Alquity VAM US Micro and Small Cap Growth Funds.
Advised by Oberweis Asset Management
“It’s Not What You Earn, It’s What You Keep”
“It’s not what you earn, it’s what you keep” is a long-established adage in investing, usually reserved for tax-exempt or tax efficient investing. However, this principle is equally important when it comes to managing downside risk in volatile equity markets.
The record highs reached by a number of equity indices are exciting, but we know that volatility is always a headline away. Investing in smaller US companies is an important way to add returns to a portfolio – gaining access to America’s new economy and its fastest growing companies. However, these investments can be accompanied by near-term downside volatility which may give investors pause.
Oberweis Asset Management, the Chicago-based US investment firm which manages the VAM US Micro and Small Cap Growth Funds has historically demonstrated significantly less downside risk than the indices over the long term as shown below.
Oberweis Micro Cap Fund vs Microcap Growth Index
Oberweis Small Cap Opportunities vs 2000 Growth Index
Source: Evestment, as of 31st December 2025 and Lipper IM, as of 28th February 2026. Performance data shown represents past performance and is no guarantee of future results.
Note: Alquity is not marketing the Oberweis Micro Cap and Small Cap Opportunities Funds, and you should look at the track record of the strategies as a guide to the manager’s skill and past success. The VAM US Micro and Small Cap Growth Funds are now being managed in the same investment strategy as the Oberweis Funds.
Rolling 12‑month return analysis shows that the strategies have historically tended to outperform their respective index in weaker market regimes, while still capturing upside during strong periods.
How has Oberweis historically avoided capturing much of the downside risk?
It is well known that avoiding excess negative returns in US small cap investing starts with stock selection within the benchmark – the Russell 2000 Index. Over 40% of the companies within the index are at a stage of development when they have little-to-no earnings. These companies can trade at high prices based on macro factors, trends, and speculation on future growth, but not on proven earnings fundamentals. While some may have great promise, companies with no earnings often fit the adage of “the higher they rise the farther (or faster!) they fall.”
Stock Picking Matters – Not Just for Upside Returns – But to Mitigate the Downside
Oberweis focuses on high-quality companies with strong earnings characteristics. The combination of valuation discipline, earnings quality, diversification, and risk controls has historically translated into meaningful downside protection, particularly in challenging market environments
Capturing the Upside as Well
Greed Is Good – Except When Investing in Small Companies
Many of us remember the classic line from the 1987 movie Wall Street when the character Gordon Gekko uttered the memorable words “Greed is Good”. While Wall Street firms are essential participants in capital markets, their business models naturally prioritise trading volume to generate revenue from activities such as payment for order flow and securities lending.
Large companies with high share volume receive substantial research attention – note the focus on the S&P 500, especially the Mag 7. Smaller companies which trade fewer shares may not garner as much attention from the large Wall Street trading and research firms. This creates the potential for firms like Oberweis to have an edge in fundamental research of these companies – identifying what they believe are the best future performers from a broad index of small companies.
This edge is well exhibited through what Oberweis calls Post Earnings Announcement Drift –
(PEAD)
PEAD as the Foundation of Oberweis’ Philosophy
Post‑Earnings Announcement Drift (PEAD) is one of the most persistent and academically validated sources of equity alpha. It reflects a simple but powerful behavioural insight: investors systematically underreact to positive earnings information, particularly when it challenges entrenched views about a company’s long‑term earnings power. Nowhere is this inefficiency more pronounced than in US small‑ and micro‑cap equities, where information is scarce, analyst coverage is limited, and behavioural biases are amplified.
In these situations, investor anchoring, conservatism, and inattention can cause the market to underestimate the magnitude and durability of change. PEAD persists precisely because it can take multiple quarters for consensus expectations to converge towards reality – potentially resulting in a higher stock price based on growing earnings.
Capturing PEAD and Retaining it:
How Oberweis Seeks To Generate Long‑Term Alpha
The result is a carefully constructed, diversified portfolio averaging 80 companies, conviction-weighted, with expected earnings growth meaningfully above consensus.
Oberweis Micro Cap Fund vs Microcap Growth Index
Oberweis Small Cap Fund vs Microcap Growth Index
Source: Lipper IM as of 31st December 2025. Past performance is not indicative of future results.
Note: Alquity is not marketing the Oberweis Micro Cap and Small Cap Opportunities Funds, and you should look at the track record of the strategies as a guide to the manager’s skill and past success. The Alquity VAM US Micro and Small Cap Growth Funds are now being managed in the same investment strategy as the Oberweis Funds.
How the Investment Approach Delivers Returns
As an illustration of the investment approach, we have selected 2 stocks from each strategy’s top 10 holdings that represent the primary investment sectors – Technology, Industrials, Consumer, Healthcare and have charted Oberweis’ entry price point and earnings growth.
Oberweis Micro Cap Fund
Stock: Applied Optoelectronics
Sector: Technology
Stock: GeneDX
Sector: Healthcare
Oberweis Small Cap Opportunities
Stock: Skywest
Sector: Industrials
Stock: Lumentum
Sector: Technology
The Economic Backdrop Remains Favourable for Small Cap Investing
Despite market volatility and daily headlines, an allocation to smaller companies warrants perennial, not market-timed exposure in a diversified portfolio. Political and economic tailwinds continue to support investing in smaller companies. A number of actions by the Trump administration, including last year’s “Big Beautiful Bill” and tech company AI spending have created a number of tailwinds for smaller companies:
- Lower interest rates reducing cost of capital and improving profit margins
- Government deregulation reducing the cost burden and improving innovation
- Tax policy considerations that improve profitability
- Generally stable inflation trends
- Significant energy and infrastructure investments related to AI development
- Historical valuation disparities between small- and large-cap companies
It’s Not Greed – It’s Discipline
Earlier, we referenced Gordon Gekko’s famous declaration that “Greed is good.” But when it comes to building sustainable wealth in small-cap equities, the real wisdom lies not in chasing the highest returns at any cost, but in the discipline to keep what you earn through full market cycles.
The economic backdrop may continue to favour smaller companies as detailed above. Yet, favourable conditions alone don’t ensure success. What separates sustainable performance from speculative gains is a disciplined approach to both opportunity and risk.
Oberweis Asset Management’s strategy for the VAM US Micro and Small Cap Growth Funds embodies this principle. Through rigorous stock selection focused on companies with proven earnings momentum, purchased at reasonable valuations, combined with continuous risk monitoring and clear sell discipline, the approach seeks to capture the significant growth potential of America’s emerging companies while actively managing downside exposure. The question for investors isn’t simply “how much can I earn?” in strong markets, but “how much can I keep?” through inevitable periods of volatility. In micro and small-cap investing, that distinction makes all the difference.
Source: Rob Gordon, VAM Investment Director
FOR PROFESSIONAL INVESTORS ONLY.
Data correct as of March 2026.
Portions of the fund information contained in this document were supplied by Lipper, A Refinitiv Company, subject to the following: Copyright 2026 © Refinitiv. All rights reserved. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
The information provided does not constitute investment advice and should not be considered a recommendation to purchase or sell any particular security. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Holdings are subject to change and may not be representative of the Fund’s current or future investments. Top holdings and sector allocations are as of the date indicated and are subject to change.
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