Advertisement
Kip 25

This Small-Company Stock Fund Finds Gems in Surprising Places

Homestead Small-Company Stock's managers are all personally invested in their fund.

The managers of Homestead Small-Company Stock (HSCSX) work hard to find out-of-favor companies primed for a turnaround. Sometimes, their dogged research takes them to places far from their Arlington, Va., headquarters under less-than-ideal conditions. Prabha Carpenter, who comanages the fund with Mark Ashton and Greg Halter, recalls one unglamorous trip she made to Paducah, Ky., during a violent thunderstorm to visit a computer-services firm. And during a stop in Jackson, Miss., to visit a family-owned egg producer, Halter found himself in a sketchy part of town one night. Says Carpenter, “He was texting me emojis to tell me that he was scared to death.”

Advertisement - Article continues below

To find undiscovered companies, the managers have to look under proverbial rocks. It helps, perhaps, that they are personally motivated: Every manager has money invested in the fund, a member of the Kiplinger 25. Ashton, who has been on the job since 1999, has the most—more than $1 million, according to fund filings. “That’s important to us,” says Carpenter. “We want to make money, absolutely.”

The team uses the Russell 2000 index as a guidepost. The index’s holdings recently ranged in value from $177 million to $4.3 billion, so any company in that size range qualifies. And once the managers buy, they tend to hold on for a long time. The $1.2 billion portfolio has a turnover ratio of 5%, which implies an average holding period of 20 years.

Advertisement
Advertisement - Article continues below

Dycom Industries has been a major contributor to the fund’s performance. Shares of Dycom, which provides services and infrastructure to the telecommunications industry, soared 142% over the past year and, at last report, accounted for 7.2% of Homestead’s assets. The fund has held the stock since June 2012.

The fund’s investments in regional banks helped, too. National Penn Bancshares, which has branches in Pennsylvania, Maryland and New Jersey, and Cardinal Financial, which operates in the Washington, D.C., area, both had one-year gains of 21%. Says Carpenter: “Smaller banks are more nimble than bigger banks—customers are able to get a loan, small businesses can finance an acquisition—and they know their customers, which is the essence of banking.” They can also be tempting takeover targets. In August, BB&T disclosed plans to buy National Penn for $1.8 billion; National Penn shares soared 17% on the news.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
July 7, 2020
15 Best Fidelity Funds for the Next Bull Market
mutual funds

15 Best Fidelity Funds for the Next Bull Market

Investors looking to squeeze more profit from the next bull run can look to Fidelity funds for strong active management and tactical investments.
July 7, 2020
10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020