Management Commentary: July 2025
Dear Investors,
Leading into the last quarter we experienced some market weakness as the rhetoric around tariffs began to pick up steam. Within weeks, that quickly spiraled into a major market correction as giant across-the board tariffs were announced with little warning. Investors assessed the potential effect on the economy, which led to a broader selloff and confusion as to how and when these tariffs would be implemented. Thankfully, it became clearer as the quarter progressed that there was at least some flexibility on the timing and size of those tariffs, and the most draconian outcome of an all-out trade war would likely be avoided. Even with some added military action in the Middle East, this realization was enough for a significant market recovery in the back half of the quarter. Our general takeaway from these events is that it confirmed our suspicions that the equity markets are on a much more resilient footing than many had feared. Even with an economy that’s cooling, the unlikelihood of a near-term recession combined with a potentially more accommodative interest rate policy bodes well for stock prices as the year progresses.
The Jacob Internet Fund added two new positions in the quarter, Rocket Companies and Lightwave Logic. Rocket Companies has quickly become one of the largest online mortgage lenders due mainly to their broad integration of advanced technology and AI into its platform. Unlike many of its peers, Rocket has made significant investments to drive efficiencies and drastically improve both the broker and consumer experience from what has historically been a highly manual process. The recent acquisitions of mortgage servicer Mr. Cooper and online real estate portal Redfin will provide numerous cross-selling opportunities, and we also believe it will likely result in a positive rerating of the stock, with higher valuation multiples for these combined businesses. Finally, if we do see lower interest rates later this year, we could see an uptick in mortgage origination and refi activity, which would lead to materially higher earnings estimates for 2026.
Lightwave Logic has developed a proprietary electro-optical polymer technology that could dramatically improve the speed and efficiency of the Internet infrastructure backbone, which is already struggling under the increasing data demands of artificial intelligence. As the AI technological revolution intensifies, and then quantum computing becomes more relevant, the limitations and power inefficiency of the current optical network will only be more apparent, and the need to resolve that bottleneck more urgent. Lightwave is working with several leading players in the data center and semiconductor industries to test the effectiveness of its modulators and integrated circuits and hopes to secure design wins and licensing revenue within the next 12-24 months. While the road to adoption of its technology has been bumpy, and could continue to be so, the opportunity is incredibly significant and the company has recently brought on a highly regarded and experienced new CEO that we believe will bring some clarity and urgency to the business, accelerating the path to commercialization.
The Jacob Discovery Fund also added a Lightwave Logic position in the quarter.
The Jacob Small Cap Growth Fund did not add any new positions in the quarter.
Ryan Jacob
Portfolio Manager
Jacob Internet Fund
Jacob Small Cap Growth Fund
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.
Investing involves risk; Principal loss is possible. Please see the prospectus for the risks associated with investing in the Fund.
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 May 31, 2025.
Click here to view the holdings for the Jacob Small Cap Growth Fund, as of May 31, 2025.
Click here to view the holdings for the Jacob Discovery Fund, as of May 31, 2025.
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.