Outperforming Hennessy Fund Comanager Shares Favorite Stocks

The Hennessy Cornerstone Mid Cap 30 Fund, managed by Ryan Kelley and Josh Wein, has been generating significant interest among investors due to its unique investment strategy and impressive performance. The fund, which focuses on mid-cap stocks with market capitalizations between $1 billion and $10 billion, utilizes a quantitative formula to select 30 domestic stocks that exhibit both value and momentum characteristics. This disciplined approach has led to attractive returns and diversification compared to the larger stock universe.

One of the key advantages of the fund's strategy is its annual rebalance, which allows the portfolio to adapt to changing market conditions and capitalize on new opportunities. The fund's holdings are diversified across 10 of the 11 GICS® sectors, with the exception being Health Care, and across 22 different GICS sub-industries. This diversification helps to reduce risk and provides exposure to a broad range of industries and sectors.

The fund's overweight in the Consumer Discretionary and Industrials sectors could have a significant impact on its overall performance in the coming year. The Consumer Discretionary sector is expected to benefit from a robust job market, a healthy consumer, and strong wages, which should drive spending and, in turn, higher growth in earnings and positive stock price performance for many of the fund's consumer-related holdings. The Industrials sector is expected to benefit from an improving economy, continued domestic investment in manufacturing, construction, energy, transportation infrastructure, and housing, as well as strong demand for consulting, air services, and equipment.

However, these sectors also present potential risks, such as economic slowdowns, changes in consumer preferences, and increased competition. The fund's use of price-to-sales as its primary valuation metric allows it to focus on sales growth, reduce the impact of accounting practices, and make more comparable valuations across sectors. This approach has the potential to overlook profitability and may not be as applicable to certain industries, but it has contributed to the fund's ability to generate attractive returns.

In conclusion, the Hennessy Cornerstone Mid Cap 30 Fund's unique investment strategy, disciplined approach, and overweight in the Consumer Discretionary and Industrials sectors have contributed to its impressive performance. While there are potential risks associated with these sectors, the fund's use of price-to-sales as its primary valuation metric and its focus on sales growth have helped it to generate attractive returns and provide diversification compared to the larger stock universe. Investors should consider the fund's approach and performance when evaluating their investment options.