Management Commentary: October 2022
Dear Investors,
While the quarter started out encouraging, with a significant rise from the June market lows, expectations were again dashed as the Fed responded with an even more strident message that they intend to raise interest rates at an even faster pace than expected. This somewhat surprising tone contributed to a sharp market reversal mid-quarter and led us to even lower levels in most indices. Although some leading inflation indicators have moderated in the past few months, the Fed has signaled that they would also like to see more progress toward a more balanced labor market. Unfortunately, as unemployment statistics tend to be a lagging indicator, it may be several more months before any weakness is reflected in the statistics. However, we did have one consequential event recently that may give Fed members pause and alter some views regarding the pace of rate increases. Last week, The Bank of England had to abruptly reverse course in policy and undertake a major bond buying program in response to large institutional margin calls that risked a major collapse in bond prices. This action will not go unnoticed here, or by central banks around the world, and will likely lead to more moderation in future rate decisions. This adds to our belief that we may be even closer to the end of this interest rate hike cycle, leading us to take a more aggressive posture regarding the Fund’s mix of holdings.
Jacob Internet Fund
The Jacob Internet Fund added one new position in the quarter: Atomera. This company uses a proprietary technology, called Mears Silicon Technology (MST), that allows chip makers to increase the efficiency and performance of their products without radically disrupting their current manufacturing processes. MST has been around for a while, but we believe the technology might finally be on the cusp of real adoption as the semiconductor industry struggles with the limitations of silicon as computers demand more and more power from smaller and smaller chips. We not too long ago invested in a small company called Transphorm, which is trying to address these emerging issues by developing a wideband material to compete with silicon called gallium nitride; Atomera’s approach is somewhat simpler and less disruptive but could be just as transformative to the industry. The company still needs one of its 20 trialing fab customers, including 50% of the top chip makers in the world, to fully commit to the technology, but even one win could lead to very significant near-term revenue and even more importantly, to an acceleration in the pace of adoption from other players in the chip industry.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund added no new positions in the quarter.
Jacob Discovery Fund
The Jacob Discovery Fund also added a new position in Atomera.
Jacob Forward ETF
The Jacob Forward ETF added no 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.
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 31, 2022.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of August 31, 2022.
Click here to view the holdings for the Jacob Discovery Fund, as of August 31, 2022.
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.