We used the February market dip as a buying opportunity.

 

February

Year to Date

Since Inception (Annualized)

Inception Date: 11/1/2010

Motley Fool Small-Mid Cap Growth Fund (TMFGX)

 -1.83%

3.57%

14.64%

Russell 2500 Growth Index*

 -3.28%

1.55%

14.35%

 

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

With a 1.83% decline, February was the first down month for our Small-Mid Cap Growth fund since May of last year. The benchmark Russell 2500 Growth Index’s drop of 3.28% was its first negative monthly performance since October 2016. A streak like that feels kind of nuts, to be honest, but it’s really not. As my fellow portfolio manager Bill Barker wrote last month, the market’s exuberance is supported by corporate profit growth, and earnings multiples are close to their average over the past 25 years. While there are stocks that we believe are expensive, overall we’re pretty comfortable with the current environment.

The three holdings in our fund that increased the most last month were GrubHub (37.6%), Paycom Software (7.9%), and XPO Logistics (4.2%). In January, I wrote about how technology is driving changes in the restaurant industry. Almost as if on cue, shortly thereafter GrubHub and Yum! Brands announced a new partnership in which GrubHub would be the only national partner for online food ordering and delivery from Yum!’s KFC and Taco Bell locations. Yum! will also purchase $200 million of GrubHub stock, and GrubHub will use that money to accelerate the expansion of its food delivery network. Yum! “We are committed to making our iconic brands easier to access through online ordering for pickup and delivery, and aggressively pursuing deliver as a strategic global growth opportunity,” said CEO Greg Creed, expressing a view of the industry that aligns with what I expressed in my January article.

The three holdings that declined the most last month were Tractor Supply (-14.5%), AutoZone (-13.2%), and Genesee & Wyoming (-12.9%). Tractor Supply’s shares sold off after the company’s 2017 earnings report showed profit margin that’s under pressure and not likely to abate this year, according to management. Retail is a tough business, and Tractor Supply is in heavy investment mode to support is omnichannel distribution initiatives.

During the month, we purchased several new companies: Carter Bank and Trust, Eastman Chemical, and NuVasive. We exited our position in Genomic Health. The genetic-test company has been struggling to grow at the rates we expected when we first purchased the shares in 2014. We regularly review the investment theses for all of our holdings, and with Genomic Health we made the decision that it was time for us to move on.

The Small-Mid Cap Growth Fund changed its name from The Great America Fund on December 31, 2017.

Note: The Morningstar RatingTM for funds, or 'star rating', is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. As of 2/28/2018, the Motley Fool Small-Mid Cap Growth Fund (Investor shares) was rated in the Mid Cap Growth Funds category, receiving a four-star rating among 550 funds over a three-year period and a five-star rating among 484 funds over a five-year period.

Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10- year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. Past performance is no guarantee of future results.

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