April 20, 2021

Dear Fellow Oberweis Funds Shareholder,

FIRST QUARTER PERFORMANCE

In the first quarter of 2021, the U.S.-focused funds performed exceptionally well, with both beating their benchmarks by a wide margin. The Micro-Cap Fund gained 26.29% compared to 16.86% for the Russell Micro-Cap Growth Index. The Small-Cap Opportunities Fund returned 16.29% versus 4.88% for the Russell 2000 Growth Index. Among the international funds, the International Opportunities Fund returned -0.92% compared to 2.02% for the MSCI World ex-US SCG Net Index. The Global Opportunities Fund returned 10.44% versus 9.23% for the MSCI AWCI Small-Cap. The China Opportunities Fund returned -3.35% versus -0.43% for the MSCI China Net, while the Emerging Markets Fund returned 4.56% versus 7.67% for the MSCI EM Small-Cap. While the international funds other than the Global Opportunities Fund underperformed in the first quarter, these same funds all outperformed tremendously in 2020.

Over the last decade, results for our fund family have been favorable. Micro-Cap, Small-Cap Opportunities, International Opportunities, China Opportunities and Global Opportunities ALL have outperformed their respective benchmarks, net of all fees, over the last 10 years. Emerging Markets, launched on 5/1/2018, is off to an excellent start, returning 13.43% versus 5.38% annualized for its benchmark since inception. Most impressive is the International Opportunities Fund, which has generated an impressive average excess return of nearly 600 basis points annually over the last 10 years (14.22% versus 8.25%). While past performance may not be not indicative of future results, we are proud of the long-term returns our team has generated for our investors. We believe these results speak to the merits of our disciplined investment philosophy and processes when applied systemically over a sustained period of time. Clearly, we expect to experience volatility and unfavorable periods from time to time. We are confident, however, that steady investors who remain fully invested over very long periods of time are likely to be rewarded for their persistence.

MARKET ENVIRONMENT

Today’s market environment could not be more different than that of a year ago. Last March, global equity prices plunged in one of the most breathtaking drops of the last 30 years. A severe recession felt inevitable as economies around the world shut down amid the pandemic’s spread. Governments responded in full force with massive stimulus. U.S. stimulus included direct payments to taxpayers, huge forgivable loans to businesses, and a sharp reduction in interest rates by global central banks. In the meantime, pharmaceutical companies worked at lightning speed to successfully develop, test and produce vaccines.

Fortunately, the development time and clinical efficacy of COVID-19 vaccines exceeded even the most optimistic of expectations, providing hope of a return to “something similar to normal” later this year, at least in the United States. As the reopening gathers momentum, the ingredients are present for a powerful rebound in economic activity, particularly in the U.S. and China. With a historically large build-up in consumer savings, the outlook for consumer spending across the income spectrum is strong. Some are anticipating one of the fastest periods of growth since the boom that followed the end of World War II, particularly if President Biden’s gigantic infrastructure spending package is approved. Against that optimistic backdrop, the S&P 500 recently hit all-time highs.

A year ago, investor expectations were abysmal; today they seem ebullient. While there is reason for optimism, risks to recovery remain real. Despite mass vaccinations, COVID-19 cases are still rising at a worrisome level, as relaxed prevention efforts, loosened restrictions, and highly transmissible variants enter the mix. Particularly worrisome is the slow rollout of vaccines in developing countries. Notwithstanding the human and economic toll in those countries, widespread prevalence of the virus in the developing world affords time for it to replicate, mutate and possibly return to the developed world with vaccine resistance.

Another worry is that inflation could accelerate, with supply chain bottlenecks (notably in semiconductors) and a spike in commodities potentially exerting upward pressure on prices. However, the structural U.S. long-term unemployment rate remains elevated and, together with the output gap, suggests some slack in the economy. Further, the relevance of e-commerce and technology to the long-term structural make-up of the wider economy continues to grow in importance, and their impact is disinflationary. Accordingly, while a post-pandemic demand shock may temporarily boost inflation, we do not consider a sustained inflation shock to be the most probable outcome.

Lastly, while government stimulus likely prevented a much more difficult downturn, at some point it has to unwind. On the fiscal side, expect higher marginal tax rates, especially on wealthier investors. Corporate tax rates are also likely to go up. Further, while it may not happen this year, we expect the Fed will eventually reverse aggressive monetary stimulus by curtailing asset purchases and increasing interest rates. The unwind of stimulus should dampen future equity returns, all else being equal.

Irrespective of what happens with inflation, interest rates, and taxes, share prices for most companies — over a long period of time — will be primarily determined by their fundamental performance. Is the company taking market share or creating new markets with innovative products and effective execution? Measuring these variables is our expertise and main focus. For example, even during COVID some of our holdings solidified their competitive positions and took market share. These companies quickly and effectively pivoted, often using technology to edge out competitors and grow their market share, while weaker competitors were decimated by the pandemic. In each geography, there will always be firms that innovate and grow rapidly irrespective of changes in GDP. Our mission is to find and invest in such gems, preferably at reasonable valuations.

VALUATION RECAP

As of March 31, 2021, the price/earnings (P/E) ratio was 18.4 times for the Global Opportunities Fund (versus 19.2 last quarter), 15.0 times for the Small-Cap Opportunities Fund (versus 15.4 last quarter), 15.7 times for the Micro-Cap Fund (versus 12.0 last quarter), 27.9 times for the International Opportunities Fund (versus 18.6 last quarter), 22.4 times for the China Opportunities Fund (versus 24.6 last quarter), and 21.9 times for the Emerging Markets Fund (versus 26.1 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 March 31, 2021, the weighted-average market capitalization was $5.5 billion for the Global Opportunities Fund, $3.5 billion for the Small-Cap Opportunities Fund, $1.3 billion for the Micro-Cap Fund, $4.8 billion for the International Opportunities Fund, $3.3 billion for the Emerging Markets Fund, and $125.8 billion for the China Opportunities Fund. Note that the China Opportunities Fund’s market cap is skewed upward due to two mega-cap holdings; the median market cap of the fund was $15.1 billion.

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. 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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