Top Takeaways from the Cornerstone Growth / Cornerstone Mid Cap 30 Funds Conference Call

Portfolio Managers Ryan Kelley and Josh Wein of the Hennessy Cornerstone Growth and Cornerstone Mid Cap 30 Funds recently discussed the Funds’ time-tested investment process and how both Funds (HICGX, HIMDX) have achieved top 1% performance over 1, 3, 5 and 10 years in their respective Morningstar categories (Small Blend, Small Value) as of 5/31/24.

June 2024
  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Chief Investment Officer and Portfolio Manager
  • L. Joshua Wein, CAIA
    L. Joshua Wein, CAIA
    Portfolio Manager
  • Neil J. Hennessy
    Neil J. Hennessy
    Chief Market Strategist and Portfolio Manager

Morningstar ranked HICGX in the top 1% out of 601, 574, 544 and 388 Small Blend funds for the 1-,3-, 5- and 10-year periods ending 5/31/24, respectively. Morningstar ranked HIMDX in the top 1% out of 481, 449, 419 and 329 Small Value funds for the 1-, 3-, 5- and 10-year periods ending 5/31/24,respectively.

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. or its content providers are responsible for any damages or losses arising from any use of this information.

 

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Top Takeaways

•    Using the same formula-based approach to investing in U.S. equities for over 20 years, both Funds seek companies based on growth, momentum and valuation metrics.

•    Rebalanced in the winter, the Cornerstone Mid Cap 30 Fund holds 30 companies between $1 billion and $10 billion in market cap at the time of purchase.

•    Rebalanced in the spring, the Cornerstone Growth Fund holds 50 companies over $175 million in market cap at the time of purchase. 

•    At the time of rebalance, both Funds identify stocks with a price-to-sales ratio of less than 1.5x, year-over-year earnings growth, and positive 3- and 6-month price appreciation. The top ranked companies based on one-year price appreciation are added to the portfolios.

•    We believe selecting companies with a lower price-to-sales differentiates the portfolios as it identifies less-known solid companies trading at attractive valuations.

•    After the Cornerstone Growth Fund’s recent rebalance, over 80% of the new portfolio as of 4/30/24 was comprised of companies in the Industrials, Consumer Discretionary, Financials, and Health Care sectors.

•    Out of 50 stocks, one company was a “keeper” in the Cornerstone Growth Fund. EMCOR Group is a building construction company whose stock price doubled from when it was purchased in the 2023 rebalance. Despite this move, it traded at ~1.3x price-to-sales and fit the momentum and earnings growth criteria to remain in the portfolio.

•    The investment case for smaller companies is threefold:

  1. Smaller companies could be merger and acquisition candidates
  2. Given the large-cap recent outperformance, small-caps could see a reversion to the mean
  3. Smaller companies look attractively valued at 12.5x forward earnings compared to large-caps’ 19.6x1
     

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 of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month end, and standardized performance can be obtained by clicking here.

1 - Small-caps as measured by the S&P Small Cap 600 Index; Large-caps as measured by the S&P 500 Index as of 6/17/24.

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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 of the Fund may be lower or higher than the performance quoted and can be found here. Performance data current to the most recent month end may be obtained from HennessyFunds.com Hennessy Funds Standardized Performance

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To view the top 10 holdings of a Fund, please click the Fund name: Cornerstone Growth, Focus, Cornerstone Mid Cap 30, Cornerstone Large Growth, Cornerstone Value, Total Return, Equity and Income, Balanced, Energy Transition, Midstream, Gas Utility, Japan, Japan Small Cap, Large Cap Financial, Small Cap Financial, Technology. Fund holdings are subject to change and not recommendations to buy or sell any security.

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

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To view the Morningstar ratings for the Japan Fund, please click here. (Media - TD Ameritrade)

To view the Morningstar ratings for the Focus Fund, please click here. (Media - CNBC-B. Macualey).

1 USD = 105.36 Yen as of 07/27/2020 (Media - Ticker - M. Takeda)

Tom White is a TD Ameritrade Network contributor and is not affiliated with the Hennessy Funds. Content is not investment advice, or a recommendation of any security, strategy, or account type. Options involve risks and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.(Media - TD Ameritrade-Rothberg)

To view the Morningstar ratings, please click here.

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