
The rollercoaster ride of 2021 continued last quarter with an encouraging start in October derailed by a combination of more aggressive tapering of bond purchases by the Fed and the emergence of the Omicron variant. While the economy is still performing admirably given the numerous distortions in supply chains and the labor market, concerns are mounting that high inflation levels may not be temporary, and its effects longer-lasting. Acknowledging that this is the consensus opinion of most investors, it is somewhat curious that the bond markets are largely shrugging off these concerns, with the longer-dated maturities in the yield curve remaining docile to this point. For this reason, we are hesitant to be too certain that conditions today won’t ease in the coming months, resulting in a gradual return to normalization in the economy with inflation reports cooling off, and the economy returning to a lower but steadier growth rate. We still find ourselves generally pleased with how the fund’s holdings have navigated this very difficult environment and are confident that we are well-positioned for 2022.
Jacob Internet Fund
The Jacob Internet Fund added one new position in the quarter, Doximity. The leading social network for physicians and medical professionals, Doximity boasts over 80% of U.S. doctors active on their platform. By pre-screening members as to their credentials, Doximity has created a trusted community that is extremely valuable to advertisers. One of the most impressive milestones of their progress is that they are already very profitable despite being early in their growth curve. This early indication of scale and leverage makes us confident that Doximity can eventually reach the high operating margins common with more mature social media companies. Now, with their recent lock-up expiration passed, we believe that Doximity represents a compelling opportunity to benefit from the rapid acceleration of digital ad budgets in the healthcare industry, as well as the potential to offer many types of future services through this unique platform.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund did not add any new positions in the quarter.
Jacob Discovery Fund *
The Jacob Discovery Fund added two new positions in the quarter, Columbia Care and WM Technology. Both businesses are involved in the cannabis space, an industry we have long been intrigued with. While we expected the Federal government under the new Administration to do more to help make it easier for American cannabis businesses, marijuana legalization and decriminalization continues to slowly become the law of the land across the country. Six states legalized marijuana in some form or another in 2021, and right now, medical marijuana is legal in 36 states, with recreational marijuana allowed for sale in 18 states. However, not all is well with the cannabis industry, however, as a still-robust black market and regulatory obstacles have led to much uncertainty. We still believe cannabis remains an exciting long-term growth opportunity and are excited to have invested in a couple of innovative, well-run companies trading at depressed valuations. Columbia Care is a leading multi-state operator (MSO) of cannabis dispensaries in the US, operating 80 active locations in 18 different jurisdictions as well as 2 million square feet of cultivation capacity. The company is already seeing positive cash flow in most of its markets as is leveraging its experience in medical marijuana markets to the recreational space, with a focus on its new, well-received Cannabist brand, providing a huge runway for growth over the next few years. WM Technology operates a leading online advertising platform for cannabis dispensaries known as Weedmaps. While not immune to the near-term difficulties of the industry, Weedmaps continues to display solid growth, capture market share versus competitors, and realize solid profits.
Jacob Forward ETF
The Jacob Forward ETF also added one new position in the quarter, Doximity.
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 November 30, 2021.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of November 30, 2021.
Click here to view the holdings for the Jacob Discovery Fund, as of November 30, 2021.
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.