Q2 2021 : Portfolio Manager Q&A

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Would you please comment on the Fund’s performance relative to the Morningstar Mid-Cap Growth Funds category in the second quarter of 2021, as well as for longer-term periods?

For the second quarter of 2021, the Value Line Mid Cap Focused Fund generated a positive absolute return of 6.79%, in-line with the Morningstar Mid-Cap Growth Funds category average 7.00%. While we are pleased with achieving a positive return for the quarter, we believe it is important for investors to consider longer periods. Our investment process of selecting companies with 10+ years of consistent growth in both stock price and earnings is the primary driver, in our view, of the Fund’s consistent long-term performance. In fact, the Fund has achieved 10 consecutive calendar years of positive total return and has outperformed the S&P 500 Index for the 3 and 5-year periods ended June 30, 2021.

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

What are your thoughts on the potential impact of rising inflation?

While investors have been paying close attention to inflation since the beginning of the year, the combination of large government stimulus programs and excess market liquidity from the Fed’s accommodative monetary policy stance has resulted in a significant uptick in recent economic indicators. While this partly goes in-hand with the significant growth in the economy and the “return to normal” following increased COVID vaccinations, we believe that inflationary pressures, often caused by short-term supply imbalances, will continue to build and be a persistent concern for investors over the foreseeable future.

However, with respect to the Fund, we are confident in our holdings and portfolio positioning should we enter a period of prolonged inflation. Our focus on using bottom-up fundamental analysis has allowed us to build a portfolio of industry-leading companies with excellent pricing power due to their strong product lines and proprietary technologies. As such, while these companies may see some short-term pressure on earnings as they wait to see which supplier price increases will be permanent versus transitory, we are confident in their ability to raise prices to help offset the increase in higher costs.

Would you please discuss the number of holdings within the portfolio, and which holdings have led performance over the quarter?

As of June 30, 2021, the Fund held 29 stocks. While we made no adjustment to the number of securities held in the portfolio, we trimmed several positions to realign their weights within the portfolio based on our long-term investment views. We are particularly pleased with the quarterly performance of two of our industrial holdings, Gartner Inc (IT), a provider of research and analysis in the information technology services industry, and Heico Corp (HEI), an aerospace and defense supplier, which rose 33% and 11%, respectively. Additionally, Pool Corp (POOL), the pool equipment and supply company, rose over 30% in the second quarter.

Please describe your investment approach.

As a “best ideas,” concentrated portfolio, we utilize our strong bottom-up fundamental research to identify and invest in mid-cap companies where we see the best potential for long-term performance, regardless of sector. Our strict investment criteria favor companies with 10+ years of consistent growth in stock price and earnings, demonstrating a high level of resiliency over a full market cycle. This helps to narrow our investible universe, as we avoid companies that are subject to greater volatility.

We believe our investment approach has led to less volatility for our investors. In fact, the Fund has been awarded Morningstar’s “Low” Risk Rating for the 3, 5 and 10-year periods ended June 30, 2021.


Source: Morningstar as of 6/30/21


* The Adviser and EULAV Securities LLC, the Fund’s principal underwriter (the “Distributor”), have agreed to waive certain class-specific fees and/or pay certain class-specific expenses incurred by the Institutional Class 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 any extraordinary expenses incurred in different amounts by the classes) (the “Expense Limitation”). The information regarding the Institutional Class in the table has been restated to reflect the Expense Limitation. The Adviser and the Distributor may subsequently recover from assets attributable to the Institutional Class the reimbursed expenses and/or waived fees (within 3 years after the fiscal year end in which the waiver/reimbursement occurred) to the extent that the Institutional Class’s expense ratio is less than the Expense Limitation or, if lower, the expense limitation in effect when the waiver/reimbursement occurred. The Expense Limitation can be terminated or modified before June 30, 2019 only with the agreement of the Fund’s board. 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: Teledyne Technologies Inc (6.37%), Pool Corp (5.87%), Cadence Design Systems Inc (5.33%), Gartner Inc (4.77%), Tyler Technologies Inc (4.48%), American Financial Group Inc (4.20%), Mettler-Toledo International Inc (3.98%), Lennox International Inc (3.92%), Church & Dwight Co Inc (3.89%), TransDigm Group Inc (3.82%)

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