Jacob Asset Management

View Original

Management Commentary: July 2022

Dear Investors,

 

In many ways, this past quarter was an extension of the same risk-averse, inflation-obsessed dynamics plaguing the economy and markets for nearly a year. Adding to this, with headline inflation numbers staying stubbornly high, the Fed announced its intention to embark on an even more aggressive rate hike plan. Markets quickly adjusted to this new hawkish forecast, resulting in more selling pressure amid worries that the economy would be plunged into a recession. Talk of a downturn continues to dominate the market discussion, but we believe tracking inflation, and signs that it might have already peaked, will be an important factor in determining the future direction of the markets.  Even if gross prices do not fall, inflation gauges like the Consumer Price Index will likely decline more than the markets are expecting as we will be removing unusually low baseline numbers influenced by the Delta variant surge last year. Even if we are in a recession as of the second quarter, we believe the markets could be poised to rebound strongly if the Fed signals it may pause any future interest rate increases as it becomes clearer they are getting their desired result of a cooling economy and inflation, with a more balanced labor market.

Jacob Internet Fund 

The Jacob Internet Fund added three new positions in the quarter: HashiCorp, Nextdoor and Poshmark. An IPO from last December, HashiCorp is a software company that helps businesses migrate to hybrid and multi-cloud environments. These types of integrations are becoming more common as it is necessary to be able to handle various cloud services across different architectures. HashiCorp provides another example of a developer-led, subscription-based, open-source platform software model that has the inherent competitive advantages we tend to favor in the space. Nextdoor has emerged as a leading neighborhood social media site that helps users connect to local businesses and public agencies. With third-party identifying data increasingly difficult to obtain and entrepreneurs eager to attract consumers in their communities, targeted spending on a highly engaged site like Nextdoor is likely to see an increased share of ad budgets. Nextdoor also has an experienced management team with an impressive record of success, including its CEO, a former senior executive at Salesforce.com and Square. Finally, Poshmark is an e-commerce exchange for the resale of fashion apparel and accessories. Aside from the high margins inherent in a marketplace model, they have also been successful in weaving a vibrant community element into the listing and buying process, which should help with user stickiness and more repeat customers. Poshmark also has a very strong balance sheet, with over $500m in cash and virtually no debt, allowing them to continue to invest aggressively in growing their business while several competitors struggle to gain traction.

Jacob Small Cap Growth Fund

The Jacob Small Cap Growth Fund also added new positions in HashiCorp, Nextdoor and Poshmark.

 

Jacob Discovery Fund *

The Jacob Discovery Fund also added a new position in Nextdoor.

Jacob Forward ETF

The Jacob Forward ETF also added new positions in HashiCorp, Nextdoor and Poshmark.

 

Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund
Jacob Forward ETF

Darren Chervitz
Portfolio Manager
Jacob Discovery Fund


www.jacobfunds.com

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 May 31, 2022.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of May 31, 2022.
Click here to view the holdings for the Jacob Discovery Fund, as of May 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 Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The Jacob Funds are distributed by Quasar Distributors, LLC.