Funds’ Commentaries
August 2026
VAM US Micro Cap Growth Fund (Q2 2026)
It was an extraordinary quarter for US micro cap and small cap stocks, which shrugged off yet another macro calamity — this time the war with Iran — to post their best quarter since the fourth quarter of 2020. Encouragingly, after a decade that favored large caps, smaller companies are showing leadership once again; the Russell Microcap Growth Index has outperformed the Russell 1000 Growth Index by over 1,200 basis points in the quarter and by over 3,300 basis points in the trailing one-year period1. The driver: Russell 2000 earnings growth projections for 2026 have reached 38%, attributed to the AI capital expenditure boom. Lower-quality shares again performed better within the small cap growth market during the quarter and six-month period, a headwind the investment team at Oberweis Asset Management (Oberweis) was nonetheless able to overcome despite its portfolio’s material overweight to profitable, higher return-on-equity companies2. The team focuses on investing in companies generating an earnings surprise driven by a misunderstood fundamental change.
The investment team believes this is likely just the start of a sustained period of smaller company leadership on both an absolute and relative basis, and history is on its side: when the Russell 2000 Growth has been this strong in the June quarter, it gained roughly 22% on average the rest of the year3. The team’s conviction rests on several pillars. First, despite the recent rally, the relative valuation gap between small and large caps remains near historically attractive extremes, and even on an absolute basis the forward multiple of its investable universe still sits below its long-run median. Second, it is the team’s view that the market dominance of the “Magnificent 7” has likely peaked and will wane in the coming years, because artificial intelligence represents a genuine business-model risk. These companies face a prisoner’s dilemma on AI spending that has compressed their aggregate free cash flow to nearly zero for an uncertain return on investment. The choice is stark: spend and possibly lose, or don’t spend and most likely lose. The bill is staggering — capital expenditures for the major hyperscalers are projected to climb from $416 billion in 2025 to about $758 billion in 2026 and nearly $1 trillion by 2028. In the team’s experience, contracting free cash flow combined with uncertain ROI rarely drives stock-price success, and top-heavy concentration in the S&P 500 is already easing.
The biggest reason for the team’s optimism, however, is its belief that smaller companies disproportionately benefit from the emergence of artificial intelligence. Countless micro caps across the technology, industrials, and energy sectors are directly profiting from the AI buildout, the most significant secular growth driver we have ever seen. But there is a second wave the investment team believes is still not well understood: the efficiency gains of agentic AI should, in its view, accrue more profoundly to micro cap companies. Nimbler and less complex than their multinational large-cap brethren, smaller companies should adopt AI efficiencies more quickly and more fully, leading to better-than-expected margin expansion and earnings. AI diminishes the competitive advantages historically found with the market giants, and AI could help microcaps be more competitive. With only 21% of US businesses currently using AI in any function, the runway is enormous. The team expects this backdrop will usher in a golden era for active management, as the divide between AI winners and losers widens.
Meanwhile, the macroeconomic backdrop remains reasonably constructive, albeit increasingly nuanced. Labour markets are broadly stable — payrolls rose 172,000 in May and the unemployment rate sits at 4.3% — and the consumer remains on solid footing, with a household debt-service ratio of just 11.1%, well below historical norms. The potential for falling gas prices could further support the consumer and economic growth in the second half of the year. The storm clouds we are watching include weak composite Purchasing Managers’ Index readings in Europe and, more pressing, potentially stubborn inflation that forces new Fed Chair Kevin Warsh to be incrementally more hawkish compared to his more dovish reputation in the market. Contentious mid-term elections and the potential for a flare up in the Middle East also bear monitoring.
While stock price sentiment may swing wildly in the short-run in response to incremental economic data, comments by the Federal Reserve, headlines, and TV soundbites, the team bottom-up investment strategy focuses instead on companies demonstrating better-than-expected earnings power driven by transformational fundamental change. The P/E multiples afforded such companies may vary from quarter to quarter, but the investment team believes a diversified portfolio of these investments is likely to outperform the market over the longer term.
Portfolio Highlights
As of June 30, 2026, the portfolio was 95.3% invested in 72 different positions. The portfolio had its largest overweightings in technology (36.3% average weighting during the quarter versus 25.3% for the Russell Microcap Growth Index) and industrials (22.3% versus 15.3%). The portfolio was most underweight health care (15.3% versus 35.7%, primarily due to primarily due to the team’s significant and historically consistent biotech underweighting) and materials (0.6% versus 4.3%).
Performance in the second quarter was positively impacted by stock selection in technology (where the team’s holdings returned 83.80% versus 70.71% for the benchmark’s technology holdings) and financials (40.81% versus 22.80%). The team’s overweight allocation to technology also benefitted performance. Its stock selections in healthcare (20.40% versus 24.25%) and consumer discretionary (13.46% versus 18.71%) detracted from performance.
Some of the top performers during the second quarter included: Applied Optoelectronics (AAOI), which returned +75% and contributed 789 basis points to portfolio return; Silicon Motion Technology (SIMO), which returned +197% and contributed 595 basis points to portfolio return; and Ultra Clean (UCTT), which returned +129% and contributed 426 basis points to portfolio return. In contrast, some of the leading detractors for the quarter included: Fastly (FSLY), which returned -37% and detracted 86 basis points from portfolio return; National Vision (EYE), which returned -35% and detracted 63 basis points from portfolio return; and GeneDx (WGS), which returned -46% and detracted 62 basis points from portfolio return.
VAM US Small Cap Growth Fund (Q2 2026)
It was an extraordinary quarter for US small cap stocks, which shrugged off yet another macro calamity — this time the war with Iran — to post their best quarter since the fourth quarter of 2020. It was, in fact, the second-best second quarter on record for the Russell 2000 Growth Index. Encouragingly, after a decade that favored large caps, small caps are showing leadership once again, outperforming by nearly 900 basis points in the quarter and by just over 2,100 basis points in the trailing one-year period1. The driver: Russell 2000 earnings growth projections for 2026 have reached 38%, attributed to the AI capital expenditure boom. Lower-quality shares again performed better within the small cap growth market during the quarter and six-month period, a headwind the investment team at Oberweis Asset Management (Oberweis) was nonetheless able to overcome despite its portfolio’s material overweight to profitable, higher return-on-equity companies2. The team focuses on investing in companies generating an earnings surprise driven by a misunderstood fundamental change.
The investment team believes this is likely just the start of a sustained period of small cap leadership on both an absolute and relative basis, and history is on its side: when the Russell 2000 Growth has been this strong in the June quarter, it gained roughly 22% on average the rest of the year3. The team’s conviction rests on several pillars. First, despite the recent rally, the relative valuation gap between small and large caps remains near historically attractive extremes, and even on an absolute basis the forward multiple of its investable universe still sits below its long-run median. Second, it is the team’s view that the market dominance of the “Magnificent 7” has likely peaked and will wane in the coming years, because artificial intelligence represents a genuine business-model risk. These companies face a prisoner’s dilemma on AI spending that has compressed their aggregate free cash flow to nearly zero for an uncertain return on investment. The choice is stark: spend and possibly lose, or don’t spend and most likely lose. The bill is staggering — capital expenditures for the major hyperscalers are projected to climb from $416 billion in 2025 to about $758 billion in 2026 and nearly $1 trillion by 2028. In the team’s experience, contracting free cash flow combined with uncertain ROI rarely drives stock-price success, and top-heavy concentration in the S&P 500 is already easing.
The biggest reason for the team’s optimism, however, is its belief that small cap companies disproportionately benefit from the emergence of artificial intelligence. Countless small caps across the technology, industrials, and energy sectors are directly profiting from the AI buildout, the most significant secular growth driver we have ever seen. But there is a second wave the investment believes is still not well understood: the efficiency gains of agentic AI should, in its view, accrue more profoundly to smaller companies. Nimbler and less complex than their multinational large-cap brethren, small caps should adopt AI efficiencies more quickly and more fully, leading to better-than-expected margin expansion and earnings. AI diminishes the competitive advantages historically found with the market giants. With only 21% of US businesses currently using AI in any function, the runway is enormous. The team expects this backdrop will usher in a golden era for active management, as the divide between AI winners and losers widens.
Meanwhile, the macroeconomic backdrop remains reasonably constructive, albeit increasingly nuanced. Labour markets are broadly stable — payrolls rose 172,000 in May and the unemployment rate sits at 4.3% — and the consumer remains on solid footing, with a household debt-service ratio of just 11.1%, well below historical norms. The potential for falling gas prices could further support the consumer and economic growth in the second half of the year. The storm clouds we are watching include weak composite Purchasing Managers’ Index readings in Europe and, more pressing, potentially stubborn inflation that forces new Fed Chair Kevin Warsh to be incrementally more hawkish compared to his more dovish reputation in the market. Contentious mid-term elections and the potential for a flare up in the Middle East also bear monitoring.
While stock price sentiment may swing wildly in the short-run in response to incremental economic data, comments by the Federal Reserve, headlines, and TV soundbites, our bottom-up investment strategy focuses instead on companies demonstrating better-than-expected earnings power driven by transformational change. The P/E multiples afforded such companies may vary from quarter to quarter, but the investment believes a diversified portfolio of these investments is likely to outperform the market over the longer term.
Portfolio Highlights
As of June 30, 2026, the portfolio was 97.5% invested in 78 different positions. The portfolio had its largest overweightings in technology (44.7% average weighting during the quarter versus 22.5% for the Russell 2000 Growth Index) and consumer discretionary (12.3% versus 7.1%). The portfolio was most underweight industrials (15.7% versus 24.5%), health care (15.4% versus 22.7%), and financials (5.8% versus 9.2%).
Overall performance in the second quarter was positively impacted by strong stock selection, particularly in technology (where the team’s holdings returned 60.54% versus a 47.29% return for the benchmark’s technology holdings) and consumer discretionary (23.29% versus 16.13%). The team’s overweight allocation to the technology sector also positively impacted performance in the quarter. Its stock selection in health care (23.24% versus 25.40%) and communication services (-16.20% versus +21.63%) detracted from performance during the quarter.
Some of the top performers during the second quarter included: Credo (CRDO), which returned +190% and contributed 743 basis points to portfolio return; Applied Optoelectronics (AAOI), which returned +75% and contributed 392 basis points to portfolio return; and Lumentum (LITE), which returned +22% and contributed 304 basis points to portfolio return. In contrast, some of the leading detractors for the quarter included: Dana (DAN), which returned -19% and detracted 34 basis points from portfolio return; Core Natural Resources (CNR), which returned -24% and detracted 30 basis points from portfolio return; and Waystar (WAY), which returned -15% and detracted 20 basis points from portfolio return.
VAM Fund
Global equities advanced in August, with the MSCI World Index up 2.6%, supported by solid corporate earnings, resilient economic data and continued investment in AI infrastructure. Technology shares were again a key driver as demand held up for semiconductors, cloud computing and other AI-enabling technologies. In the US, the S&P 500 rose 2.7% to record highs, led by energy (on higher oil prices and the geo political landscape), IT and materials, while utilities and industrials lagged as higher bond yields dulled the appeal of defensive sectors. Eurozone stocks edged higher on gains in IT, communication services and financials, and UK equities rose modestly but trailed other regions.
Emerging markets outperformed developed peers in US dollar terms, helped by a tech-led rebound, a weaker dollar and commodity strength, with South Africa, Taiwan and Korea leading, while India and China were broadly flat and Brazil underperformed on slowing growth and pre-election politics. Asia ex Japan rose 3.3%, supported by technology investment and semiconductor demand. Despite the strong month, sentiment turned more cautious into month-end as rising oil prices, renewed Middle East conflict and higher bond yields raised doubts about central banks’ easing path—compounded by hawkish comments from the Fed Chair at Jackson Hole—underlining investors’ sensitivity to anything that could reignite inflation or challenge elevated valuations.
VAM Multi-Asset Funds
August saw global equity markets regain momentum, supported by resilient economic growth and another strong corporate earnings season. Enthusiasm around artificial intelligence (AI) also regained its footing, as continued investment in AI infrastructure helped reassure investors that the theme still has room to run. However, the picture was less positive in bond markets, where persistent inflation and hawkish central bank commentary reinforced expectations that interest rates could remain higher for longer. Commodities also performed strongly, with gold rebounding and oil remaining elevated amid continued tensions in the Middle East.
Equities
Global equities moved higher in August (+2.1%), with gains stretching across developed and emerging markets as healthy corporate earnings and resilient economic data supported investor confidence. Technology stocks regained momentum following July’s sell-off, with continued spending on AI infrastructure supporting semiconductor and software companies. While the US performed strongly (+2.1%), Japan was one of the best-performing developed markets (+2.7%), helped by solid corporate earnings and a weaker Yen. Emerging markets also performed well (+2.7%), supported by technology-related gains and a weaker Dollar, although China lagged as weak economic data and subdued domestic demand weighed on sentiment. Unlike July, when value stocks significantly outperformed, growth and value delivered similar returns during August, pointing to a broader market rally.
Fixed Income
Government bond markets delivered mixed returns during August as investors continued to reassess the outlook for inflation and interest rates. In the US, Federal Reserve Chair Kevin Warsh struck a hawkish tone at the annual Jackson Hole policy symposium, reinforcing expectations that interest rates could rise further if inflation remains stubborn. Longer-dated US government bonds received some support after the Treasury announced plans to buy back bonds, while European and Japanese government bonds came under greater pressure as yields rose. Within credit markets, both investment grade and high yield bonds performed positively, with high yield particularly strong as credit spreads narrowed. Emerging market debt also benefitted from the weaker US Dollar.
Currencies and Commodities
Gold was a standout performer in August, rebounding 9.4% as investors looked for safer assets amid ongoing uncertainty. Oil prices remained elevated but broadly stable, with continued tensions between the US and Iran keeping concerns around potential supply disruption in focus. Currency markets were more active, with the US Dollar weakening over the month. The Japanese Yen remained under pressure despite efforts by the US and Japan to support the currency, as higher interest rates overseas continued to temper the yen’s relative attractiveness. Sterling remained sensitive to the outlook for UK interest rates, with inflation rising to 2.9% and markets continuing to price further rate rises from the Bank of England before year end.
Alquity WCM World Growth Fund
The Quarter in Review
Global equities melted up in Q2 as the US-Iran framework agreement reopened the Strait of Hormuz, draining the geopolitical risk that had gripped markets. Brent tumbled from above $97 to multi-month lows, and with it went the stagflation fear that had kept yields elevated. Beneath the relief rally ran a more powerful current, as the AI-capex boom and a historic memory-chip squeeze turned Technology into the quarter’s undisputed engine.
The rotation was violent and lopsided. Cyclicals ripped as the oil shock faded, but the real story was semiconductors, where an unrelenting capex cycle and a memory squeeze sent Asian markets vertical, Korea and Taiwan leading a benchmark that now leans hard on one theme. International equities broadly outran the US tape, as a firm Dollar and the AI trade rewarded Asian exporters while Europe closed at record highs still trading at a deep discount to America. Energy was the mirror image, the worst place to be as crude collapsed.
That single-theme benchmark left the fund’s structural technology underweight as the quarter’s largest headwind, a positioning cost rather than a broken thesis in the market’s most crowded trade. But fundamentals carried the fund where it counted: its concentration in European industrials, financials and consumer franchises worked as the region rallied, and the fund’s communication services holdings delivered returns that dwarfed the sector. The investment team used the tech sell-off to add vertical software and a distinct memory-cycle idea at attractive entry
points, rotated into Korean financials, and trimmed winners where size had outrun conviction.
What the investment team at WCM has written before bears repeating: trading on macro prognostications at the expense of temperament rarely rewards. It would rather own businesses that forge their own success, adapt as conditions shift, and keep widening their moats regardless of which theme the market is chasing.
Attribution
Both sector and regional allocation detracted in Q2, while sector and regional selection each contributed, more than offsetting the allocation drag.
Contributors:
For sector allocation, the team’s avoidance of Utilities (3rd worst) and underweight to Financials (3rd best) were positive. Sector selection was led by Comm Svcs, followed by Info Tech and Health Care. The fund’s underweight to the Americas was additive by region, and Europe led regional selection.
Detractors:
The dominant sector allocation drag was the fund’s underweight to Info Tech (best in bench). Overweights to Health Care (4th best), Energy (worst), and Comm Svcs (6th best) also detracted. Selection lagged in Industrials and Consumer Staples. The fund’s overweight to Europe was the largest regional allocation headwind, followed by the Middle East. The Americas detracted on regional selection.
Other Factors:
Growth beat Value, a tailwind for FGE. Low Quality outpaced High Quality (Quality uses ROE as a proxy), a headwind.
Sources: Oberweis Asset Management, WCM Investment Management (as of June 2026) and atomos, VAM Funds (as of August 2026).
1For the 1-year period ended 6/30/2026, the Russell Microcap Growth Index returned 51.30% versus 17.71% for the Russell 1000 Growth Index.
2According to Jefferies, non-earners and the most expensive two P/E quintiles within the Russell 2000 Growth Index performed best during the quarter.
3Source: Jefferies.
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