Dear Clients and Friends,
VELA’s enduring commitment is to fulfill our fiduciary duty to our clients. In addition to our primary research on individual companies, this involves estimating numerous economic factors that affect the fundamentals of the businesses in which we invest, and which influence returns across investment categories, including equities and fixed income.
Economic growth and inflation are two of these factors, the former averaging about 2% annually in the U.S. over the past decade. In recent years, most of that growth has been attributable to capital expenditures related to data centers supporting the development of artificial intelligence (“AI”). It is possible that AI will increase productivity, which could accelerate the rate of economic growth.
Inflation represents an increase in the price of goods and services. Central banks, such as the Federal Reserve (“the Fed”) in the U.S., attempt to contain the inflation rate with their respective monetary policies, and the current target for the Fed is an annual rate of 2%.1
Recently the Fed announced an increase in the Fed Funds rate (the cost of short-term borrowing by banks) by 0.25%2, and further increases are likely3, given that inflation rates are greater than the 2% target.4 This is a headwind to economic growth as well as corporate profitability, which is at all-time highs.
In the U.S., the S&P 500 compound annualized total return (“CATR”) was 10% over the 100-year period ending 12/31/20255, consistent with economic growth of 3% and inflation at 2%, and corporate profitability somewhat expanding. Corporate profit margins benefited from productivity gains as the economy evolved from one based on agriculture to manufacturing and finally one led by digital technology and services.
During my nearly 50-year career, I have experienced periods with CATR much above, and much below, that 100-year average. For instance, from the Financial Crisis market low of March 2009, through September 30, 2026, the S&P 500 CATR was nearly 15%.6 Similarly, the S&P 500 CATR from the August 1982 stock market low to March 2000 (the peak of the Dot.Com bubble) was over 16%.7 This was followed by a nine-year peak to trough annual return of negative 5%.8 Given these historical cycles, it would not be surprising for the S&P 500 CATR for the next 10-year period to be considerably below average. Regardless, economic growth and inflation will be primary factors in determining the CATR for the S&P 500.
That outlook is not priced evenly across the market. Beyond the largest constituents of the large cap indices and the current beneficiaries of AI capex, the valuations of many companies already reflect expectations of slower economic growth and persistent inflation. In our view, this gives active managers an opportunity to add value in what we expect to be an environment of below average market returns.
Sincerely,
Ric Dillon
CEO & CIO
*While the Russell 3000 index represents a broad-based equity index for comparison, under normal market conditions, the fund invests at least 80% of its assets in income producing securities, which may be a mix of equity and fixed income securities. The composition of the Fund and its returns may be more like the Fund’s secondary benchmark, a 50%50% blend between the Russell 3000 equity index and Bloomberg US Aggregate Bond index.
Mutual fund performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Investors may obtain mutual fund performance data current to the most recent month-end by calling 833-399-1001.
The total expense ratio for the VELA Funds Class I is: Small Cap VESMX 1.08%; Large Cap Plus VELIX 1.01%; International VEITX 1.09%; Income Opportunities VIOIX 0.83%, Short Duration VESDX 0.63%.
Investors should carefully consider the investment objectives, risks, and charges and expenses of the fund before investing. The prospectus contains this and other information about the fund, and it should be read carefully before investing. Investors may obtain a copy of the prospectus by calling 833-399-1001.
Important Information:
Investing involves risk including the possible loss of principal. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
The Russell 2000 Index is a small-cap stock market index of the smallest 2000 stocks in the Russell 3000 Index.
The Russell 1000 Index is an unmanaged market capitalization-weighted index comprised of the largest 1,000 companies by market capitalization in the Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies by total market capitalization.
The MSCI World ex US Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries excluding the United States.
The Russell 3000 Index is a market-capitalization-weighted equity index. The index tracks the performance of the 3,000 largest U.S.-traded stocks, which collectively account for roughly 97% of all U.S.-incorporated equities. The secondary index for the fund is a blend of the Russell 3000 TR (50%) and The Bloomberg Aggregate Bond Index (50%). The Bloomberg Aggregate Bond Index broadly tracks the performance of the U.S. investment-grade bond market. The index is composed of investment-grade government and corporate bonds.
The Bloomberg 1-3 Year Government/Credit Bond Index is an unmanaged index that includes all medium and larger issues of U.S. government, investment grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.
The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States.
You cannot invest directly in an index.
The VELA Funds are distributed by Ultimus Fund Distributors, LLC. (Member FINRA). VELA Investment Management and Ultimus Fund Distributors are not affiliated.
VELA Investment Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
The views expressed are those of VELA Investment Management, LLC as of 10/05/2026 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Third-party information in this report has been obtained from sources believed to be accurate; however, VELA makes no guarantee as to the accuracy or completeness of the information.
A complete list of holdings can be found at www.velafunds.com.
VELA Investment Management, LLC is a registered investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about VELA Investment Management, LLC, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, and/or Form CRS, which is available upon request.
Compound annualized total return (“CATR”) is the average yearly rate of return over a given period, assuming all dividends are reinvested and returns compound over time.
Capital expenditures (“capex”) are funds a company spends to acquire, build, or upgrade long-term physical assets such as buildings, equipment, and data centers.
Sources:
1-4Board of Governors of the Federal Reserve System
5-8Bloomberg.
Dear Clients and Friends,
VELA’s enduring commitment is to fulfill our fiduciary duty to our clients. In addition to our primary research on individual companies, this involves estimating numerous economic factors that affect the fundamentals of the businesses in which we invest, and which influence returns across investment categories, including equities and fixed income.
Economic growth and inflation are two of these factors, the former averaging about 2% annually in the U.S. over the past decade. In recent years, most of that growth has been attributable to capital expenditures related to data centers supporting the development of artificial intelligence (“AI”). It is possible that AI will increase productivity, which could accelerate the rate of economic growth.
Inflation represents an increase in the price of goods and services. Central banks, such as the Federal Reserve (“the Fed”) in the U.S., attempt to contain the inflation rate with their respective monetary policies, and the current target for the Fed is an annual rate of 2%.1
Recently the Fed announced an increase in the Fed Funds rate (the cost of short-term borrowing by banks) by 0.25%2, and further increases are likely3, given that inflation rates are greater than the 2% target.4 This is a headwind to economic growth as well as corporate profitability, which is at all-time highs.
In the U.S., the S&P 500 compound annualized total return (“CATR”) was 10% over the 100-year period ending 12/31/20255, consistent with economic growth of 3% and inflation at 2%, and corporate profitability somewhat expanding. Corporate profit margins benefited from productivity gains as the economy evolved from one based on agriculture to manufacturing and finally one led by digital technology and services.
During my nearly 50-year career, I have experienced periods with CATR much above, and much below, that 100-year average. For instance, from the Financial Crisis market low of March 2009, through September 30, 2026, the S&P 500 CATR was nearly 15%.6 Similarly, the S&P 500 CATR from the August 1982 stock market low to March 2000 (the peak of the Dot.Com bubble) was over 16%.7 This was followed by a nine-year peak to trough annual return of negative 5%.8 Given these historical cycles, it would not be surprising for the S&P 500 CATR for the next 10-year period to be considerably below average. Regardless, economic growth and inflation will be primary factors in determining the CATR for the S&P 500.
That outlook is not priced evenly across the market. Beyond the largest constituents of the large cap indices and the current beneficiaries of AI capex, the valuations of many companies already reflect expectations of slower economic growth and persistent inflation. In our view, this gives active managers an opportunity to add value in what we expect to be an environment of below average market returns.
Sincerely,
Ric Dillon
CEO & CIO
*While the Russell 3000 index represents a broad-based equity index for comparison, under normal market conditions, the fund invests at least 80% of its assets in income producing securities, which may be a mix of equity and fixed income securities. The composition of the Fund and its returns may be more like the Fund’s secondary benchmark, a 50%50% blend between the Russell 3000 equity index and Bloomberg US Aggregate Bond index.
Mutual fund performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Investors may obtain mutual fund performance data current to the most recent month-end by calling 833-399-1001.
The total expense ratio for the VELA Funds Class I is: Small Cap VESMX 1.08%; Large Cap Plus VELIX 1.01%; International VEITX 1.09%; Income Opportunities VIOIX 0.83%, Short Duration VESDX 0.63%.
Investors should carefully consider the investment objectives, risks, and charges and expenses of the fund before investing. The prospectus contains this and other information about the fund, and it should be read carefully before investing. Investors may obtain a copy of the prospectus by calling 833-399-1001.
Important Information:
Investing involves risk including the possible loss of principal. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
The Russell 2000 Index is a small-cap stock market index of the smallest 2000 stocks in the Russell 3000 Index.
The Russell 1000 Index is an unmanaged market capitalization-weighted index comprised of the largest 1,000 companies by market capitalization in the Russell 3000 Index, which is comprised of the 3,000 largest U.S. companies by total market capitalization.
The MSCI World ex US Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries excluding the United States.
The Russell 3000 Index is a market-capitalization-weighted equity index. The index tracks the performance of the 3,000 largest U.S.-traded stocks, which collectively account for roughly 97% of all U.S.-incorporated equities. The secondary index for the fund is a blend of the Russell 3000 TR (50%) and The Bloomberg Aggregate Bond Index (50%). The Bloomberg Aggregate Bond Index broadly tracks the performance of the U.S. investment-grade bond market. The index is composed of investment-grade government and corporate bonds.
The Bloomberg 1-3 Year Government/Credit Bond Index is an unmanaged index that includes all medium and larger issues of U.S. government, investment grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.
The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States.
You cannot invest directly in an index.
The VELA Funds are distributed by Ultimus Fund Distributors, LLC. (Member FINRA). VELA Investment Management and Ultimus Fund Distributors are not affiliated.
VELA Investment Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
The views expressed are those of VELA Investment Management, LLC as of 10/05/2026 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Third-party information in this report has been obtained from sources believed to be accurate; however, VELA makes no guarantee as to the accuracy or completeness of the information.
A complete list of holdings can be found at www.velafunds.com.
VELA Investment Management, LLC is a registered investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about VELA Investment Management, LLC, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2, and/or Form CRS, which is available upon request.
Compound annualized total return (“CATR”) is the average yearly rate of return over a given period, assuming all dividends are reinvested and returns compound over time.
Capital expenditures (“capex”) are funds a company spends to acquire, build, or upgrade long-term physical assets such as buildings, equipment, and data centers.
Sources:
1-4Board of Governors of the Federal Reserve System
5-8Bloomberg.
Author
Ric Dillon, CFA
Jun 16, 2020
Author
Ric Dillon is one of our firm’s founders and serves as Chief Executive Officer & Chief Investment Officer, as well as a Portfolio Manager on the Small Cap and Large Cap Plus strategies.
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