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Better Know a Stock Picker

Welcome, Fools, to part 46 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Hennessy Focus 30 (HFTFX)

Expense ratio

1.21%

Fund size

$231 million

1-year return

4.04%

5-year return

N/A

10-year return

N/A

Source: Hennessy Advisors as of 3/31/07.

Top 5 holdings

Company

% of Assets

Albemarle (NYSE:ALB)

4.1%

Big Lots (NYSE:BIG)

4.1%

WellCare Health Plans (NYSE:WCG)

4.0%

Belden CDT (NYSE:BDC)

3.9%

Priceline.com (NASDAQ:PCLN)

3.8%

Source: Hennessy Advisor as of 3/31/07.

Meet Neil Hennessy
The fightin' team at Hennessy Focus 30 is led by the guy with his name on the door: Neil Hennessy. He's run the shop since 1996, when the market-busting Cornerstone Growth Fund (HFCGX) was first introduced.

"Market-busting?" Yeah, I know how that sounds. Prepare to be impressed: Cornerstone Growth is up on the S&P 500 by almost seven percentage points per year since inception. No wonder Barron's listed Hennessy as No. 6 on its 2006 list of the top 100 fund managers.

With such a superstantial record, you'd think Hennessy's first passion would be stocks. Wrong. His first passion is customer service. He recently told Mutual Fund Wire, "All of our employees, including the executives, answer the phone and talk to shareholders."

Hennessy's firm also spends $2 million of its profits to list its funds with Schwab and Fidelity. The goal, he says, is to help clients manage a comprehensive portfolio with less paperwork. Eat that, Wall Street.

How he invests
And prepare for seconds. Unlike members of the white-shoe investapo, Hennessy is a well-known admirer of index funds. Indeed, what matters to him, and his clients, isn't so much the stocks he picks but the process by which they profit. As Hennessy explained about the 50-stock Cornerstone Fund in a 2005 interview with Motley Fool Champion Funds advisor Shannon Zimmerman:

The interesting part about it is just because we don't move stocks on a daily basis, people think that we are not actively managed. But we have the discipline of an index fund. In other words, we go out, we search 9,800 different companies, we do our screens, and we purchase our 50 stocks. With us, what you see is what you get. You know how your money is being invested. (Emphasis mine.)

Hennessy really means what he says. All the details for Focus 30's stock-picking process are public, and they never change. Sales occur only once annually, when the portfolio is rebalanced. That takes guts.

Hennessy is also one of the few managers to focus on price-to-sales. Why? Quoting from the website: "To find relative bargains. We won't spend more than $1.50 for $1 of sales. We use sales as our guide because sales figures are difficult for companies to manipulate and provide the clearest picture of a company's potential and value."

Is this fund for you?
Fair enough. But would you take Hennessy over Peter Lynch in a stock-picking contest? Probably not. Lynch possesses unearthly instincts when it comes to stock picking while Hennessy is a spreadsheet man.

Still, that spreadsheet is working overtime in the case of Focus 30. Since it opened for business on Sept. 17, 2003, the fund has returned 21.2% annually versus just 15.8% for the S&P 500.

No wonder Shannon keeps Focus 30 on his "funds to watch" list. There's simply too much potential here to ignore. (Want more market-beating ideas? Click here to get 30 days of free access to Champion Funds.)

That's all for now. See you back here next week, fund nation. Good night.

For more Foolish coverage of focused funds:

Fool contributor Tim Beyers, who is ranked 3,490 out of more than 29,700 in our Motley Fool CAPS investor intelligence database, is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on mutual funds, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is always championship caliber.  


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Tim Beyers
TMFMileHigh

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

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