Small Cap Fund Commentary - January 2023

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Market Update

2022 was a difficult, turbulent, and disappointing year. Global supply chain issues, and high energy, food, and housing costs fueled the fire, prompting the Fed to tighten monetary policy a total of 7 times throughout the year. This tightening was as we expected; however, it was anticipated to be more gradual given the telegraphed communication from the Fed around its ‘transitory’ nature. As we mentioned at the end of the 3rd quarter, the Fed playing catchup with a heavy-handed monetary policy perpetuated the frustrating investment environment and emphasize the continued regime of heightened market and economic volatility, which would carry forward, through the end of the year. The result was a year rife with volatility, uncertainty, and negative returns across both equity and fixed income asset classes, culminating in the most prolonged bear market since the Global Financial Crisis and the worst year for equities since 2008. Perennial optimists, we did observe silver linings in the dark clouds of 2022; peak inflation, labor market resilience, strong corporate balance sheets and some slight positive momentum for equities in the fourth quarter.

Portfolio Review

  • During the 4th quarter, the Yorktown Small Cap Fund produced another positive quarter of performance for our investors, gaining 2.71% net versus a gain of 6.23% for the Russell 2000 Index and a gain of 4.13% for the Russell 2000 Growth Index.  

  • For the year the Yorktown Small Cap Fund returned a loss of -25.18% net versus a loss of -26.36% for the Russell 2000 Growth Index and a loss of -20.44% for the Russell 2000 Index.  

  • The three sectors that aided relative portfolio performance the most during the quarter included electronic technology, health technology, and non-energy minerals. Health services, energy minerals, and consumer non-durables were the three sectors which hindered relative portfolio performance the most during the quarter.  

  • For the second time in a row stock selection aided relative portfolio performance while sector allocation hindered relative portfolio performance during the quarter.  

  • From a holdings perspective Rambus 40.91%, Catalyst Pharmaceuticals 44.97%, and Perion Network Ltd. 31.16% were the three stocks that helped absolute portfolio performance the most while Tech Target Inc (25.57%), Intellia Therapeutics (37.65%) and DocGo Inc. (36.25%) detracted the most from the portfolio during the quarter.  

  • Finance, electronic technology, and the retail sectors continued to be the largest weighted sectors in the portfolio while utilities, commercial services, and process industries were the least weighted sectors represented in the portfolio.   


Positioning & Outlook

As we look forward to 2023, we see a much more dynamic equity market environment, with large performance dispersions between market capitalization, growth versus value styles and economic sectors.   We see the current “un-official recession” bottoming in the quarters ahead and are optimistic that the market will begin to “climb a wall of worry” in advance of the economy bottoming as it has historically.  We believe that we are currently working our way out of a two-year rolling cyclical “bear” market that will slowly gain positive momentum in fits & starts as equity valuations become richer due to earnings decelerating and bottoming.   Previous Inflation peaks have coincided with market bottoms, and we believe that inflation has peaked.  While our preference would be for the Fed to pause immediately, our wish is that the deteriorating economic data catches up and the Fed doesn’t go too far down the path with further rate hikes in 2023.  At current levels, the markets are pricing in a final rate hike in March during this cycle.  The actions of the Fed have large and lasting effects on the economy, which are historically lagged, and we believe these effects have not yet been fully felt.   We feel that whether or not the bottom is in, the current environment provides a historically great entry point for long-term small cap investors.  We see opportunity in the small cap stocks that we believe have been unduly punished relative to large cap stocks and also know that small caps stocks historically have led the market higher coming out of recessions.  As we have said before, small cap stocks tend to lead the way during downturns as well as recoveries and believe that current small cap valuations already reflect this forward-looking discount. We also believe that active management will prevail as it solely has the ability to identify the strongest, most fundamentally superior companies which will be key during the uneven equity market recovery.


Learn more about the Yorktown Small Cap Fund:


Overview Performance Literature



Definition of Terms

Basis Points (bps) - refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. 

Curvature - A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. 

Mortgage-Backed Security (MBS) - A mortgage-backed security is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. 

Collateralized Loan Obligation (CLO) - A collateralized loan obligation is a single security backed by a pool of debt. 

Commercial Real Estate Loan (CRE) - A mortgage secured by a lien on commercial property as opposed to residential property. 

CRE CLO - The underlying assets of a CRE CLO are short-term floating rate loans collateralized by transitional properties. 

Asset-Backed Security (ABS) - An asset-backed security is an investment security—a bond or note—which is collateralized by a pool of assets, such as loans, leases, credit card debt, royalties, or receivables. 

Option-Adjusted Spread (OAS) - The measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option. 

Enhanced Equipment Trust Certificate (EETC) - One form of equipment trust certificate that is issued and managed through special purpose vehicles known as pass-through trusts. These special purpose vehicles (SPEs) allow borrowers to aggregate multiple equipment purchases into one debt security 

Real Estate Investment Trust (REIT) - A company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. 

London InterBank Offered Rate (LIBOR) - a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. 

Secured Overnight Financing Rate (SOFR) - a benchmark interest rate for dollar-denominated derivatives and loans that is replacing the London interbank offered rate (LIBOR). 

Delta - the ratio that compares the change in the price of an asset, usually marketable securities, to the corresponding change in the price of its derivative. 

Commercial Mortgage-Backed Security (CMBS) - fixed-income investment products that are backed by mortgages on commercial properties rather than residential real estate. 

Floating-Rate Note (FRN) - a bond with a variable interest rate that allows investors to benefit from rising interest rates. 

Consumer Price Index (CPI) - a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. 

Net Asset Value (NAV) - represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. 

S&P 500 - The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on exchanges in the United States. 

German DAX - The DAX—also known as the Deutscher Aktien Index or the GER40—is a stock index that represents 40 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. 

NASDAQ - The Nasdaq Stock Market (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. 

MSCI EM Index - The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries. With 1,382 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. 

Nikkei - The Nikkei is short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index composed of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. 

Shanghai Composite - is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. 

MOVE Index - The ICE BofA MOVE Index (MOVE) measures Treasury rate volatility through options pricing. 

VIX Index - The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). 

Dow Jones Industrial Average - The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. 

Hang Seng - The Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. 

STOXX Europe 600 - The STOXX Europe 600, also called STOXX 600, SXXP, is a stock index of European stocks designed by STOXX Ltd. This index has a fixed number of 600 components representing large, mid and small capitalization companies among 17 European countries, covering approximately 90% of the free-float market capitalization of the European stock market (not limited to the Eurozone). 

Euro STOXX 50 - The EURO STOXX 50 Index is a market capitalization weighted stock index of 50 large, blue-chip European companies operating within eurozone nations. 

CAC (France) - is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant stocks among the 100 largest market caps on the Euronext Paris (formerly the Paris Bourse). 

Duration Risk - the name economists give to the risk associated with the sensitivity of a bond's price to a one percent change in interest rates. 

Federal Open Market Committee (FOMC) - the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy specifically by directing open market operations (OMO). 

United States Treasury (UST) - the national treasury of the federal government of the United States where it serves as an executive department. The Treasury manages all of the money coming into the government and paid out by it. 

High Yield (HY) - high-yield bonds (also called junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds are more likely to default, so they must pay a higher yield than investment-grade bonds to compensate investors. 

Investment Grade (IG) - an investment grade is a rating that signifies that a municipal or corporate bond presents a relatively low risk of default. 

Exchange Traded Fund (ETF) - an exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. 

Federal Family Education Loan Program (FFELP) - a program that worked with private lenders to provide education loans guaranteed by the federal government. 

Business Development Program (BDC) - an organization that invests in small- and medium-sized companies as well as distressed companies.




You should carefully consider the investment objectives, potential risks, management fees, charges and expenses of the fund before investing.  

The fund's prospectus contains this and other information about the fund and should be read carefully before investing. You may obtain a current copy of the fund's prospectus by calling 800-544-6060.

Ultimus Fund Distributors and Yorktown Funds are not affiliated

The performance quoted represents past performance and does not guarantee future results.  The investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.  Current performance of the Fund may be lower or higher than the performance quoted.  Performance data current to the most recent month end may be obtained by calling 1-800-544-6060.  

Russell 2000 Index is an index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Annual Operating Expenses: Per the most recent prospectus, (1) Fund total operating expense ratios are: Class A, 1.63%; Class L, 2.38%; Institutional Class, 1.38% and (2) Fund net annual operating expense ratios are: Class A, 1.41%, Class L, 2.16%, Institutional Class, 1.16%. The net annual expense ratio takes into account contractual management fee waivers that are in effect until May 31, 2023.

Investing involves risk, including loss of principal.  There is no guarantee that this, or any investment strategy, will succeed. Small and mid cap investing involves greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity, and increased competitive threat.


Control #: 16334034-UFD-1/26/2023

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