Top Takeaways from the Cornerstone Mid Cap 30 Conference Call

Hennessy Cornerstone Mid Cap 30 Fund (HFMDX/HIMDX) Portfolio Managers Ryan Kelley and Josh Wein recently discussed the Fund, the investment process, a few holdings, and the case for small- and mid-cap companies.

February 2024
  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Chief Investment Officer and Portfolio Manager
  • L. Joshua Wein, CAIA
    L. Joshua Wein, CAIA
    Portfolio Manager

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Top Takeaways

1.    The Fund’s process drives performance: Morningstar ranked HIMDX in the top 1% over the 1, 3, 5, and 10 years among 489, 457, 426, and 335 Small Value Funds, respectively, as of 2/29/24 – the only fund in its category to achieve these results. 
2.    We have employed the same formula-based approach since inception over 20 years ago, removing the emotion out of investing. 
3.    We seek to identify 30 smaller companies we believe are undervalued by combining growth, momentum, and valuation metrics.
4.    During an annual rebalancing period, we look for U.S. companies trading between $1 and $10 billion in market cap, with a price-to-sales ratio of less than 1.5x, and positive 3- and 6-month price appreciation. Ranked by their 1-year price performance, the top 30 are added to the portfolio.
5.    Energy and Industrials currently comprise almost 60% of the portfolio and consumer-related stocks make up nearly 30%. There are no holdings in Utilities, Health Care, or Real Estate.
6.    Smaller companies look attractively valued relative to their larger peers. While the S&P 500 trades at ~20x forward earnings with a 2.6x price-to-sales ratio, the S&P Midcap 400 Index trades at ~15x earnings with a price-to-sales ratio of 1.7x as of 2/28/24.
7.    We believe multiple trends favor smaller companies. For larger businesses, smaller companies generally make ideal acquisition candidates. Also, smaller stocks are an underrepresented category in many investors’ portfolios. 
8.    A broad-based rally that rotates away from large-cap technology stocks could bode well for the Fund. In an environment of higher oil prices and higher energy consumption, the Fund’s energy holdings could potentially dramatically rise. 

Morningstar Percentile Rankings represent a fund’s total return percentile rank relative to its Morningstar Category. The highest percentile rank is 1 and the lowest is 100. It is based on Morningstar total return, which includes both income and capital gains or losses and is not adjusted for sales charges or redemption fees.