October 21, 2020

Dear Fellow Oberweis Funds Shareholder:

YEAR-TO-DATE PERFORMANCE THROUGH SEPTEMBER 30, 2020

I’m pleased to report one of the best nine-month periods on record for the international funds relative to their benchmarks. For the first nine months of the year, the International Opportunities Fund returned 32.12% versus 6.89% for the MSCI World ex-US Small-Cap Growth Index. The China Opportunities Fund returned 34.39% versus 16.45% for the MSCI China Index. The Emerging Markets Fund returned 19.75% versus -2.40% for the MSCI EM Small-Cap Index. Our Global Opportunities Fund returned 19.34% versus -5.94% for the MSCI ACWI Small-Cap Index. Among the domestic funds, the Micro-Cap Fund returned -3.97% versus 8.09% for the Russell Micro-Cap Growth Index, mostly attributable to an underweight in biotech, which fared well in the first half of the year. The Small-Cap Opportunities Fund returned 5.50% versus 3.88% for the Russell 2000 Growth Index.

In the third quarter, the International Opportunities Fund returned 18.40% versus 12.91% for the MSCI World ex-US Small-Cap Growth Index. The China Opportunities Fund returned 12.80% compared to 12.50% for the MSCI China Index. The Emerging Markets Fund returned 10.39% versus 11.85% for the MSCI EM Small-Cap Index. The Global Opportunities Fund returned 4.66% versus 7.92% for the MSCI ACWI Small-Cap Index. Among the domestic funds, the Micro-Cap Fund returned 7.44% versus 6.05% for the Russell Micro-Cap Growth Index, while the Small-Cap Opportunities Fund returned 8.60% versus 7.16% for Russell 2000 Growth Index. In short, global equities continued to march higher this quarter, adding to a sharp rally off the March lows.

China’s remarkable success in containing the virus has permitted its economy to nearly revert back to normal. Not surprisingly, China’s equity market has been among the hottest for the year so far. In the US, many COVID-related restrictions on economic activity remain, though activity continued to improve in the second and third quarters from March’s very low base. The upcoming US presidential election will remove some policy uncertainty very soon. Joe Biden seems likely to win, and we expect his election to yield a second large stimulus early in 2021 and eventually an infrastructure spending plan. However, a Biden win also means higher personal and corporate income tax rates, and the net market impact is unclear. One thing is certain: stock market investors have benefitted greatly from globally coordinated stimulus from central banks around the world. As the old adage goes, Don’t Fight the Fed.

OUTLOOK

In the near term, we expect equity markets to be volatile and highly sensitive to many of the same macroeconomic variables that have dominated the headlines for the past year. How long will the pandemic last and when will economic activity return to normal levels, and how much stimulus will be passed in the meantime? How long will interest rates hover around zero? And near term, how will the US presidential election affect US tax policy and foreign trade? Using price/earnings as the metric, one could argue that the S&P 500 is awfully expensive. Using free cash flow yields, however, valuations look more reasonable. Still, valuations of some segments of the market, such as large-cap technology, appear to be trading at the high end of historical ranges and caution is appropriate. Fortunately, amid smaller-cap stocks and international equities, valuations are much closer to long-term averages than for the S&P 500.

In our niche of the market – growth companies experiencing rapid change – we believe there may be considerably more upside than investors currently appreciate. COVID has thrown the economy upside down. Many investors are waiting for conditions to go back to normal, but we think the true opportunity lies in figuring out how “normal” has changed. Change allows upstart competitors unusual opportunities to unsettle incumbents. Creativity is exploding, both among newer, innovative companies and old hats seeking survival. The pandemic is accelerating change in some industries by years, with obvious examples in ecommerce, home delivery, and video conferencing. Aspects of these changes will not be temporary. Our team is finding an above-average number of companies experiencing business changes at an exceptional rate, and those are environments in which analyst expectations often fail to reflect true earnings power. Those are the investing environments in which we tend to thrive. The pandemic will probably end in 2021, but the changes and impacts to business will last longer, and I believe that our team’s track record of investing in companies at the cusp of material change positions us well.

VALUATION RECAP

As of September 30, 2020, the price/earnings (P/E) ratio was 22.0 times for the Global Opportunities Fund (versus 21.6 last quarter), 14.9 times for the Small-Cap Opportunities Fund (versus 15.7 last quarter), 18.3 times for the Micro-Cap Fund (versus 16.7 last quarter), 25.6 times for the International Opportunities Fund (versus 28.2 last quarter), 27.4 times for the China Opportunities Fund (versus 33.2 last quarter), and 25.1 times for the Emerging Markets Fund (versus 24.1 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 September 30, 2020, the weighted-average market capitalization was $3.5 billion for the Global Opportunities Fund, $3.2 billion for the Small-Cap Opportunities Fund, $1.2 billion for the Micro-Cap Fund, $3.6 billion for the International Opportunities Fund, $3.0 billion for the Emerging Markets Fund, and $143.7 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 $12.9 billion.

We appreciate your investment in The Oberweis Funds and are grateful for the trust you have shown us with your valuable investments. 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.

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, 2019 data. Expense ratio is the total net annualized fund operating expense ratio. The expense ratio gross of expense offset arrangements and expense reimbursements was 1.58%, 1.33%, 1.60%, 1.34%, 2.21%, 1.96%, 1.95%, 1.70%,1.82%, 3.86% and 3.61% 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, 2021 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.

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.

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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