This mid-cap growth fund is rated three stars by Morningstar.
Hodges Fund Retail Class (HDPMX)
From Moneyletter
Craig Hodges and his late father, Don Hodges, founded the Hodges Fund in late 1992 as a go-anywhere portfolio of about 50 stocks. And that strategy has not changed.
Today, Craig Hodges and co-manager Eric Marshall still look for stocks priced below the managers’ estimates of their intrinsic value. They also look at free cash flow and expected revenue and earnings growth, and prefer companies operating in spaces with high barriers to entry.
Should the volatility of much of 2016 persist into 2017, that would be an ideal environment for active portfolio managers such as Hodges and Marshall. In 2016, the managers’ picks propelled the fund to the top of Morningstar’s mid-growth category, with a 39.8% return, well outpacing the S&P 500’s 9.8% gain, and 5.7% for the category.
The fund also leads the category for the trailing three- and five-year periods. And that is despite a bottom of the group performance in 2015 (a negative -11.5% return) in a relatively flat market.
Compared to the mid-growth category and the Russell Mid Cap Growth Index benchmark, Hodges Fund is significantly overweight in the basic materials, real estate, and energy sectors. It is underweight in health care, consumer defensive, technology, and industrials.
Top holding Texas Pacific Land Trust (in the real estate sector) has been a huge contributor to fund results, with a 2016 return of 126.9%. Hodges Fund has owned the stock for 16 years. Originating in 1888, the Trust originally held 3.5 million acres in Texas from a defunct railway. It has gradually sold off parcels, which have perpetual oil and gas royalty interests, as well as grazing rights. Oil and gas firm Apache recently discovered significant reserves on Trust lands. As the stock grew to more than 12% of fund assets, the managers trimmed the position during this past year.
Another big winner for the fund has been United States Steel (up 342.1%). Also in that industry, Timken Steel has advanced more than 90%. Hodges noted that the managers do not “like retail as a whole,” but do favor selected names. Fund holding Duluth Holdings (a casual wear retailer that went public in late 2015) is up 75%, while apparel and shoemaker Adidas, which Hodges says has taken market share from Under Armour and Nike, is ahead by 66.8%. They also see upside in G-III Apparel and J. C. Penney.
During 2016, the managers added to energy holdings including Diamondback Energy, RSP Permian, and Matador Resources, all plays on the Permian Basin. Hodges also sees good upside potential from Forterra, the market leader in water infrastructure—drainage systems and water pipes. The company had an IPO (initial public offering) just before the November US elections—not a favorable time frame for an IPO. The firm should benefit from increased infrastructure spending and residential building.
Minimum investment: $250, $250 IRA 1% redemption fee within 30 days.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, January 2017