Management Commentary: January 2021
Dear Investors,
After a bit of a bumpy start to the quarter, the last two months has seen many of the market indexes reach new all-time highs. Given the increasing number of coronavirus cases around the world and relatively weak economic indicators, the robustness in the equity markets seems somewhat surprising. Among the various factors for this disconnect, many of which we have discussed over the past few quarters, accommodative monetary policy and additional fiscal stimulus stand out as the most significant contributor, but also of high importance is the rapid digitization of business and consumer behavior from which our funds have disproportionately benefited. The beginning of the distribution of vaccines and a clearer political landscape have given investors more confidence that economic conditions should improve throughout 2021. One byproduct of this enthusiasm, however, has been higher valuations across many sectors. While we do not expect these levels alone to trigger any imminent market correction, it does make us more vulnerable to any unexpected adverse changes to current conditions. On a brighter note, we are heartened to finally see the outperformance of small caps vs. the major market indexes over the last few months and are still looking to raise our weightings in the small- to mid-sized businesses we favor.
Jacob Internet Fund
The Jacob Internet Fund added two new positions in the quarter: Silvergate Capital and Waitr Holdings. Silvergate Capital is a traditional bank holding company with an emerging business catering to institutional transactions in cryptocurrencies. Back before 2014, Silvergate was having difficulty attracting deposits in order to grow its loan portfolio and saw an opportunity to accept noninterest cryptocurrency deposits. By working with various regulators early on, Silvergate was a pioneer in accepting cryptocurrency transactions from parties that were more comfortable transacting with a federally regulated bank. Realizing that they were unique in being able to offer this, they launched in 2018 the Silvergate Exchange Network (SEN). The SEN allows its participants to transfer funds from the bank to its customer base of the major digital currency companies instantaneously on a 24/7 basis. Now with over 928 participants, Silvergate’s first mover advantage has allowed it to quickly reach a critical mass that should result in significant earnings leverage over the next several quarters.
Waitr Holdings is an online delivery service marketplace focused mostly on the U.S. Southeast. Obviously, coronavirus has led to a fairly dramatic rise in people ordering food from their homes off of mobile apps catering to the restaurant and grocery industries. Just like with their larger counterparts – such as DoorDash, Uber Eats, Postmates, etc. – Waitr’s business has flourished over the past couple of years with impressive growth in its revenue and underlying metrics, and a 2020 restructuring helped turn the company in a cash-flow positive business. While not without competitive and operational challenges, we believe that Waitr will likely continue to benefit from the tailwinds of the online food delivery market and is an attractive acquisition candidate given its relatively modest valuation and position as one of the few independent, regionally focused players in the country.
Jacob Small Cap Growth Fund
The Jacob Small Cap Growth Fund also added Waitr Holdings in the quarter.
Jacob Discovery Fund *
The Jacob Discovery Fund also added Waiter Holdings as well as a new position in Celcuity.
Celcuity is developing an intriguing new technology that could help pharmaceutical companies better predict which patients will respond to their cancer drugs. Targeted cancer treatment, which is personalized to a patient’s specific tumor mutations and pathways, has long been an investment theme of interest for the Jacob Funds, and Celcuity’s technology is a potential game-changer for the space. Founded and led by a successful entrepreneur, Brian Sullivan, Celcuity should have some clinical data later this year that will hopefully prove out its technology, which analyzes a patient’s own live cancer cells in a lab and detects signaling dysfunctions that may be missed by broadly used genetic tests. If successful, Celcuity’s partners could be able to significantly expand the number of patients who would benefit from the use of a particular drug. While potential, positive outcomes in one cancer type and one mutation alone – such as in HER2 and breast cancer, which is the company’s primary focus today – could support the company’s low valuation, it is also possible that Celcuity’s technology may have applicability to a wide range of cancer types and tumor mutations.
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.
*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, 2020.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of November 30, 2020.
Click here to view the holdings for the Jacob Discovery Fund, as of November 30, 2020.
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.