Homestead Small Company Stock Fund

Fund Overview

The Homestead Small Company Stock Fund marches to the beat of its own drum, and lately it's found a great rhythm. 

As of April 04, 2012, the fund has assets totaling almost $258.55 million invested in 50 different holdings. Its portfolio consists of shares of small and midsized companies.

Not much about the fund is typical. Despite its name, nearly half of its portfolio is in midsized companies. Meanwhile, as of the end of December, the fund had about 7 percent of its portfolio in cash, about twice the average for Morningstar's small value category. And lately, the fund has been making a sizeable bet on the American consumer, as reflected in the large overweights it sports to the consumer goods and consumer services sectors. For instance, Nordstrom, United Natural Foods, and J.M. Smucker all enjoy prominent spots in its portfolio. The fund's unique strategy has been paying off. After gaining more than 45 percent in 2009, the fund has finished among the top 6 percent of the funds in its category. The fund has returned 0.98 percent over the past year and 33.93 percent over the past three years. 

Historically, the fund has had its fair share of off years. Notably, in 2003, 2004, and 2008, the fund finished in the bottom third of its Morningstar category. Still, as of the end of March, its 10-year trailing returns beat those of its category by 2 percentage points. Over time, management's buy-and-hold discipline has come in handy. Currently, the fund's turnover ratio is just 4 percent. By comparison, a fund that replenishes its entire portfolio once a year would have a ratio of 100 percent. The fund's rock-bottom turnover, combined with its sizeable cash stake, point to a management team that puts a premium on patient investing. The fund has returned 7.52 percent over the past five years and 9.23 percent over the past decade. 

Investment Strategy

Management looks for stocks that or "overlooked ... or generally out of favor with the market," says co-manager Peter Morris. "Basically what we're looking for are companies that are selling below what we think their intrinsic values are." According to the fund's prospectus: "To determine whether a stock is undervalued, [management] considers, among other factors, earnings valuations, debt ratios and any competitive advantages a company may have." Management has a strong buy-and-hold philosophy and likes to keep its picks for at least five years. "Selling stocks ... is always harder than buying stocks," says Morris. 

Role in Portfolio

This fund could lend support to a well-balanced portfolio.

Management

Peter Morris, Stuart Teach, and Mark Ashton manage the fund.

This is one of 8 funds in the Homestead family.

Performance

The fund has returned 0.98 percent over the past year, 33.93 percent over the past three years, 7.52 percent over the past five years, and 9.23 percent over the past decade. 

Hypothetical Growth of $10,000

Updated 03.31.2012

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Holdings

The fund invests in shares of small- and mid-sized companies. Lately, the fund has been overweight in the consumer goods and consumer services sectors.

Asset Allocation

	% Long	% Net
Cash	9.1	9.1
Stocks	90.86	90.86
Bonds	0.0	0.0
Other	0.0	0.0
Foreign Bonds	0.0	0.0
Foreign Stocks	0.04	0.04
Convertible	0.0	0.0
Preferred	0.0	0.0

Updated 12.31.2011

Top Holdings

Performance as of 03.31.2012

Portfolio as of 12.31.2011

	Ticker	YTD Return %	% Net Assets
Triumph Group, Inc.	TGI	9.53	4.2
iShares Russell 2000 Value Index	---	---	3.62
Applied Industrial Technologies, Inc.	AIT	19.39	3.53
Cracker Barrel Old Country Store, Inc.	CBRL	12.5	3.48
Dean Foods Company	DF	8.04	3.38

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Fees

Homestead Small Company Stock Fund has an expense ratio of 1.06 percent. 

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Risk

Like all stock funds, this one comes with some risks.

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