THE MUTUAL FUND & ETF GROUP
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THE MUTUAL FUND & ETF GROUP. PRESENTED BY: Gary Bradshaw PORTFOLIO MANAGER. SATURDAY MAY 22 nd , 2010. HODGES FUNDS. 1. ORGANIZATIONAL HIGHLIGHTS. 1989 – Founded by Don W. Hodges 1992 – Launched Hodges Fund (HDPMX) 2007 – Launched Hodges Small Cap Fund (HDPSX)

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THE MUTUAL FUND & ETF GROUP

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The mutual fund etf group

THE MUTUAL FUND & ETF GROUP

PRESENTED BY:

Gary Bradshaw

PORTFOLIO MANAGER

SATURDAY MAY 22nd, 2010


The mutual fund etf group

HODGES FUNDS

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The mutual fund etf group

ORGANIZATIONAL HIGHLIGHTS

1989 – Founded by Don W. Hodges

1992 – Launched Hodges Fund (HDPMX)

2007 – Launched Hodges Small Cap Fund (HDPSX)

2009 – Launched 3 New Funds

- Blue Chip 25 Fund (HDPBX)

- Pure Contrarian Fund (HDPCX)

- Equity Income Fund (HDPEX)

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The mutual fund etf group

INVESTMENT TEAM

DONALD W. HODGES, HCM Founder, Chairman, and Portfolio Manager, began his investment career in 1960 with Merrill Lynch. In 1974, he joined what is now RBC Dain Rauscher, where he became president in 1983. Don brings nearly five decades of investment industry experience to our clients. Don earned a BS from West Texas State.CRAIG HODGES, HCM President and Portfolio Manager, entered the securities business in 1986 after graduating from Baylor University with a degree in finance. In 1989, Craig co-founded HCM and became president in 2000.  Craig manages separate accounts and is co-manager of the Hodges Funds.ERIC J. MARSHALL, CFA, Senior Vice President, Portfolio Manager, and Director of Research, joined the Firm in 1997. Eric has developed the research department over the last decade into a strong team of analysts who conduct on-site visits and scrutinize company data. Eric has a BA in finance from West Texas A&M and is a CFA Charterholder.GARY BRADSHAW, Senior Vice President and Portfolio Manager, began working with Don Hodges in 1985 at RBC Dain Rauscher. He joined HCM in 1990 and specializes in structuring income portfolios. Gary earned an MBA from East Texas State University, and a BS from Virginia Tech.

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The mutual fund etf group

INVESTMENT PROCESS

The tactical approach is the same with all of our products. Our process focuses on identifying a few core holdings in each product. Once we have established those core holdings, then we will build a mixture of what we believe to be overlooked value, growth, and super growth companies.

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The mutual fund etf group

STOCK SELECTION

  • Our stock selection process is based on a long-term, bottoms-up investment strategy that is focused on fundamentally sound businesses that offer greater upside potential relative to downside risks. Although stock selection criteria will vary across our different fund strategies, the Hodges Mutual Funds are generally focusing on the individual stocks that exhibit the following characteristics:

    • Strong balance sheets and ability to access capital

    • Low cost production relative-to-peers

    • High barriers to entry

    • Ability to quickly leverage fixed costs once incremental demand returns

    • High levels of tangible hard assets value relative to their market cap

    • Exposure to new or emerging markets

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The mutual fund etf group

RESEARCH

Our research efforts are focused on fact gathering as opposed to opinion pieces. Our research analysts are “generalists.” They cover and report on several different types of companies as opposed to focusing on one sector and 10-15 companies in that sector that may or may not be relevant at the present time. By doing this we avoid being stuck in sectors that may be stagnant for sometime.

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The mutual fund etf group

BUY/MONITOR

  • Well capitalized business models with high barriers to entry.

  • We typically invest in ideas based on an 18 month time horizon.

  • Our job is to anticipate changes in the company's cycles and/or story.

  • We are primarily interested in company cycles and secondarily in economic cycles.

  • We also pay close attention to pricing power.

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The mutual fund etf group

PRICING POWER

  • Pricing Power = Margin Improvement = + ROE = Multiple Expansion

  • Key Drivers of Pricing Power

  • - Capacity Utilization

  • - Barriers to Entry

  • - Threat of Substitute Products and Services

  • - Market Demand

  • - Competition/Mergers

  • Example: RAILROADS

  • - Under-invested for 20-30 years

  • - Low cost provider of transportation services

  • - Extremely high barriers to entry

  • - Only 4 major railroads in the U.S

  • - Demand: imports, coal, trucking partners, ethanol

ROE: A measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.  

Multiple Expansion: Occurs when the multiple used to calculate values of the security increases.

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The mutual fund etf group

WHEN TO SELL

  • Overvalued on a relative basis.

  • Story changes and no longer fits original investment thesis.

  • Risk/reward scenario becomes unfavorable.

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The mutual fund etf group

HODGES FUND (HDPMX)

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The mutual fund etf group

HODGES SMALL CAP FUND (HDPSX)

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The mutual fund etf group

Built

1906

Mayor T.L. Bradford Mansion

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The mutual fund etf group

www.hodgescapital.com


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