Our domestic fund edged its benchmark in January on the strength of one of our longest-held stocks.



Year to Date

Since Inception (Annualized)

Inception Date: 11/1/2010

Motley Fool Small-Mid Cap Growth Fund (TMFGX)




Russell 2500 Growth Index*




For a standardized list of performance for the Small-Mid Cap Growth Fund, please click here. For fund holdings, please click here.

January was another strong month for the market and for our Small-Mid Cap Growth fund, up 5.50%, compared with 4.99% for our benchmark, the Russell 2500 Growth Index. So the fund got off to a good start on an absolute and relative basis to start the year, although the start of February quickly showed how much weight one month’s returns can carry.

The biggest mover for the month was KapStone Paper and Packaging Corp., up over 50% on news that WestRock Co. will acquire it. We’ve held KapStone for over seven years, since the initiation of the fund. It’s been an impressive growth story during the time we’ve had it, making a number of successful acquisitions along the way that added significant shareholder value. It has also displayed all the cyclical ups and downs of a commodity producer, and it’s the type of stock we hold less of today than we did a number of years ago, as we’ve added more money to companies capable of greater organic growth than a commodity player typically can. Still, KapStone’s managers proved themselves to be wise allocators of capital and created value for shareholders above and beyond what the rest of the industry managed. We’re sorry to see KapStone go, and over the next couple of months we’ll make a decision on whether to hold shares of WestRock as we grow to know the company better.

The next best performer for the portfolio was Dorman Products, up 23%. Auto-parts retailers as a whole saw a recovery during the month, for two reasons. First, their stocks severely underperformed the broader market in 2017, and some “January effect” reversion to the mean was not unexpected. Second, the past couple of winters have been too mild for the likes of Dorman and its competitors, and normal to more extreme cold weather this winter has been a welcome event, as auto-parts retailers delight in the icy conditions and potholes that put dents and stress on car parts. While a one-month move of 23% seems a bit extreme as a response -- and it did revert somewhat in the beginning of February, along with the rest of the market -- Dorman is still slightly below its last five-year average for most valuation metrics.

The third and fourth best performers for the fund were ResMed, up 19%, and Align Technologies, up 18%, both climbing on excellent quarterly earnings reports. Joining them was Varian Medical Systems, up 15%. These healthcare providers are seeing increasing adoption of their already category-leading products and are benefiting from improving economies around the globe. The benefits of the U.S. tax bill are also now being quantified for these and other companies that are reporting for the completed year and providing guidance for the coming year. In short, both companies are performing even better than we had expected and have justified their high placement in the portfolio.

It was a month in which most things went right and most stocks responded positively to almost any piece of substantive news. That was not the case, however, for the bottom two performers: LCI Industries, down 15%, and Thor Industries, down 9%. These two recreational-vehicle (RV) companies suffered when an analyst issued a report questioning the sustainability of dealer inventories in the RV space. In addition, monthly wholesale shipment numbers released at the end of the month showed that December shipments were up 9.9% year over year, compared with a 17.2% increase for the full year. The market seems to have taken the December number as an indication of a potential slowdown in the red-hot RV market. That may be the case, but monthly numbers tend to be pretty volatile in this space, for reasons to do with everything from weather to significant changes in the economy. In this case, we don’t see the monthly wholesale shipment numbers as indicative of trouble in the RV space. The stocks have moved up dramatically over the past two years, however, so any hiccup in the data appears to be enough to scare some. Valuations for RVs appear attractive to us, and we added a little bit to our position in LCI Industries during the month.

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

*The Small-Mid Cap Growth 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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