Hennessy Cornerstone Value (HFCVX)'s Data-Driven Success

The managers use an algorithm to find solid stocks at bargain prices.

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Staying the course can be difficult for many investors when the stock market gets choppy and drifts down, as it has of late. But that’s not the case for the three managers at Hennessy Cornerstone Value (HFCVX).

Over the past 12 months, managers Neil Hennessy, Ryan Kelley and Josh Wein have delivered an astonishing 14.0% return. That trounced the fund’s benchmark, the Russell 1000 Value index, by nearly 14 percentage points, and it topped 98% of the fund’s peers (funds that focus on value-priced, large-company stocks).

Cornerstone Value’s success lies with a stock-picking algorithm that has been in place since the fund launched almost 26 years ago. “Fundamentally, we’re a quantitative fund,” says Kelley. “We let data drive the investment process.”

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The computer screen focuses on large, dividend-paying firms that trade on a U.S. stock exchange, including foreign-company shares. They must be above average in terms of market value, the number of shares outstanding and cash flow, and they must have a share price of $5 or higher, among other criteria. The process often spits out undervalued shares.

In the final step, the stocks are ranked by dividend yield. The 50 highest-yielding stocks are purchased in equal proportions. A dividend is “a huge signal from management,” says Wein. “It says not only can the company pay a dividend now, but it can continue to pay a dividend because very few companies are going to play fast and loose with their dividend.”

The whole screen is rerun and the fund is rebalanced or reconstituted annually, usually in the first three months of the year. After the fund’s rescreening in early 2021, the managers snapped up shares in a lot of energy stocks, including Chevron (CVX), ExxonMobil (XOM), ConocoPhillips (COP) and others, just before the sector began to rebound. The energy stocks have been a big driver of the fund’s recent success.

Currently, the fund’s top three holdings are General Mills (GIS), Marathon Petroleum (MPC) and Intel (INTC). Other big, well-known companies, such as AT&T (T), Kraft Heinz (KHC), Coca-Cola (KO) and Bristol Myers Squibb (BMY), round out the portfolio. The fund charges a 1.23% expense ratio.

Rivan V. Stinson
Staff Writer, Kiplinger's Personal Finance

Rivan joined Kiplinger on Leap Day 2016 as a reporter for Kiplinger's Personal Finance magazine. She's now a staff writer for the magazine and helps produce content for Kiplinger.com. A Michigan native, she graduated from the University of Michigan in 2014 and from there freelanced as a local copy editor and proofreader, and served as a research assistant to a local Detroit journalist. Her work has been featured in the Ann Arbor Observer and Sage Business Researcher.