August 6, 2019

Dear Shareholder:


We are pleased to report favorable results for the second quarter and first half of 2019. For the second quarter, the Oberweis International Opportunities Institutional Fund returned 3.24% versus 2.59% for the MSCI World ex USA Small Cap Growth Index, for an excess return of 65 bps. For the first half of 2019, the Oberweis International Opportunities Institutional Fund returned 19.44% versus 15.64% for the MSCI World ex USA Small Cap Growth Index, for an excess return of 380 bps.

After a particularly strong first quarter, global equities continued to inch higher in the second quarter, amid rising expectations for continued accommodative monetary policy. Softening global manufacturing data and heightened uncertainty around trade have kept hawks at bay. As a result, demand for the safety of bonds increased, pushing approximately $13 trillion of global debt into negative yield. Gold, Bitcoin and so-called bond proxies such as utilities and staples witnessed strong performance. The massive inflows to bonds and income-oriented equities give us reason to pause. We tend to avoid the expensive valuation typical of “the crowded trade,” and today’s “search for yield” seems to be one such example. As a result, we remain underweight real estate and utilities.

Stock selection was strong over the first half of 2019, accounting for virtually all of the first half’s outperformance. The opportunity to cast a global net makes it a little easier to build a portfolio of ideas that are not as directly dependent on GDP growth, irrespective of sector. The portfolio benefited from stock selection in industrials, consumer staples and information technology, bolstered by gains in a Canadian airliner, a Chinese Hot Pot soup manufacturer and an Australian installment payment plan provider. The portfolio was underweight traditional materials such as heavy machinery, as we believe that trade tensions remain too big of an obstacle to predict. We did find an increasing number of healthcare ideas, which tend to be more immune to minor changes in global economic growth. At the country level, Australia was our largest overweight and our biggest alpha generator for both the quarter and first half largely driven by companies that started their products and services within Australia but have grown globally over time. Japan remained a challenge, being our largest country detractor. In Japan, companies with negative revisions did better than those experiencing positive earnings revisions (the types of companies we seek to own) in the second quarter, providing a stylistic headwind.


We remain positive on global equities, although less so than at the beginning of the year. Valuations for small-cap international companies are less attractive than at the beginning of the year yet still below long term averages. Even with the S&P 500 near an all-time high, investor sentiment remains decidedly pessimistic. The most recent Merrill Lynch fund flow survey suggests that investors are more bearish than they have been since the global financial crisis. Cash allocation is among the highest in 16 years, equity allocation the lowest since March 2009 and, helped by falling inflation expectations, bond allocation near an 8 year high. Historically these measures have proven to be good contrarian indicators, especially when positioned towards the extreme end. Bull markets rarely end amid negative investor sentiment.

Also, at the individual company level, earnings expectations at international small-cap firms have remained conservative, driven by the dual uncertainties of tariffs and soft global manufacturing data. A low bar in earnings guidance makes it easier for companies to beat expectations, even while recognizing the risks ahead. We saw a similar dynamic in the second quarter with European stocks, where expectations called for muted growth. Europe’s growth has not been great but still better than expectations. Europe ended up posting the highest earnings revisions ratio in the world. Expectations were so low that a mediocre reality still beat expectations.

From our vantage point, our “relative-to-expectations” strategy tends to fare well when expectations are not too high, and we believe that to be the case today. Investor sentiment appears to be tilted toward bonds over equities. Within equities, investors favor US over international. At the companies themselves, management teams have kept investor earnings expectations in check. In short, the stage of low expectations has been set, and even modest results ahead of expectations would surprise positively.


At the end of the first half, the portfolio was invested in 74 stocks in 15 countries. Our top five country weightings (portfolio weighting versus the MSCI World ex-US Small Cap Growth Index) at the end of first half were the United Kingdom (19.9% vs. 15.4%), Japan (16.2% vs. 27.1%), Australia (13.9% vs. 7.3%), Canada (9.6% vs. 8.6%), and France (8.3% vs. 3.3%). On a sector basis, the portfolio is overweight Information Technology (20.1% vs. 14.0%) and underweight Real Estate (0.0% vs. 7.0%).

Some of the top performers for the first half included: Afterpay Touch Group Ltd. (APT AU), which returned +101.5% and contributed 193 bps; Yihai International Holding (1579 HK), which returned 113.4% and contributed 130 bps; and Evolution Gaming Group (EVO SS), which returned 74.7% and contributed 126 bps. Some of the leading detractors for the quarter included: Aruhi Corp. (7198 JP), which returned -23.3% and detracted 26 bps; Fancl Corp. (4921 JP), which returned -3.4% and detracted 26 bps; and Sushiro Global Holdings Ltd. (3563 JP), which returned -8.8% and detracted 23 bps.

We appreciate your investment in The Oberweis International Opportunities Institutional Fund and are grateful for the trust you have shown us. If you have any questions, please contact Brian Lee (institutional clients) or John Collins (advisory accounts) at (800) 323-6166. Thank you for investing with us in The Oberweis Funds.



James W. Oberweis, CFA Ralf Scherschmidt President Portfolio Manager

*Life of Fund returns are from commencement of operations on 03/10/14 for the Fund

** Expense ratio is the total net annualized fund operating expense ratio as of 12/31/18. The expense ratio gross of expense offset arrangements and expense reimbursement was 1.11% for OBIIX. Oberweis Asset Management, Inc. (OAM), the Fund’s investment advisor is contractually obligated through April 30, 2020 to reduce its management fees or reimburse OBIIX to the extent that total ordinary operating expenses exceed in any one year 1.10% expressed as a percentage of each Fund’s average daily net assets.

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.

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