Management Commentary: October 2021
Dear Investors,
After a rocky few months, we have seen a marked pickup in volatility and a level of sector rotation we have not experienced in some time. Most of the equity indices were unable to post gains in the quarter as investors were still understandably cautious due to an uncertain outlook for the near-term economic picture. While still slower than we all would like, progress continues against COVID-19 in the U.S. and most of the developed world. This, in addition to more fiscal stimulus and persistently low interest rates, has led to a more robust recovery than many expected. However, other kinds of problems have emerged, such as shortages in labor and goods, that have made it difficult to keep up with rising demand and led to incipient inflation. Meanwhile the Federal Reserve has made it clear they are likely to pull back on some of the extremely accommodative monetary measures they’ve taken over the past year to buoy the economy. Though headwinds will remain challenging, we’re optimistic that some of these short-term issues will dissipate within the coming months and believe more normalized economic conditions – with lower but steady growth – is likely in 2022. Overall, we’ve been pleased with how the fund’s holdings have navigated this environment and believe most will continue to post strong results in the upcoming earnings season.
We are also happy to announce the successful launch of our newest fund: Jacob Forward ETF (Ticker-JFWD). This fund continues our team’s focus on investing in innovative, forward-thinking companies that leverage technology to create significant competitive advantages and ultimately, superior, lasting, profitable growth. The ETF format allows access to prospective shareholders across a wide variety of investing platforms worldwide. We will be including updates on the Jacob Forward ETF in all future quarterly manager commentary.
Jacob Internet Fund
The Jacob Internet Fund did not add any new positions in the quarter.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund added three new positions in the quarter, Crispr Therapeutics, Twist Biosciences and Amyris. Crispr is one of the pioneers in gene therapy, laying the groundwork for advancements in the revolutionary science of gene editing. Crispr enjoys a first-mover position in a wide portfolio of clinical assets – too numerous to mention here - and they will be one of a handful of companies leading the way in early human studies. Gene editing has its challenges – long-term safety and durability being the most important questions to resolve – but ultimately, we believe most diseases will be treated using therapies based on gene editing, and Crispr has an unparalleled position that could lead to a substantial creation of value for shareholders. Twist Biosciences is also a player in the gene therapy space, but rather than develop drugs, Twist manufactures DNA utilizing a technology platform that increases throughput, quickly and more cheaply than more manual methods. Aside from just assisting in drug development, Twist can provide genetic products for other industries such as food and chemicals. As might be expected, demand is booming and if Twist can maintain its technological edge versus its competitors, there is a clear opportunity to grow their business by multiples in size over the next few years. While much of the emerging synthetic biology industry remains mired in hype over substance, Amyris has been utilizing its proprietary fermentation technology to create cheaper, better, cleaner chemicals at meaningful scale for years. Originally designed to create cheaper forms of energy, Amyris’ technology is now used in more than a dozen of ingredients – and a couple dozen more in active development – for a vast array of other industries, such as cosmetics, foods, cannabis and other medicine. Thanks to numerous partnerships and some long-needed corporate restructuring, Amyris should be able to fully take advantage of the immense opportunities ahead for the synthetic biology industry.
Jacob Discovery Fund *
The Jacob Discovery Fund did not add any new positions 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.
*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 August 30, 2021.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of August 30, 2021.
Click here to view the holdings for the Jacob Discovery Fund, as of August 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.