Hennessy Cornerstone Mid Cap 30 Fund: The One-Trade Wonder

This Stock Fund Is Outperforming the Market—With Just One Annual Trade

The Hennessy Cornerstone Mid Cap 30 Fund has been delivering impressive returns, thanks to holdings like Abercrombie & Fitch and Super Micro Computer.

In a market where gains often favor high-profile stocks, one fund is charting a different path to success. Over the past two decades, the Hennessy Cornerstone Mid Cap 30 Fund (HFMDX) has consistently outpaced the broader market, all while adhering to an unconventional strategy: trading just once a year.

Despite a year filled with market volatility, this $1 billion fund has soared, boasting a 21% year-to-date return. In contrast, its small-value fund category has only seen a 2.2% increase, and the overall stock market, as measured by the Morningstar US Market Index, has risen by 10.5%.

Hennessy Cornerstone Mid Cap focuses on maintaining its chosen stocks for a full year, a strategy that has paid off by emphasizing value in its investments and concentrating on smaller companies, two areas that have historically underperformed. This approach has led to holdings in lesser-known companies with low price-to-sales ratios, such as clothing retailers like Gap and Abercrombie & Fitch, as well as companies in the heating, ventilation, and air-conditioning industry, like Comfort Systems USA.

While the fund's strategy may seem passive, it actively seeks out stocks that have the potential to become high performers and holds onto them. For example, the fund acquired Super Micro Computer in October 2022, reaping the benefits of the stock's 400% surge.

With its disciplined approach, the Hennessy Cornerstone Mid Cap 30 Fund has consistently outperformed its benchmark, the Russell Midcap Index, across various trailing periods. It has also outpaced the S&P 500 since its inception in September 2003, delivering an annual return of 12.3% compared to the S&P 500's 10.5% over the same period.

Despite its success, the fund's 1.34% expense ratio is considered high by Morningstar. Nevertheless, its managers, Ryan Kelley, L. Joshua Wein, and Neil Hennessy, continue to focus on investments in US stocks with market capitalizations between $1 billion and $10 billion. They carefully screen for stocks with price-to-sales ratios below 1.5 to avoid value traps, ensuring the fund remains invested in companies with strong growth potential.

By sticking to its disciplined strategy, the Hennessy Cornerstone Mid Cap 30 Fund has demonstrated that a patient, value-focused approach can lead to substantial returns for investors.