The Hennessy Focus Fund Q4 2023 Portfolio Performance Review: A Reflection on Strategy and Outlook
Hennessy Funds
High-conviction investment strategies matched with an unwavering commitment to always put shareholders first.
Hennessy Focus Fund Co-Portfolio Manager, Ira Rothberg, provides insights and commentary for the fund’s Q4 2023 Portfolio Pulse performance review. Comprised of approximately 20 exceptional investment ideas, the Hennessy Focus Fund is an actively managed, highly concentrated portfolio that expects to hold companies for a period of 5-10 years, or longer. In a conversation with this month’s guest host Kyle Hiatt, Rothberg discusses the fund’s approach, recent performance, and outlook for the future.
A Long-Term Approach to Investing
With nearly 20 years of experience managing the Hennessy Focus Fund, Ira Rothberg emphasizes the fund’s consistent approach to investing. The management team weighs “compounders,” companies with competitively advantaged business models, strong management teams, and long-term growth potential. Rothberg highlights that while the core investment philosophy has remained unchanged, the team has refined its research process over the years.
Identifying Secular Growth Businesses
When it comes to spotting businesses with sustained mid-teens or higher earnings growth potential, Rothberg points to a set of five investment criteria. These include a strong economic moat, excellent management, and reasonable valuation. Through rigorous research, which involves studying thousands of companies annually, the team seeks out these “compounders” that can drive returns over a decade or more.
Navigating the Current Economic Landscape
Given the Federal Reserve’s aim for a 2% inflation target, Rothberg shares insights into how this impacts their investment decisions. He notes that the fund is well-positioned for potential easing cycles, particularly in sectors such as real estate and housing. With interest rates expected to decline, companies like American Tower and Brookfield Corporation have emerged as top contributors to the fund’s performance.
Building a Concentrated Portfolio
In a world where index funds often dominate discussions, Rothberg explains the rationale behind maintaining a concentrated portfolio of approximately 20 exceptional investment ideas. Drawing from historical data, which shows that a small percentage of top-performing stocks generate the bulk of market returns, the fund aims to identify these exceptional companies through a selective and patient approach.
Insights into Financials and Consumer Discretionary Sectors
The Hennessy Focus Fund has a significant allocation to the financial sector, comprising about 30% of the portfolio. However, this doesn’t just include traditional banks but also diversified businesses like AEON and Markel, which offer unique opportunities. Rothberg also touches on the consumer discretionary sector, highlighting O’Reilly Automotive as a beneficiary of current market trends.
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Spotlight on Altus Group: A Vertical Market Software Company
In the fourth quarter, the fund added Altus Group to its holdings. Rothberg explains that Altus holds a monopolistic position in modeling and valuation for commercial real estate, offering unique software solutions to the industry. With a cloud-based model and the ability to provide predictive analytics, Altus is positioned for strong growth in the years ahead.
Outlook for 2024 and Beyond
Looking ahead, Rothberg provides a cautiously optimistic outlook for 2024. While avoiding short-term market forecasts, the fund remains focused on the underlying earnings growth of its portfolio companies. With expectations of continued economic growth, strong fiscal stimulus, and consumer spending, the Hennessy Focus Fund aims to deliver consistent returns over the next five years.
Conclusion
In conclusion, the Hennessy Focus Fund stands out for its disciplined approach to investing in high-quality, growth-oriented companies. By maintaining a concentrated portfolio and focusing on long-term trends, the fund aims to navigate the ever-changing market landscape successfully. Investors looking for a blend of strategic focus and growth potential may find the Hennessy Focus Fund an attractive option in their portfolio.
For more information on the Hennessy Focus Funds and their investment strategies, visit hennessyfunds.com.
Current and future holdings are subject to risk. To obtain fund holdings visit www.hennessyfunds.com.?
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