| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
The Hennessy Equity and Income Fund focuses on owning high-quality businesses at reasonable prices across both equity and fixed income allocations. In the first half of 2026, U.S. equities rallied 10.2% driven by AI infrastructure spending and better-than-expected earnings, though much of the return came from a narrow set of speculative names. The managers used this environment to add quality companies left behind by the rally at attractive valuations. The portfolio held businesses with 23.0% pre-tax return on invested capital versus 16.1% for the S&P 500, at a slight valuation discount. Key contributors included Entegris, benefiting from AI-driven semiconductor demand, while new positions like Dominion Energy offer regulated utility exposure to data center power demand growth. On fixed income, the U.S.-Iran war reignited inflation, pushing CPI from 2.4% to 4.2%, causing the market to price in potential Fed hikes rather than cuts. The managers extended duration opportunistically as yields backed up, maintaining a neutral 3.78 duration while emphasizing high-quality corporate bonds. Looking ahead, they expect market returns to increasingly depend on fundamentals rather than multiple expansion, favoring their quality-focused positioning.
The fund invests in high-quality companies with durable competitive advantages, strong returns on invested capital, healthy free cash flow, and conservative balance sheets at reasonable valuations, while maintaining a balanced equity and fixed income allocation that emphasizes income generation and capital preservation through market cycles.
The managers expect the current environment of narrow market leadership to not persist indefinitely, with a reversion in the high-beta trade and a broadening of the market as fundamentals begin to matter again. They anticipate more muted returns following the strong run of recent years, with returns increasingly earned through fundamentals rather than multiple expansion. High-quality companies with sustainable cash flows and shareholder-friendly capital returns should do well as this dynamic unfolds. On the fixed income side, the single most important variable is how durable the inflation spike proves to be and how the Fed responds. The managers intend to stay close to neutral on duration and emphasize high-quality income, remaining ready to extend duration or add credit if the data provide a clearer opportunity.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 4 2026 | 2026 Q2 | BLK, D, ENTG, MLM, TEL | AI, fixed income, inflation, Quality, rates, semiconductors, Utilities, value |
ENTG D |
Hennessy Equity and Income Fund owns high-quality businesses with strong returns on capital at reasonable valuations. The first half of 2026 saw AI-driven market gains concentrated in speculative names, creating opportunities to add quality companies at discounts. Inflation resurged from Middle East conflict, shifting Fed expectations from cuts to potential hikes. The managers extended fixed income duration opportunistically while maintaining quality focus across both equity and bond portfolios. |
| Mar 2 2026 | 2025 Q4 | - | Balanced, dividends, Equity, fixed income, income, value | - | Balanced fund targeting long-term capital growth and income through 70% equity allocation in high-quality dividend-paying companies and 30% fixed income securities. Emphasizes downside protection and reduced volatility with focus on shareholder-oriented management and intermediate-term bonds. Currently concentrated in Financials sector with 4.42-year average bond maturity. |
| Jul 11 2025 | 2025 Q2 | BLK, ENTG, HD, LOW, MLM, ODFL, PGR, RSG, SCHW | fixed income, Quality, semiconductors, tariffs, Trade Policy, Valuations | - | Quality-focused equity and income strategy emphasizing companies with superior returns on capital and pricing power to navigate tariff uncertainty and elevated valuations. Portfolio trades at discount to market with strong balance sheets. Recent moves include adding semiconductor exposure via Entegris while trimming Home Depot. Modest near-term returns expected with quality fundamentals driving longer-term outperformance. |
| Jan 8 2025 | 2024 Q4 | BRKR, HD, LOW, V | AI, Concentration, fixed income, Quality, tariffs, Valuations, Yields | BRKR | Hennessy Equity and Income Fund targets high-quality companies with pricing power and competitive advantages amid elevated market valuations and concentration risks. Portfolio demonstrates superior fundamentals versus broader market. Recent addition of Bruker Corporation reflects opportunistic approach to quality companies trading at depressed levels. Strategy positioned for muted market returns through earnings growth and shareholder returns. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI infrastructure spending fueled the market rally in Q2 2026, with the S&P 500 posting its strongest quarter since 2020. Ongoing investment in AI infrastructure supported earnings growth and business activity. AI-driven semiconductor demand benefited holdings like Entegris, while growing power demand from data centers and AI usage in Virginia supports Dominion Energy's long-term growth. |
Infrastructure Semiconductors Data Centers Power Demand |
SemiconductorsEntegris benefited from improving fab utilization and accelerating AI-driven semiconductor demand. The company continues to gain share as advanced node transitions increase materials intensity per wafer, while improving memory and logic markets support broader growth. With its investment cycle largely complete, margin expansion and improving free cash flow should drive the next phase of earnings growth. |
Fab Utilization Memory Logic Materials | |
QualityThe portfolio focuses on high-quality companies with durable competitive advantages, strong returns on invested capital, healthy free cash flow, and conservative balance sheets. As capital has chased speculative rallies, many high-quality companies have been left behind and trade at attractive valuations. The portfolio held higher-quality, more profitable businesses at a slight discount to the market, with 23.0% pre-tax return on invested capital versus 16.1% for the S&P 500. |
Returns Free Cash Flow Balance Sheets Valuations | |
InflationInflation remains above the Federal Reserve's target and is the Fed's primary policy focus. The U.S.-Iran war and resulting energy price shock reignited inflation, pushing headline CPI from 2.4% to 4.2% in May and core PCE from 3.0% to 3.4%. Progress has been gradual as wage growth and services inflation continue to keep prices elevated. The single most important variable influencing fixed income positioning is how durable the inflation spike proves to be. |
CPI PCE Energy Shock Wages | |
RatesThe first half of 2026 saw a decisive shift from 'when will the Fed cut?' to 'will the Fed hike?' The market priced out expected cuts and priced in a hike by September or October. The 2-year yield finished up 70 basis points and the 10-year up 30 basis points. For bond investors, income grew more attractive even as the path of policy became less certain and more two-sided. |
Fed Policy Yields Hikes Income | |
Regulated UtilitiesDominion Energy was added as a new position in January. The company operates as a predominantly regulated utility with stable earnings, improving financial flexibility, and attractive long-term growth drivers. More than 90% of earnings are generated from regulated electric and gas utilities, providing predictable cash flows and low revenue cyclicality. Over the long term, Dominion should benefit from growing power demand as data centers and AI usage expand in Virginia. |
Stable Earnings Predictable Cash Flows Power Demand Data Centers | |
Infrastructure SpendingInfrastructure and nonresidential demand remain supported by Infrastructure Investment and Jobs Act (IIJA) funding and data center construction. This supports holdings like Martin Marietta, where recent acquisitions should enhance pricing, margins, and cash flow despite near-term share price pressure from elevated expectations. |
IIJA Data Centers Nonresidential Aggregates | |
ValueThe opportunity set has become more attractive for value-oriented investors. As capital has chased speculative rallies, many high-quality companies have been left behind and trade at valuations the managers find attractive. The portfolio held higher-quality, more profitable businesses at a slight discount to the market (18.0x EV/EBITDA versus 19.0x for the S&P 500), consistent with the discipline of owning durable, high return companies at reasonable prices. |
Valuations Discount High-Quality Reasonable Prices | |
| 2025 Q2 |
Trade PolicyThe portfolio is positioned to weather tariff uncertainty through companies with strong pricing power and financial flexibility. Service-oriented companies like Progressive and Schwab are less susceptible to direct tariff effects, while onshoring beneficiaries include Republic Services and Martin Marietta. |
Tariffs Onshoring Supply Chain Pricing Power Trade |
QualityFocus on companies with higher returns on capital, lower debt levels, and balance sheet flexibility. The portfolio trades at a discount with 23.1% return on invested capital versus 15.7% for the S&P 500, emphasizing sustainable competitive advantages and strong cash flow generation. |
Returns Balance Sheet Cash Flow Margins Moats | |
SemiconductorsAdded position in Entegris, a semiconductor spending play diversified across products and clients selling chemicals, filters, and containers with high switching costs. The company is positioned for growth from wafer starts and higher content per wafer trends. |
Wafer Equipment Chemicals Switching Costs Diversification | |
| 2024 Q4 |
QualityThe Fund focuses on high-quality companies with strong competitive advantages, pricing power, higher returns on invested capital, and less leverage. Portfolio companies can pass through cost increases to customers and return capital to shareholders through dividends and buybacks. |
Competitive Advantages Pricing Power Returns Capital Leverage |
Trade PolicyNew administration tariff policies are expected to have benign impact on portfolio holdings due to companies' pricing power and ability to adapt supply chains. Portfolio companies successfully navigated previous tariffs during Trump's first term. |
Tariffs Supply Chain Inflation Cost | |
AIArtificial intelligence developments could significantly increase productivity and broaden earnings growth, which should benefit companies trading at inexpensive valuations. However, if AI demand does not meet expectations, highly valued AI companies could disproportionately fall. |
Productivity Earnings Growth Valuations Expectations |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Aug 4, 2026 | Fund Letters | Hennessy Equity and Income Fund | ENTG | Entegris | Other | Semiconductor Materials & Equipment | Bull | - | Advanced Node, AI infrastructure, Equipment, Fab Utilization, Free Cash Flow, high barriers to entry, Logic, margin expansion, market share gains, materials, Memory, semiconductors | Login |
| Aug 4, 2026 | Fund Letters | Hennessy Equity and Income Fund | D | Dominion Energy | Other | Electric Utilities | Bull | - | AI, balance sheet improvement, data centers, defensive, dividend, Electric, natural gas, North Carolina, Predictable Cash Flow, Regulated, South Carolina, utilities, Virginia | Login |
| Jan 1, 2025 | Fund Letters | Hennessy Equity and Income Fund | BRKR | Bruker Corporation | Health Care Equipment & Services | Health Care Equipment | Bull | NASDAQ | Analytical Equipment, Diversified Business, founder-led, High ROI, life sciences, Research Equipment, scientific instruments | Login |
| TICKER | COMMENTARY |
|---|---|
| ENTG | The largest contributor year-to-date based on relative performance vs. the benchmark was Entegris, as it benefited from improving fab utilization and accelerating AI-driven semiconductor demand. The company continues to gain share as advanced node transitions increase materials intensity per wafer, while improving memory and logic markets support broader growth. With its investment cycle largely complete, margin expansion and improving free cash flow should drive the next phase of earnings growth. We remain attracted to Entegris' strong competitive positioning and high barriers to entry. |
| MLM | The largest detractor year-to-date based on relative performance vs. the benchmark was Martin Marietta. Shares were pressured by elevated expectations rather than any meaningful deterioration in fundamentals. Infrastructure and nonresidential demand remain supported by Infrastructure Investment and Jobs Act (IIJA) funding and data center construction, while recent acquisitions should enhance pricing, margins, and cash flow. We remain confident in Martin Marietta's ability to compound earnings over the long term. |
| TEL | TE Connectivity and BlackRock were also among the leading detractors from relative performance year-to-date. |
| BLK | TE Connectivity and BlackRock were also among the leading detractors from relative performance year-to-date. |
| D | In January, we initiated a position in Dominion Energy, which operates as a predominantly regulated utility with stable earnings, improving financial flexibility, and attractive long-term growth drivers. More than 90% of earnings are generated from regulated electric and gas utilities in Virginia, North Carolina, and South Carolina, providing predictable cash flows and low revenue cyclicality. Since 2022, the company has sold non-core assets, reduced debt, and brought in a partner on its offshore wind project, strengthening the balance sheet and improving financial stability. Over the long term, Dominion should benefit from growing power demand as data centers and AI usage expand in Virginia. Its exclusive service areas and regulated business model provide steady income and support an attractive dividend. |
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