I just got back from the Hennessy Fund’s grand reveal of the new portfolio for its Hennessy Cornerstone Mid Cap 30 Fund (HFMDX), which gets rebalanced once a year.
The fund uses a quantitative screen to select 30 stocks with low valuation and high momentum, and last year it loaded up on companies that would be using their cash balance sheets for buybacks, dividends and acquisitions.
That portfolio has done well. The Hennessy Cornerstone Mid Cap 30 Fund has returned 12.3% so far this year, easily topping the 7.8% return in the S&P MidCap 400 and nearly equal to the S&P 500′s 12.4% return.
This year, portfolio managers Neil Hennessy and Brian Peery think companies will be doing their spending on capital improvements and hiring, rather than buybacks, dividends and acquisitions, as the United States economy continues to grow at a slow and steady pace. There’s nothing that can hurt the U.S. economy “short of a catastrophe,” Hennessy said. “Any pullback [in the stock market] is a buying opportunity.”
The portfolio does have its biases. It owns companies that have exposure to the U.S. economy–and limits those with exposure to Europe and energy. The picks also appear to point towards a pickup in spending by middle-income families, as companies like J.C. Penney (JCP), which Peery called a buy at the $7 level, figure prominently. Other stocks include Valspar (VAL), Pilgrim’s Pride (PPC) and Voya Financial (VOYA).
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