July 14, 2021

Dear Fellow Oberweis Funds Shareholder,

YEAR-TO-DATE PERFORMANCE THROUGH JUNE 30, 2021

I’m pleased to report gains in all of the funds for the first half of 2021, and exceptionally strong results for the US-focused funds. On the domestic front, the Micro-Cap Fund returned 39.14% versus 20.57% for the Russell Micro-Cap Growth Index. The Small-Cap Opportunities Fund returned 25.59% versus 8.98% for the Russell 2000 Growth Index. Among our international funds, the International Opportunities Fund gained 6.15% versus 7.36% for the MSCI World ex-US Small-Cap Growth Index. The China Opportunities Fund returned 5.61% versus 1.83% for the MSCI China Index, and the Emerging Markets Fund returned 16.08% versus 19.78% for the MSCI EM Small-Cap Index. Lastly, the Global Opportunities Fund gained 20.24% versus 15.43% for the MSCI ACWI Small-Cap Index.

The Emerging Markets Fund, which is our youngest fund, recently exceeded three years of management. I’m pleased to report that the fund has delivered strong alpha since launch. Since its inception on May 1, 2018, the Emerging Markets Fund produced an average annualized gain of 16.08% versus 8.54% for the benchmark (thru 6/30/21). Our longer-established funds have also fared well. In fact, ALL of the other Oberweis funds are ahead of their benchmarks over both trailing 5-year and 10-year periods through the first half of 2021. We believe these results provide some evidence that our disciplined investment process, which focus on undervalued growth companies in less efficient assets classes, appears to be effective in generating alpha over a full market cycle.

MARKET ENVIRONMENT

Given how severe the Covid-19 crisis was just six short months ago, the progress made in the U.S. during the second quarter on the vaccination front is nothing short of miraculous. Over 330 million doses have been administered with nearly half the U.S. population fully vaccinated, and it’s projected that the country may enter the zone for herd immunity (those vaccinated plus those infected) later this year. As a result, Americans are quickly returning to everyday life and the economy, bolstered by accommodative monetary and fiscal policies, is booming, with forecasted GDP growth of 7.8% in the second quarter. Composite Purchasing Managers’ Index readings over 60 in the U.S. and the U.K. and over 50 in China, Germany, France, Italy, and Spain suggest strength should continue into the second half of the year.

Stocks largely anticipated this dramatic recovery and rallied significantly from the Covid-19 panic lows in March 2020. Large-cap U.S indices like the S&P 500 trade well above 25-year averages based on P/E, dividend yield, price/book and price/cash flow. For equity bulls, these premium valuations reflect investors discounting an anticipated period of explosive growth as economies reopen globally, particularly after central banks have flooded their economies with stimulus cash and interest rates remain far below historical averages. From equities to housing to commodities to groceries, demand appears to be outstripping supply and prices are rising.

However, looking out a couple years, the picture is far less clear. Will too much money chasing too few goods ignite longer-term inflation? The Fed says no, but some investors are less convinced. What will be the unintended consequences of all this stimulus cash? Moreover, if growth does explode, will the Fed use this opportunity to reign in stimulus and increase interest rates? Even discussion of rising interest rates in recent years has ignited “taper tantrums” in the stock market. We do not think raging inflation is the most likely outcome, but it’s hard to predict the end outcome of the massive stimulus unleashed over the last couple years. How much of current economic activity is being driven by demand that was pulled forward as a result of stimulus? How much is related to inventory replenishment as companies struggle to overcome last year’s supply disruptions? It will take months for the economy to adjust to these extraneous influences. The sooner that policy makers get out of the way, the better.

Though data so far seems good, there’s no guarantee that vaccines prove effective toward suppressing Covid-19 variants. A vaccine-resistant mutation remains a significant risk that could hinder economic recovery. On the other side, continued vaccinations, herd immunity and a “return to normal” would likely produce an economic growth boon rivaled by few others of our lifetime.

Still, irrespective of macroeconomic growth over the next couple of years, share prices of growth stocks such as those owned in the Oberweis Funds will be substantially determined by the fundamental performance of our investment companies. While a favorable GDP growth tailwind is helpful, the real long-term driver is innovation – whether or not our companies can grow by creating new markets or taking market share from incumbents via superior product offerings. Innovation is the ultimate determinant for growth stock share prices and increasing rates of lifestyle change from seismic events such as COVID-19 tend to open the door for disruptive innovation. Our job is to find innovative disrupters early and often, and position the funds to benefit from their growth.

VALUATION RECAP

As of June 30, 2021, the price/earnings (P/E) ratio was 25.1 times for the Global Opportunities Fund (versus 18.4 last quarter), 17.0 times for the Small-Cap Opportunities Fund (versus 15.0 last quarter), 17.8 times for the Micro-Cap Fund (versus 15.7 last quarter), 25.3 times for the International Opportunities Fund (versus 27.9 last quarter), 28.9 times for the China Opportunities Fund (versus 22.4 last quarter), and 26.1 times for the Emerging Markets Fund (versus 21.9 times last quarter). Each of these funds invests in companies with expected earnings growth rates that are higher than that of the broader market, and in companies expected to grow faster than current market expectations. As of June 30, 2021, the weighted-average market capitalization was $6.3 billion for the Global Opportunities Fund, $3.5 billion for the Small-Cap Opportunities Fund, $1.2 billion for the Micro-Cap Fund, $4.4 billion for the International Opportunities Fund, $4.3 billion for the Emerging Markets Fund, and $61.8 billion for the China Opportunities Fund.

If you have any questions about your account, please contact shareholder services at (800) 245-7311. Thank you for investing with us in The Oberweis Funds.

Sincerely,
James Oberweis
James W. Oberweis, CFA
President & Portfolio Manager

For current performance information, please visit www.oberweisfunds.com.

Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate, so that you may have gain or loss when shares are sold. Current performance may be higher or lower than quoted. Unusually high returns may not be sustainable. Visit us online at oberweisfunds.com for most recent month-end performance.

The Oberweis Funds invest in rapidly growing smaller and medium sized companies which may offer greater return potential. However, these investments often involve greater risks and volatility. Foreign investments involve greater risks than U.S investments, including political and economic risks and the risk of currency fluctuations. There is no guarantee that the funds can achieve their objectives. Holdings in the Funds are subject to change.

Before investing, consider the fund’s investment objectives, risks, charges, and expenses. To obtain a copy of the prospectus or summary prospectus containing this and other information please visit our website at oberweisfunds.com or call 800-323-6166. Read it carefully before investing. The Oberweis Funds are distributed by Oberweis Securities, Inc. Member: FINRA & SIPC.

1Institutional Class shares OBGIX, OMCIX, OBSIX and OCHIX performance information was calculated using the historical performance of Investor Class shares for periods prior to May 1, 2017.

2Life of Fund returns are from commencement of operations on 01/07/87 for the Global Opportunities Fund, 01/01/96 for the Micro-Cap Fund, 09/15/96 for the Small-Cap Opportunities Fund, 10/01/05 for the China Opportunities Fund, 02/01/07 for the International Opportunities Fund, 05/01/17 for the Institutional Share Classes and 05/01/18 for the Emerging Markets Fund Share Classes.

3December 31, 2020 data. Expense ratio is the total net annualized fund operating expense ratio. The expense ratio gross of expense offset arrangements and expense reimbursements was 1.53%, 1.28%, 1.59%, 1.34%, 2.03%, 1.78%, 1.95%, 1.69%,1.87%, 3.79% and 3.54% for OBEGX, OBGIX, OBMCX, OMCIX, OBSOX, OBSIX, OBCHX, OCHIX, OBIOX, OBEMX and OIEMX respectively. Oberweis Asset Management, Inc. (OAM), the Fund’s investment advisor is contractually obligated through April 30, 2022 to reduce its management fees or reimburse OBEGX and OBMCX to the extent that total ordinary operating expenses, as defined, exceed in any one year the following amounts expressed as a percentage of each Fund’s average daily net assets: 1.8% of the first $50 million; plus 1.6% of average daily net assets in excess of $50 million and for OBGIX and OMCIX 1.55% of the first $50 million; plus 1.35% of average daily net assets in excess of $50 million. OAM is also contractually obligated through April 30, 2021 to reduce its management fees or reimburse OBSOX, OBCHX, OBIOX and OBEMX to the extent that total ordinary operating expenses exceed in any one year 1.55%, 2.24%, 1.60% and 1.75% expressed as a percentage of each Fund’s average daily net assets, respectively, and for OBSIX, OCHIX and OIEMX 1.30%, 1.99% and 1.50%, respectively.

The MSCI World ex-US Small Cap Growth Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of small cap growth developed markets excluding the US, with minimum dividends reinvested net of withholding tax. The MSCI ACWI Small Cap Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of small cap developed and emerging markets with dividends reinvested net of withholding tax. The MSCI Emerging Markets Small Cap Index is a free float-adjusted, market capitalization-weighted index that measures the performance of small-cap stocks in 24 emerging markets. The MSCI China Net Index is a free float-adjusted market capitalization-weighted Index of Chinese equities that include China-affiliated corporations and H shares listed on the Hong Kong Exchange, and B shares listed on the Shanghai and Shenzhen exchanges and P chips and foreign listings with minimum dividends reinvested net of withholding tax.

The Russell 2000 Index measures the performance of approximately 2,000 companies with small-market capitalizations. The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted earnings growth rates. The Russell Microcap Growth Index measures the performance of those Russell Micro Cap companies with higher price-to-book ratios and higher forecasted growth values. The performance data includes reinvested dividends. The Russell Microcap Index is represented by the smallest 1,000 securities in the small cap Russell 2000 Index plus the next 1,000 securities. Each index is an unmanaged group of stocks, whose performance does not reflect the deduction of fees, expenses or taxes.

 


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