We sold four of our fund holdings in March. The fund was slightly down, but we remain pleased with how most of our companies are performing.

 

March

Year to Date

Since Inception (Annualized)

Inception Date: 11/1/10

Motley Fool Great America Fund (TMFGX)

-1.02%

2.51%

12.14%

Russell 2500 Growth Index*

0.98%

6.12%

13.44%

For a standardized list of performance for the Great America Fund, please click here. For fund holdings, please click here.

The Great America Fund underperformed in March, losing 1.02% during a time of mildly positive performance for the broader market, as well as for our benchmark, the Russell 2500 Growth Index.

Continuing to concentrate the fund on only our best ideas for long-term investment, the fund sold out of its positions in Aceto, Horizon Global, Loews, and Liberty Interactive.

There were no new entrants to the fund, though we did add to our positions in Panera Bread, XPO Logistics, and AutoZone.

Top-performing stocks for the month were Panera Bread (up 13.5%), Cabela’s (up 13.4%), and Align Technology (up 11.6%). Both Panera and Cabela’s have benefited from takeover situations.

Panera agreed in early April to be acquired by JAB Holdings, and the news pumped up the share price quite a bit. As of mid-April, the stock was up more than 50% for the year. The takeover rumors didn’t break until after March ended, but the first three months of the year were still strong for Panera, stemming from its quarterly results. Given the runaway success of the Panera 2.0 concept, which has been juicing sales and profits over the past year, and with a long runway ahead for the company, we’re not surprised that JAB wanted to add it to its growing stable of coffee and food brands, which includes Caribou Coffee, Peet’s Coffee, Krispy Kreme Doughnuts, and many other well-known brands. We’re sorry to see Panera go.

Cabela’s agreed last year to be acquired by Bass Pro Shops, though that deal had become endangered by difficulties in the sale of the credit card division at Cabela’s to Capital One Financial. That sale was a precondition for the Bass Pro deal to go through. In March, news broke that Synovus Financial was in talks to acquire the credit card business. If that deal goes through, the chances that Cabela’s will be acquired under the original terms with Bass Pro improve. Expect more developments in this story before the end of the year.

The four largest drags on performance for the month were Ionis Pharmaceuticals (down 19.2%), Thor Industries (down 13.3%), Genesee & Wyoming (down 8.5%), and LCI Industries (down 7.3%). Thor is the world’s largest RV manufacturer, and LCI Industries (formerly known as Drew Industries) is a major parts supplier to Thor, so the two stocks tend to move in tandem.

The poor performance for the stocks in March was not completely unexpected, since each stock was up over 80% in 2016. The RV sector has been on fire, with low gas prices, interest rates, and unemployment levels all contributing to sales strength. However, sales did not rise anywhere close to 80% in 2016. So even though both LCI and Thor reported good numbers for the first quarter of the year, some investors might have been buying only because of the upward movement in the stock price. Once the stock’s trajectory took a pause, the sellers have piled up.

We’re still happy with the performance of both of these companies so far this year, and while we know that RV sales are highly cyclical, the underlying fundamentals of this cycle are still strong. They are the two most profitable investments the fund has made, even after the mild sell-off in March, and we expect to hold them both for a long time.

* The Great America Fund changed its benchmark from the Russell MidCap Index and the Russell 2000 Index to the Russell 2500 Growth Index on February 28, 2017. 

 

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