2. Neil Hennessy, Ryan Kelly, Josh Wayne: Hennessy Cornerstone Value Fund
Wayne said Hennessy’s Cornerstone Value Fund’s outperformance this year came down to two things: conviction and the ritual of staying with conviction for the long haul.
“Ultimately, it’s about believing in something,” Wayne said. I think a lot of money managers don’t really believe anything – they’re open to whatever seems good at the moment.
“So they believe in price because price looks good right now, and price has had a bad run, so they say, ‘You know what, now I think I should see more growth,’ so they look at growth. They miss price.”
As the name suggests, the fund’s conviction is on names that the managers believe are undervalued. His discipline was derived from a set of criteria set for the fund’s two-decade existence.
These criteria include an above-average rating on several metrics, including market cap, cash flow, outstanding share and 12-month sales growth (50% above average).
Out of 10,000 stocks, those criteria narrowed the pool to about 200, said Ryan Kelly. 50 stocks with the highest dividend yield have been selected, he said.
“What this fund does really well is identify companies that are currently trading at distressed valuations but still have strong cash flow, still have great market potential, still have strong dividends,” Kelley said.
The fund’s holdings have an average market capitalization of $80.2 billion and an average price-to-earnings ratio of 9.5 times.
Quality stocks with high dividends will be in demand in 2022 as the broader market expects a steady stream of income as interest rates rise. Overall, value stocks have seen a resurgence from 2021, with high-value growth stocks suffering.
Kelly said energy, health care and consumer staples stocks were the fund’s best performers. For 2023, Kelly said the firm is bullish on the financials, energy and utilities sectors.
Return from year to day; 6.08%
The largest holding (as of October 30)Marathon Petroleum (2.9%), Gilead Sciences (2.8%), Merck & Co (2.7%), ExxonMobil (2.6%), General Mills (2.6%)