Q2 2021 : Portfolio Manager Q&A

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Would you please comment on the Fund’s performance for the quarter ended June 30, 2021, as well as the longer term, relative to the S&P 500 Index and the Morningstar Large Growth Funds category?

For the quarter ended June 30, 2021, the Fund produced a solid total return of 8.81%. The Fund outperformed the S&P 500 Index’s 8.55% return but lagged the Morningstar Large Growth Funds category average of 10.28%. While we are never satisfied with relative underperformance, we believe longer-term performance is more important for investors. We note that the Fund outperformed the S&P 500 for the 3, 5 and 10-year periods, and outperformed its category average over the 5 and 10-year periods ended June 30, 2021.

Please visit the Fund’s performance page for complete performance information.

What were the primary drivers of the Fund’s performance during Q2?

The Fund’s largest contributing sector to performance in the second quarter was Information Technology (IT). The Fund benefited from a combination of good stock selection as well as an overweight allocation to this strong performing sector. IT was the second best-performing sector in the Index this quarter, rising nearly 12% for the Index, and up 17% for the Fund. The Fund had a heathy overweight allocation to the technology sector at 37% relative to the S&P 500’s weighting of 27%. Some of the Fund’s top-performing IT stocks were Nvidia (NVDA, +50%), a computer systems design services company; Crowdstrike (CRWD, +38%), a cybersecurity company; and Shopify (SHOP, +32%), an e-commerce platform for online stores and retailers.

The Fund’s largest detracting sector to performance this quarter was Health Care. The Fund had a 21% weighting in the sector, compared to a 13% weighting in the S&P 500. In addition, the Fund’s Health Care companies declined on average 2%, while the Index’s Health Care positions gained 8%.

Why should an investor consider this focused growth fund?

We have strong conviction in active management and believe that focusing on our “best 25-50 ideas” in the large-cap growth space is the best way to create longer-term value for our shareholders. We are attracted to fast growing companies that tend to have market leading positions, are driven by secular growth drivers, have unique products and services, and often compete in industries with high barriers to entry. At quarter end, the fund held 43 of these leading growth companies.

As growth focused investors, we like to own companies with high rates of future sales and earnings growth as we believe these are key drivers of share prices over the longer term. As of June 30, 2021, the Fund’s 3-year projected average annual sales growth rate was 28%, approximately 2.5x the 11% estimated sales growth rate of the S&P 500. The Fund’s 3- to 5-year estimated forward earnings growth rate was 25%, significantly higher than the 17% rate projected for the S&P 500.

What changes were made to the Fund in Q2?

We continually monitor the risk-reward profile of the companies we own. In the second quarter, we made two changes to the portfolio. We exited our position in Bristol Myers Squibb (BMY) and redeployed that cash into existing positions we felt had better return potential. We added Biogen (BIIB) to the portfolio after the Food and Drug Administration announced approval of its medication, Aduhelm, for the treatment of Alzheimer’s disease.


* EULAV Asset Management (the “Adviser”) has contractually agreed to waive through June 30, 2020 certain Fund-wide fees and further assume certain Fund-wide expenses to the extent necessary to limit such expenses (excluding brokerage commissions, interest, taxes, and certain non-routine Fund-wide expenses) to 0.90% of the average daily net assets of each class (the “Fund-level Expense Limitation”). In addition, the Adviser and EULAV Securities LLC (the “Distributor”) have contractually agreed to permanently waive certain class-specific fees and assume certain class-specific expenses so that the Institutional Class bears its class-specific fees and expenses at the same percentage of its average daily net assets as the Investor Class’s class-specific fees and expenses (excluding 12b-1 fees and certain non-routine class-specific expenses) (the “Class Expense Limitation,” together with the Fund-level Expense Limitation, the “Expense Limitations”). Each Expense Limitation can be terminated with the agreement of the Fund’s Board. The Adviser and the Distributor may subsequently recover from a class any fees waived and expenses assumed within three years from the month in which the waiver or assumption occurred for such class, to the extent its expense ratio is less than the applicable Expense Limitation or, if lower, the expense limitation in effect when the waiver or assumption occurred. The Fund’s performance would be lower in the absence of such waivers.

As of 06/30/21, the Fund’s Top 10 Holdings were as follows: Amazon.com Inc (5.76%), Alphabet Inc Class A (4.29%), PayPal Holdings Inc (4.17%), Exelixis Inc (4.08%), Biohaven Pharmaceutical Holding Co Ltd (4.07%), NVIDIA Corp (3.84%), Facebook Inc Class A (3.74%), Netflix Inc (3.52%), Visa Inc Class A (3.40%), ServiceNow Inc (3.12%)

There are risks associated with investing in small and mid cap stocks, which tend to be more volatile and less liquid than stocks of large companies, including the risk of price fluctuations.

The performance data quoted herein represents past performance and does not guarantee future results. Market volatility can dramatically impact the fund's short term performance. Current performance may be lower or higher than figures shown. The investment return and principal value will fluctuate so that an investor's shares, when redeemed may be worth more or less than their original cost. Past performance data through the most recent month end is available at vlfunds.com or by calling 800.243.2729.

You should carefully consider investment objectives, risks, charges and expenses of Value Line Funds before investing. This and other information can be found in the fund's prospectus and summary prospectus, which can be obtained free of charge from your investment representative, by calling 800.243.2729, or by clicking on the applicable fund at www.vlfunds.com. Please read it carefully before you invest or send money. Value Line Funds are distributed by EULAV Securities LLC. Past performance is no guarantee of future results.

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell securities. Current and future portfolio holdings are subject to risk.

The average annual returns shown above are historical and reflect changes in share price, reinvested dividends and are net of expenses. Investment results and the principal value of an investment will vary.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three- year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. VLIFX (3 Year / 3 stars / 549 funds; 5 Year / 3 stars / 495 funds; 10 Year / 3 stars / 386 funds; ) VALLX (3 Year / 2 stars / 1133 funds; 5 Year / 2 stars / 1024 funds; 10 Year / 3 stars / 762 funds; ) VLEOX (3 Year / 3 stars / 575 funds; 5 Year / 3 stars / 506 funds; 10 Year / 4 stars / 381 funds; ) VALSX (3 Year / 3 stars / 1133 funds; 5 Year / 2 stars / 1024 funds; 10 Year / 2 stars / 762 funds; ) VLAAX (3 Year / 4 stars / 653 funds; 5 Year / 5 stars / 596 funds; 10 Year / 5 stars / 427 funds; ) VALIX (3 Year / 5 stars / 288 funds; 5 Year / 5 stars / 262 funds; 10 Year / 5 stars / 188 funds; ) VAGIX (3 Year / 1 stars / 376 funds; 5 Year / 2 stars / 331 funds; 10 Year / 4 stars / 247 funds; ) VLHYX (3 Year / 1 stars / 145 funds; 5 Year / 1 stars / 123 funds; 10 Year / 1 stars / 99 funds; )

Source: Morningstar Direct