Q2 2019 : Portfolio Manager Q&A

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Would you please discuss the short- and long-term outperformance of the Fund relative to the Morningstar Mid-Cap Growth Funds category and the S&P 500 Index?

Over the latest quarter ending June 30, 2019, the Fund rose 8.63%, outperforming the Morningstar Mid-Cap Growth Funds category average by over 300 basis points, and exceeding the S&P 500 by over 430 basis points. During the second quarter, we benefited from our holdings in the Industrials, Healthcare and Materials sectors.

Over the longer term the performance has been favorable as well, as the Fund ranks in the top 1% for the one-year period ended June 30, 2019. Impressively, the Fund is the only fund out of 367 funds in the Morningstar Mid-Cap Growth category to have top quartile (25% or better) performance for the 1, 3, 5 and 10 year periods ended June 30, 2019 and do so with a “Low” risk rating for the 3, 5, and 10 year time frames.

How would you describe the types of companies owned in the Fund?

We own companies that have a history of 10+ years of consistent growth in both stock price and earnings. We find that often companies in the Industrials, Healthcare and Materials sectors demonstrate the track record of predictable performance we seek. In fact, the Industrials sector was the Fund’s largest weighting as of June 30, 2019, representing 32% of our holdings. Our largest contributor to performance over the recent quarter was Heico Corp. (HEI). This aerospace and electronics company has been a long- time holding in the Fund and was originally purchased in 2010.

As a fundamental, bottom-up manager, the portfolio holds companies diversified across several other sectors. In our search for consistent growth, our new additions this past quarter include Aptar Group (ATR), a global supplier of packaging and containers, and Cadence Design (CDNS), an electronic design and automation software and engineering company.

With a focused strategy, how do you manage the risk profile of the Fund?

We know that risk is an important consideration for investors, and we manage this by seeking companies that have a history of growth through predictable operating results. Specifically, we own companies with 10 or more years of consistent growth in stock price and earnings. As part of our long-term perspective, we utilize the time-tested Value Line Timeliness and Safety Ranking System which gives us access to over 60 investment analysts covering thousands of stocks.

We seek to own 25-50 of these companies that best fit our investment criteria. This “best-ideas,” focused approach has not led to a higher risk portfolio. In fact, the Fund has had a positive total return for the past 10 consecutive calendar years ended December 31, 2018.


Average Annual Returns as of 06/30/19

QTD 1 Yr 2 Yr 5 Yr 10 Yr
Investor - VLIFX 8.63% 26.38% 18.25% 13.66% 16.24%
Institutional - VLMIX1 8.73 26.67 18.44 13.77 16.29
S&P 500 Index 4.30 10.42 14.19 10.71 14.70
Morningstar Mid-Cap Growth Category Average 5.57 9.88 15.59 9.78 14.53
Morningstar Cat. Rank (%) - VLIFX 1 22 7 17
# of Funds in Category 602 539 484 367
Morningstar Risk Low Low Low
VLIFX Gross / Net Expense Ratio: 1.18% , VLMIX Gross / Net Expense Ratio*: 3.97% / 0.93%.
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns.
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns. Morningstar Ratings and Rankings based on Investor class shares.
1Indicates Morningstar Extended Performance. Extended performance is an estimate based on the performance of the fund’s oldest share class, adjusted for fees. The Inception Date of VLMIX is August 11, 2017.

* 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 06/30/19, the Fund’s Top 10 Holdings were as follows: Lennox International Inc (4.76%), Ansys Inc (4.57%), Mettler-Toledo International Inc (4.53%), Teledyne Technologies Inc (4.53%), Heico Corp (4.33%), TransDigm Group Inc (4.24%), Ball Corp (3.56%), Waste Connections Inc (3.36%), Fair Isaac Corp (3.22%), AptarGroup 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 / 5 stars / 538 funds; 5 Year / 5 stars / 487 funds; 10 Year / 5 stars / 372 funds; ) VALLX (3 Year / 2 stars / 1236 funds; 5 Year / 3 stars / 1110 funds; 10 Year / 3 stars / 819 funds; ) VLEOX (3 Year / 3 stars / 584 funds; 5 Year / 4 stars / 521 funds; 10 Year / 4 stars / 399 funds; ) VALSX (3 Year / 4 stars / 538 funds; 5 Year / 4 stars / 487 funds; 10 Year / 4 stars / 372 funds; ) VLAAX (3 Year / 5 stars / 658 funds; 5 Year / 5 stars / 581 funds; 10 Year / 5 stars / 424 funds; ) VALIX (3 Year / 5 stars / 308 funds; 5 Year / 5 stars / 275 funds; 10 Year / 4 stars / 194 funds; ) VAGIX (3 Year / 3 stars / 353 funds; 5 Year / 2 stars / 308 funds; 10 Year / 5 stars / 234 funds; ) VLHYX (3 Year / 2 stars / 146 funds; 5 Year / 1 stars / 130 funds; 10 Year / 1 stars / 110 funds; )

Source: Morningstar Direct