Strong results from RV suppliers led to a big month for our domestic fund.

 

September

Year to Date

Since Inception (Annualized)
Inception Date: 11/1/2010

Motley Fool Great America Fund (TMFGX)

4.40%

15.63%

13.24%

Russell 2500 Growth Index*

4.19%

17.03%

14.21%

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

The Great America Fund outperformed for the month with a strong 4.40% gain, compared with a nearly as strong 4.19% advance for the Russell 2500 Growth Index. Year to date, the fund’s 15.63% return trails the benchmark’s 17.03%. These are very strong returns for mid-cap growth stocks after three straight years of watching larger-cap stocks easily outperform the mid-cap space.

Lots of sectors performed well for the month, with particularly strong showings for recreational-vehicle (RV) manufacturers and suppliers. Thor Industries, the world’s largest RV manufacturer, climbed 15.9% for the month, and one of its principal suppliers, LCI Industries, formerly known as Drew Industries, rose 17.3%. That’s on top of an approximately 80% increase last year on both stocks. The story behind RVs for a while now has been the combination of strong employment numbers, low interest rates that allow for affordable financing, and low gas prices, all of which have continued to be factors in the 2017 strength of RV sales. On top of that, the hurricanes in September could provide some additional RV sales beyond the already strong numbers. By the same token, LCI Industries, which also is involved in the manufactured-housing business, could benefit from making replacement homes.

Other individual stock stories leading the way for the month were American Woodmark, up 16.2% following a 16.6% decline in August. Let’s call that a draw. AutoZone rose 12.6%, which is better than what we’ve seen for a while with that stock. However, it’s been a tough year for any retail operation not named Amazon, and September’s positive move still left AutoZone’s stock down nearly 25% on the year. We trimmed our retail holdings both last year and this year, and we continued our capital allocation strategy with the sale of all of our Under Armour shares in September.

The largest position in the portfolio after Thor was XPO Logistics, which also had a good month, up 10.8%, leaving the stock with a 57% gain for the year through the end of September. XPO has indicated that it’s interested in another large acquisition, having already grown from a company doing less than $200 million in annual revenue in 2011 to one doing over $14 billion in revenue last year. The market appears enthusiastic about XPO’s possible expansion plans, but we’ll simply observe whether this turns out to be a buy-on-the-rumor, sell-on-the-news situation. We can’t add to any position that already makes up 5% or more of the fund, as XPO does, but we see no reason to consider selling any portion of what we already do own.

A few positions didn’t fare as well during the month, though no individual stock fell as much as 10%, while 11 positions climbed more than 10%. Our poorest performer was GrubHub, down 7.8%, though it’s still up nearly 40% for the year through the end of September. GrubHub’s stock took a breather during the month, as Amazon has partnered with Olo, a New York food-delivery service and competitor to GrubHub. We’ll see how this plays out – Amazon is a threat to many businesses and sectors, but GrubHub has enough of a lead in this category that we’re not yet too worried.  

Some of our healthcare names were weak during the month, with Varian Medical Systems down 5.8%, Cooper Companies down 5.5%, and Ionis Pharmaceuticals down 5.4%. All are still having strong years, up 20% or more, and the simple truth is that not everything can go up every month. We’re happy with each of these positions and expect healthcare to continue to be a sector we’re overweight in over the coming years.

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

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