Small Bank Stocks Help this Fund Crush Rivals
Investing in dull savings and loans proved exciting for Hennessy Small Cap Financial Fund.

If anything underscores the idea that bigger isn’t always better, it’s the recent results of small-bank stocks in general and of Hennessy Small Cap Financial Fund (HSFNX) in particular. Although the fund gained only 1.9% over the past year, it crushed the average financial sector fund by 13.8 percentage points.
Bank stocks have been flailing because of recession fears, uncertainty about interest rates and concerns that many energy firms may default on their loans. But small banks have held up better than their larger counterparts. Over the past year, the KBW Nasdaq Regional Banking index, which tracks shares of small banks, shed 5.7%, while a KBW index that tracks large banks sagged 14.9%.
Hennessy’s managers, Dave Ellison and Ryan Kelley, invest mainly in savings and loans with market values of less than $3 billion. Small banks earn 70% to 100% of their profits from the “spread”—the difference between the rate at which they borrow and the rate at which they lend. Big banks, Ellison says, rely much more on such things as investment banking and money management. Small banks, he adds, benefit more from higher interest rates, which is why investors flocked to them when it became apparent that the Federal Reserve would raise rates last year.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Hennessy held 38 stocks at last report. Its top three holdings were WSFS Financial, Flushing Financial and Independent Bank.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Ryan joined Kiplinger in the fall of 2013. He wrote and fact-checked stories that appeared in Kiplinger's Personal Finance magazine and on Kiplinger.com. He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.
-
Amazon Ends Free Shipping Benefit Sharing with Non-Household Members
Starting October 1, Prime members will no longer be able to share shipping perks with those outside their household.
-
Big Tech Names Rise Above Broad Weakness: Stock Market Today
Some familiar names enjoyed solid rallies on the resolution of outstanding questions, but macro uncertainty hangs over the broader market.
-
Can President Trump Fire Fed Governor Lisa Cook?
Markets hate uncertainty, especially when it comes to monetary policy and interest rates, and questions about the Fed are compounding.
-
Powell Signals Rate Cuts in His Jackson Hole Speech. Here's What Wall Street is Saying
In his speech at the Jackson Hole symposium Friday, Fed Chair Jerome Powell said current conditions "may warrant" rate cuts.
-
Trump-Era Regulations Will Broaden Access to Crypto
The Kiplinger Letter The president wants to make the U.S. the leader in digital assets.
-
July CPI Report Boosts Rate-Cut Odds: What the Experts Say
The July CPI report shows that tariffs are having a slight impact on inflation, though not enough to keep the Fed from cutting interest rates.
-
How Big Will the Fed Rate Cut Be This Fall?
A dismal July jobs report has lifted expectations for fall rate cuts. How low could the fed funds rate be by year's end?
-
July Jobs Report Renews Rate-Cut Hopes: What the Experts Are Saying
The July jobs report shows weakening in the labor market and lifts expectations for a September rate cut.
-
Should You Buy These ETFs Before the Fed Cuts Rates?
The Fed is likely to lower interest rates this fall, and tactical investors might want to look closer at these ETFs before rate cuts resume.
-
July Fed Meeting: Updates and Commentary
The July Fed meeting came and went, with Fed Chair Powell saying little about a September rate cut and President Trump.