The top five holdings of this small fund are: Newport Corporation (NEWP, 9.98% of assets); /A Ultra Clean Holdings, Inc., (UCTT, 6.83%); Silicon Graphics International (SGI, 6.44%); KVH Industries, Inc. (KVHI, 5.10%) and Amber Road, Inc. (AMBR, 5.00%).
Needham Small Cap Growth Fund (NESGX)
From Moneyletter
Needham Small Cap Growth Fund (NESGX) This fund delves not just into small-cap stocks, but micro-caps, which recently accounted for more than 80% of assets. This portfolio also holds a limited number of stocks (just 26 recently). Note the heavy concentration in the information technology sector. Plus, the top ten stocks account for 55% of assets.
The fund’s investment strategy is to invest in smaller growth companies trading at a discount to their underlying values, yet have superior long-term growth potential. Managers Chris Retzler and John Barr look for firms that are emerging as market leaders, which have strong “incentivized” management teams, and have unrecognized product or operating margin expansion opportunities.
The fund may use short selling to reduce volatility, may hold cash, and will invest in “venture-based post-IPO opportunities.” In fact, cash recently comprised nearly 20% of assets. This fund underperformed its small growth category in recent years. However, many of the fund’s long-term holdings are now adding to positive fund performance. Retzler recently told CNBC’s Nightly Business Report, “I think things are getting better. There’s certainly a greater focus on value stocks. We’re seeing that money is coming into a broader bunch of technology companies that have been really ignored for the past year. So we’re confident going forward.”
Retzler added that he likes to invest in stocks that are a play on the “Internet of things.” In this case, companies that are selling equipment to the big Internet players such as Cisco, Google, Apple, and Facebook. One example is Super Micro Computers (up more than 40% this year).
Retzler notes that the firm has significant insider ownership. It makes high end servers (where it is gaining market share from Lenovo) and also next-generation storage products. Needham Small Cap Growth has advanced nearly 8.0% this year, outpacing 99% of the small growth category.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890- 9670, April 2016