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I've read about this fund before but Morningstar has an article about it.
https://www.morningstar.com/funds/this-stock-fund-...

With this process, the $1 billion Hennessy Cornerstone Mid Cap 30 Fund (HFMDX) has beaten its benchmark, the Russell Midcap Index, over one-, three-, five-, and 10-year trailing periods. It ranks in the top percentile of funds in its Morningstar Category over all those periods. It has also beaten the S&P 500 over the 20 years since its inception in September 2003, with its investor share class returning 12.3% annually compared with 10.5% for the S&P 500 over that period.

Fund managers Ryan Kelley, L. Joshua Wein, and Neil Hennessy look for investments among US stocks with market capitalizations between $1 billion and $10 billion, then screen for names with a price/sales ratio below 1.5.

To avoid so-called value traps—stocks that look cheap but essentially should be because their fundamentals are worsening—the team then screens for companies with an annual earnings growth of any level and whose stock price has risen over the past three- and six-month periods. The team is generally left with roughly 100 stocks, from which it chooses the 30 with the highest 12-month trailing price increase, and it invests 1/30th of the fund in each.

Despite the limited trading it still has a lofty 1.34% expense ration.

Despite the limited trading it still has a lofty 1.34% expense ratio.

Turnover: 120% (Marketwatch) or 89% (the fund)
That doesn't sound like "limited trading".

If they really only trade once a year, you could easily ride on their coattails and buy a 1/30'th weight of each stock in their holdings.
Save the 1.34% expense ratio.

Or, heck, run your own screen:
"30 domestic, common stocks with the highest one-year price appreciation that also meet the following criteria:
Market capitalization between $1 and $10 billion
Price-to-sales ratio below 1.5
Annual earnings higher than the previous year
Positive stock price appreciation over the past three- and six-month periods"

The Russell index shows 360 stocks in that market cap range, so easily doable.

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Or maybe don't bother.
Portfolio Visualizer says, for the last 10 years:
VTI 11.7% CAGR
HFMDX 11.5% CAGR
SPY 12.3% CAGR

Since Jan 2023, 23.22%, 33.73%, 24.33%. So yes, beating the market year to date.

https://www.portfoliovisualizer.com/backtest-portf...


testfol.io goes back further, to inception 9/22/2003
VTI 10.4% CAGR
HFMDX 12.1% CAGR
SPY 10.3% CAGR

https://testfol.io/?d=eJy9jzFLBEEMhf9L6inWxmLq47AR...

Thanks although you are comparing apples and oranges. HFMDX is compared to a midcap index fund since that is what they buy and in that case the numbers are better. Midcaps haven't done as well as SPY/VTI. For example the last ten years a midcap index fund like FSMDX has returned 9.33% which HFMDX easily beats.

You're right, the benchmark comparison should be a midcap index fund.
I read the morningstar headline "This Stock Fund Is Trouncing the Market.." and the first part of the article "... fund has beaten the market" and "For the past two decades, Hennessy Cornerstone Mid Cap 30 Fund HFMDX has posted returns far outpacing the stock market" and "compared with 2.2% for its category, small-value funds, and 10.5% for the overall stock market as measured by the Morningstar US Market Index."

so I thought the appropriate comparison would be a whole market index fund like VTI or SPY.

But that article still fails and is misleading. Look at this backtest, inception to Jan 1 2024. https://testfol.io/?d=eJy9T8FKxEAM%2FRXJeYTZRTzMeS...

For most of the history, HFMDX has lagged behind its index (FSMDX) and the whole market index (VTI).
2011 to 2016 all three were virtually identical.
2016 to 2024 HFMDX lagged a lot.
YTD 2024 it finally pulled ahead.

Of course, if you had started at the low in April 2020 it beat them. You would have just had to willingly invest in a fund that lost 45% in just THREE WEEKS.

For example the last ten years a midcap index fund like FSMDX has returned 9.33% which HFMDX easily beats.

But it hasn't beat VTI over the last 10 years. CAGR 12.05% vs. 12.15%. With much higher volatility and MaxDD.
It has beat VTI over the last 5 years. But that brings to mind Jim's (mungofitch) caution about recency bias and observing just a lucky few years.

Good discussion, it's always useful to investigate potential investments & strategies. Finding something to avoid is valuable.
Nobody like a skunk at a picnic, though.

Here's a gtr1 backtest of a similar mutual fund:

CAGR   HFCGX  {zgHFCGX2023}
3-yr   14.4       13.7
5-yr   20.8       18.6
10-yr  11.4       10.1
15-yr  13.2       12.8

https://gtr1.net/2013/?~zgHFCGX2023:h252f0.4::styp...

Command Translation
Define {zgHFCGX2023}
Create [MktCap]: [1e-06*[[Actual closing Price; share_lag=1 days; quote_lag=1 days]*[Security Shares Outstanding; lag=1 days]]]
Create [Q1End]: [[[CPiT Sales/Turnover (Net) Q1; lag=1 days] == null ? 0 : [CPiT Ending Date as Ordinal Q1; lag=1 days]] 19870302 to 19970829; [[SI Sales Q1; lag=1 days] == null ? 0 : [SI Q1 Ending Date as Ordinal; lag=1 days]] 19970902 to 20240524]
Create [PS]: [[[[daily CPiT-adjusted Price; share_lag=1 days; quote_lag=1 days]*[CPiT (d) Com Shares Outstanding Q1; lag=1 days]]/[CPiT (d) Sales/Turnover (Net) - TTM Q1; lag=1 days]] 19870302 to 19970829; [[[daily SI-adjusted Price; share_lag=1 days; quote_lag=1 days]*[SI Shares Average Q1; lag=1 days]]/[SI Sales 12m; lag=1 days]] 19970902 to 20240524]
Create [ErnInc]: [[[CPiT (d) EPS (Diluted) - Excl Extraord Items - TTM Q1; lag=1 days] - [CPiT (d) EPS (Diluted) - Excl Extraord Items - TTM Q5; lag=1 days]] 19870302 to 19970829; [[SI (d) EPS-Continuing - TTM Q1; lag=1 days] - [SI (d) EPS-Continuing - TTM Q5; lag=1 days]] 19970902 to 20000331; [[SI (d) EPS-Diluted Continuing - TTM Q1; lag=1 days] - [SI (d) EPS-Diluted Continuing - TTM Q5; lag=1 days]] 20000403 to 20240524]
step0: [Security Type; lag=1 days] == 10,11
step1: [Mkt Days Since Security Opened; lag=1 days] >= 252
step2: [MktCap] > 175
step3: [[Mkt Date as Ordinal; lag=1 days] - [Q1End]] <= 252
step4: [PS] < 1.5
step5: [ErnInc] > 0
step6: [Total Return % over 63 days; lag=1 days] > 0
step7: [Total Return % over 126 days; lag=1 days] > 0
step8: [Total Return % over 252 days; lag=1 days] Top 50; Cash When Fewer
Holding period = 252 mkt days
Frictional loss of 0.4% applied to all sales (closing long/opening short)
Equally weight new positions, fully rebalancing all liquid positions to equal weight every 1 holding periods
All trades at market close.

Here's a gtr1 backtest of a similar mutual fund:

CAGR   HFCGX  {zgHFCGX2023}
3-yr   14.4       13.7
5-yr   20.8       18.6
10-yr  11.4       10.1
15-yr  13.2       12.8

The Hennessy page says (as of 4/30/24)
3 yr: 13.23%
5 yr: 17.67%
10 yr: 10.68%

That's even closer to your zgHFCGX2023, unless I mis-read the gtr1 results.

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