The $268.8 million Hodges Fund ( HDPMX ) has sprinted up 25% this year, outdistancing the S&P 500's 8% gain. It sits atop IBD's Top Growth Funds For The Past Three Months screen.
The move by this top performing mutual fund has been powered by the likes of apparel-tools-accessories maker Duluth Holdings ( DLTH ), up 101% this year through Thursday afternoon; apparel and shoemaker Adidas ( ADDYY ), up 77%; and Eagle Materials ( EXP ), maker of building materials, up 37%.
And the fund is a world class marathoner, beating nearly all its midcap growth fund peers over the past five and 15 years. It's also had some sharp declines. It fell more than 11% last year, when the S&P 500 rose more than 1% and its midcap growth peers tracked by Morningstar Inc. contained their average loss to 1%.
Choppiness hasn't kept Hodges Fund from attaining an IBD 36-Month Performance Rating of A-, meaning that its performance is among the top 15% of all mutual funds in that time.
But co-manager Eric Marshall cautions that this portfolio should not be the core holding for every mutual fund shareholder.
In the past five years, for instance, the fund's two worst drops were each 34%. In comparison, the two worst tumbles by $252.4 billion Vanguard 500 Index ( VFINX ) -- which tracks the broad market in the form of the S&P 500 -- were 13% and 12%.
Still, if your stomach can stand a roller coaster dip from time to time, check this portfolio out. So far this year, it is the second-best performing U.S. diversified stock mutual fund with at least $100 million in assets.
Don Hodges and his son Craig co-founded parent company Hodges Capital in 1989. Their first mutual fund was their namesake Hodges, which debuted in 1992.
When Don passed away in 2015, Marshall replaced him as co-manager. Craig, company CIO, remains lead manager of the portfolio. Marshall, with the firm since 1997, co-manages five more Hodges funds.
Hodges Fund is the mother of the firm's other portfolios, Marshall says. "It's a go-anywhere, multicap fund," he said. "Today we have six mutual funds. All were carved out of Hodges Fund."
All of those strategies have one thing in common. "Our core approach is to go where we see the best opportunities," Marshall said.
Hodges Fund achieved its current outperformance despite holding several stocks with weak annual and quarterly earnings growth. The fund's overall Earnings Per Share Rating is a modest 53.
IBD's TAKE:Stocks with IBD EPS Ratings of 80 or higher are one of the hallmarks of the stock market's biggest winning stocks prior to their big moves up.An 80 EPS Rating means a stock's earnings per share growth topped 80% of all publicly traded stocks' in the two most recent quarters and over the past three to five years.
How did the fund outperform despite a slew of stocks with weak earnings growth? Marshall says the key is that many holdings' earnings are speeding up. Hodges adds that names that were overly punished for energy ties have rallied.
When assessing potential buys, Marshall and Hodges weigh valuations. "We're a growth-at-a-reasonable-price strategy," he said.
Horizon Pharma (HZNP) markets nine drugs for treatment of arthritis, pain and inflammatory diseases. The fund started its position about a year ago when the drugmaker got undervalued in the stock market.
The stock was one of hardest hit drug stocks the past two days in a pullback that followed presidential candidate Hillary Clinton's remarks about the cost of EpiPen s.
"We like the valuation," Marshall said, referring to Horizon Pharma. "It has over $2 per share in earnings this year. And it has the potential for over $3 per share in the next few years, and the stock trades in the low 20s. We've added to our position this year in the midteens and will hold on to it."
The fund began to trim its Facebook (FB) stake in June. "We want to own it over the long term," Marshall said. "We see it as a next-generation media company that is really a category of one -- itself. But, yes, it's subject to the law of large numbers. It may have slower growth in the next decade than in the past decade."
And the fund began to trim Texas Pacific Land Trust (TPL) in March. The company sells, manages and leases land and retains oil and gas royalties. It had ballooned to more than 12% of the portfolio. "Do you want that much in an asset that could be flat or go sideways for another year or 18 months?" said Hodges.