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

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
    

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