Q2 2021 : Portfolio Manager Q&A

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Would you please discuss the Fund’s Q2 performance relative to its Morningstar category?

For the second quarter of 2021, the Fund generated a positive absolute return of 5.96%, outperforming the Morningstar 50-70% Equity Allocation Funds category average 5.21%. While we are pleased with the Fund’s positive quarterly outperformance, as long-term investors, we believe it is more important to strive for attractive risk-adjusted returns over a full market cycle. As such, we are more pleased that the Fund has ranked in the top 15% or better in its Morningstar category for the 3, 5, 10 and 15-year periods ended June 30, 2021.

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

Source: Morningstar as of 6/30/21

Would you please comment on the Fund’s current allocation between stocks and bonds?

Our investment process is designed to be flexible, investing in high-quality growth- oriented companies with demonstrated track records of consistent, long-term growth in both share price and earnings, and high-quality, investment grade fixed income. One of the considerable advantages of this allocation style is the ability to dynamically adapt the portfolio based on our view of the relative opportunities between the two asset classes.

Currently, our prevailing view of the markets has resulted in the Fund being invested 59% in equities, 37% in fixed income assets, and approximately 4% in cash as of June 30, 2021. These positions are relatively similar to where we started the quarter, as we continue to have confidence that our high-quality equity companies offer significant upside potential, bolstered by the more conservative fixed-income positions that act as a buffer against unpredictable market moves.

What guides your investment selection process for the Fund?

Within the Fund’s equity portfolio, we use our stringent selection criteria to identify and invest in growth-oriented companies with a proven track record of 10+ years of consistent growth in both stock price and earnings. These companies tend to have more predictable operating results and have performed well through various economic cycles. Our investment mandate allows us to seek out the best companies, regardless of market capitalization or sector. We believe our adherence to such high standards results in a portfolio of companies that have demonstrated consistent growth over a full market cycle. Within our fixed income assets, we hold primarily investment grade bonds.

The Fund’s weighting in the Financial Sector has increased over the quarter. To what do you attribute this increase?

We do not invest based on sector, but rather select stocks on an individual basis that meet our criteria of 10 or more years of consistent growth in stock price and earnings. As a result, we generally avoid stocks within the traditional banking industry, as they often do not have the long-term consistency that meet our rigorous investment standards. However, we have found that certain capital market companies present much stronger track records and long-term growth prospects.

For example, we own Intercontinental Exchange (ICE), which operates financial exchanges including the New York Stock Exchange, and S&P Global (SPGI), which provides financial data for capital markets, including the widely used S&P credit ratings. We have added to these existing positions, bringing our allocation to the Financial Sector to 16% as of June 30, 2021, in-line with the category average weight in the sector.

* EULAV Asset Management (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 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: Danaher Corp (2.36%), Intuit Inc (2.22%), S&P Global Inc (2.01%), Adobe Inc (1.95%), Thermo Fisher Scientific Inc (1.94%), Intercontinental Exchange Inc (1.88%), Republic Services Inc (1.85%), Teledyne Technologies Inc (1.83%), Cintas Corp (1.79%), ServiceNow Inc (1.62%)

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