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$75.47 1.6  2.2%

Last Trade - 14/05/21

Sector
Financials
Size
Mid Cap
Market Cap £2.27bn
Enterprise Value £2.35bn
Revenue £435.6m
Position in Universe 1787th / 6851

Lone Star: Texas-based companies power year's best small-cap fund

Tue 12th April, 2016 8:02pm
By David Randall 
    NEW YORK, April 12 (Reuters) - A Texas-sized selloff of 
companies based in the Lone Star State is helping one small-cap 
fund manager produce outsized returns. 
    Craig Hodges, co-portfolio manager of the $6.2 million 
Hodges Pure Contrarian fund  HDPCX.O , is up 17.1 percent for 
the year through Monday, nearly triple that of any other 
small-cap core fund tracked by Morningstar, and nearly 20 
percentage points better than the 2.7 percent decline in the 
benchmark Russell 2000  .RUT .  
    Hodges is prospering mainly by buying Texas-based 
homebuilders, banks and hotel chains whose shares were caught up 
in the deep selloff in early 2016 triggered by fears that oil 
prices would dip into the $20 range. At one point, the large-cap 
benchmark Standard & Poor's 500  .SPX  was down 10.5 percent for 
the year to date; it is now flat on the year. 
    "You're seeing these algorithms sell anything based in Texas 
because they think it's all tied up to energy," said Hodges, who 
is based in Dallas. "I get questions from investors outside of 
the state about whether everyone is having to sell their house 
in Dallas, when Dallas housing is as strong as it's ever been." 
    Overall, Hodges now has about 40 percent of his fund in 
companies based in Texas, double the number from two years ago.  
    Few investors take such regional bets, though those that do 
often have a successful track record, said Todd Rosenbluth, 
director of mutual fund research at S&P Capital IQ.  
    St. Paul, Minnesota-based firm Mairs & Power Inc, for 
example, only invests in companies based in the Upper Midwest. 
Its funds have finished in the top quartile of their peer groups 
over the last one, three and ten years, according to Lipper 
data. There are no exchange traded funds that only own companies 
based in a specific state.  
    The average Texas-based company on the New York Stock 
Exchange is down 2.2 percent for the year, compared with a 1.1 
percent gain for all companies listed, according to Thomson 
Reuters data. The average Texas-based stock on the Nasdaq, 
meanwhile, is down 6.3 percent, compared with an average loss of 
5 percent for all Nasdaq companies.  
    Hodges has been buying companies like hotel chain La Quinta 
Holdings Inc  LQ.N , country club owner ClubCorp Holdings Inc 
 MYCC.N , homebuilder LGI Homes Inc  LGIH.O  and regional bank 
Independent Bank Group Inc  IBTX.O , many of which are still 
down significantly this year.  
    La Quinta, for instance, is down 8 percent in 2016. Hodges 
began buying the company, which has approximately 25 percent of 
its hotels in Texas, when it dipped below $10 per share in early 
Feb. It now trades at approximately $12.50 per share. A similar 
buy-low strategy has worked for his ClubCorp purchase. 
    "It's become pretty opportunistic by this point," he said.  
 
 (Reporting by David Randall, additional reporting by Rodrigo 
Campos; Editing by Andrew Hay) 
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters 
Messaging: david.randall.thomsonreuters.com@reuters.net)) 
 
Keywords: USA FUNDS/TEXAS
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