Management Commentary: October 2019
Dear Investors,
As has been the norm over the last several quarters, volatility remains high in most markets, its direction and velocity often dependent on the news headline(s) du jour. Trade talks, monetary policy, global unrest, and political drama at home seem to be in a never-ending feedback loop. Most of the major stock indices have held up relatively well, but small caps have not been quite as fortunate. It is not surprising that investors would gravitate toward more established companies to weather this uncertain environment. While we have no great insights as to how these many variables play out in the near-term, we do remain confident that economic conditions should hold up better than many investors fear. Generally speaking, valuations remain undemanding and could look even better if interest rates continue to decline further. For these reasons, we have been opportunistically adding to individual positions seeking to take advantage of this volatility, as well as investing in new companies that should be able to outperform on their own merits.
Jacob Internet Fund
The Jacob Internet Fund did not add any new names in the quarter.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund added two new holdings in the quarter: Precision Biosciences and NeuBase Therapeutics. Both Precision and NeuBase offer exciting new gene editing and silencing technologies that have the potential to personalize therapies for many cancers and rare diseases. Precision has an ex-vivo CAR-T therapy which recently entered Phase 1 & 2 studies, with the first data readouts likely before the end of the year. Its platform is also being utilized for in-vivo gene editing in collaboration with Gilead for the treatment of Hepatitis B. Finally, it is developing healthier food products through its Elo Life Systems subsidiary, starting with a Cargill partnership. NeuBase is developing next-generation peptide nucleic acids (PNA) that can act as a gene-silencing therapy with broad potential applicability. The company’s first clinical studies for Huntington’s disease and myotonic dystrophy should begin by 2021. Only public since July through a reverse merger, we have been unusually impressed with the quality of management and investors they have been able to attract. While both of these companies are very early in their development, we believe the potential for meaningful improvement over existing treatments makes them unique opportunities for investment.
Jacob Discovery Fund
Besides Precision Biosciences and NeuBase Therapeutics, the Jacob Discovery Fund also added two additional new names: Identiv and IntriCon. Identiv has been quietly putting together a fairly broad and robust set of hardware and software security solutions through internal development and especially acquisitions. The company is best known for creating the smart ID cards and readers that allow for physical access to locked doors, but now boasts a much wider, more innovative set of ID access solutions, including mobile security apps, RFID transponders, and video/data analytics. Identiv has an impressive list of customers, including some of the most security-sensitive government agencies and largest financial institutions. The once stagnant company has also been demonstrating of late modest but decent revenue growth and profitability expansion as it attempts to morph its product offerings into a more unified cohesive security solution focused primarily on software and services. IntriCon is another fairly mature company which has seen its business energized of late through the development of two related but separate large opportunities: Precision microelectronics, including coils and sensors, used primarily in glucose monitoring systems being developed by Medtronic; and less expensive hearing aids, which could see a huge explosion in growth assuming regulations passed by the federal government allowing for easier distribution and sale over-the-counter are implemented as expected. Both opportunities while still quite early and not without risk in terms of customer concentration and execution, are extremely exciting, and the company’s core technologies and competencies fit well with the continued adoption of smaller, wearable, connected medical devices.
Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund
Darren Chervitz
Portfolio Manager
Jacob Discovery Fund
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.
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 August 30, 2019.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of August 30, 2019.
Click here to view the holdings for the Jacob Discovery Fund, as of August 30, 2019.
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.