NAME: Neil Hennessy
FIRM: Hennessy Funds
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TITLE: Chief Investment Officer and Portfolio Manager
ASSETS UNDER MANAGEMENT: $3.1 billion
YEARS IN THE BUSINESS: 30 years
LAST YEAR’S RETURNS VS S&P: Hennessy Cornerstone Growth Fund (HFCGX) has returned 30.01% this year vs. 15.52% for the S&P 500
FIRST JOB IN BIZ: Paine Webber, Financial Advisor
What is the most dominant theme you are seeing that will impact the market over the next year, and how do you use it?
I believe that the most dominant themes impacting the market have not changed. Businesses will be confronted with the same leaders (Democrats and Republicans alike) who were unable to provide clarity on taxes, regulation and the cost of health care. These issues will continue to generate headwinds for the equity markets.
We continue to evaluate the stock market carefully, and I am convinced more than ever that strong U.S. corporations will find ways to thrive. It may take a few years for our government to provide necessary clarity on these important issues, but the ingenuity, acumen and drive of U.S. business leaders will continue to provide opportunities in the equity markets. If investors take a long-term view and invest today, there are prospects for reasonable returns in the future. We believe that the market is in a slow but stable recovery and that next year’s returns will be in the 8-12% range, and I personally like reasonable and steady returns. If we could receive clarity out of Washington on the three issues I mentioned previously, then I think the potential for gains could be even greater.
What is the most critical economic indicator that you are looking at over the next month/quarter?
The nation wants business to start hiring in a meaningful way. And honestly, unemployment remains the one area of the economy that people are the most frightened about. We expect unemployment to remain high for many quarters to come.
What is the biggest issue outside the U.S. that could impact the U.S. stock market?
While here in the U.S. corporations continue to keep their nose to the grindstone in order to turn profits, and individuals trim their budgets to remain solvent, the default situation in Europe has the potential to derail our success. We are concerned about the EU coming up short in their debt crisis resolution, and what appears to be a slowing Chinese economy.
What are you NOT worried about?
I’m not worried about many individual companies who continue to produce significant profits in a sluggish economy. A number of our mutual funds are growth funds, but they are funds that invest in growth at a reasonable price. Our formulas capture companies that are growing faster than the overall economy, but part of our equation requires that we purchase them at a reasonable price. For us, that determination is made by them having a price-to-sales ratio below 1.5. That keeps us out of names that may be trading at a higher valuation based on future earnings or predicted growth. We think there are opportunities in consumer discretionary stocks such as TJX Companies (NYSE:TJX), Dollar General (NYSE:DG) and Pier 1 (NYSE:PIR) as consumers continue to seek good value for their spending dollars.
What is the most important article you read in the past week? Why?
Honestly, I like to read everything. I start my day reading the financial publications (to stay in touch with my industry), the local papers (to stay in touch with my community), and regional pubs, too (to stay in touch with things effecting the state where I live). What is amazing to me is how the same themes resonate throughout all media. People all over this nation want clarity from our political leaders at the local, state, and national level. And that was very evident by seeing the election results and gauging the reaction to those results the day after. I hope that all politicians listen to their constituents and stop the “politics as usual,” make tough decisions and start to LEAD this great country.