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Bill Hench: The Stock-Fund Manager Who Thrives with ‘Fixer-Uppers

January 21, 2024 | by stockcoin.net

bill-hench-the-stock-fund-manager-who-thrives-with-fixer-uppers

Bill Hench, a stock-fund manager at First Eagle Investments, has established a reputation for thriving with “fixer-uppers” in the market. Implementing a value approach, Hench searches for small-cap companies that are momentarily undervalued due to fixable problems. His strategy involves acquiring companies that encounter short-term difficulties and acquiring a dollar of assets for less than a dollar. Hench firmly believes that the term “quality” is frequently overused in the investment community and takes a broad approach by typically holding shares of 180-300 companies. Despite being less than three years old, the First Eagle Small Cap Opportunity Fund is already gaining traction under Hench’s guidance, although it has yet to receive a Morningstar rating. Prior to joining First Eagle, Hench achieved a solid long-term performance record at Royce Investment Partners. Together with his team, Hench actively seeks out companies trading low to book value or revenue, as he firmly believes that “something is wrong” when these opportunities arise. Three of the fund’s holdings that have already undergone operational improvements include AAR Corp., HealthStream Inc., and Chuy’s Holdings Inc.

Bill Hench: The Stock-Fund Manager Who Thrives with Fixer-Uppers

Introduction

In the world of stock-fund management, there are those who follow the crowd and those who search for hidden gems. Bill Hench, a seasoned stock-fund manager at First Eagle Investments, falls into the latter category. Hench has made a name for himself by excelling with “fixer-uppers” – companies that are temporarily undervalued due to fixable problems. With his value approach and keen eye for opportunities, he aims to get a dollar of assets for less than a dollar.

Bill Hench: The Stock-Fund Manager Who Thrives with ‘Fixer-Uppers’

Bill Hench has gained recognition for his ability to identify promising stocks in companies experiencing short-term difficulties. At First Eagle Investments, he utilizes a value approach to investing, where he seeks out small-cap companies that are undervalued due to temporary issues. By focusing on these fixer-uppers, Hench aims to see a turnaround in their performance and generate positive returns for his investors.

Value Approach and Fixer-Uppers

Hench’s value approach

Bill Hench follows a value approach when it comes to his investment strategy. Instead of chasing after trendy stocks or popular companies, he looks for opportunities where he believes the market has undervalued a stock’s true worth. This involves identifying companies with temporary problems that can be resolved, providing an opportunity for the stock price to appreciate once the issues are addressed.

Looking for temporarily undervalued small-cap companies

Hench’s focus is primarily on small-cap companies that are currently undervalued. These companies often fly under the radar of larger investors, presenting an opportunity for Hench to find hidden gems. He carefully analyzes the financials and prospects of these companies to determine whether their undervaluation is temporary and if there is potential for growth in the future.

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Fixable problems as the basis for investment

When selecting stocks, Hench looks for companies with fixable problems. These problems can range from operational inefficiencies to management issues or market challenges. By identifying these fixable problems, Hench believes there is an opportunity for the company to improve its performance and ultimately increase its stock price.

Aiming for a dollar of assets for less than a dollar

At the core of Hench’s investment philosophy is the concept of getting a dollar of assets for less than a dollar. In other words, he seeks out stocks that he believes are undervalued, offering investors the potential to profit from their upward revaluation. By acquiring stocks at a discount to their intrinsic value, Hench aims to generate attractive returns for his investors over the long term.

Challenging the Use of ‘Quality’

Hench’s perspective on the overuse of ‘quality’

Hench challenges the investment community’s overuse of the term ‘quality.’ While quality can be an important characteristic in a company, he believes its widespread use has diluted its meaning. The term is often applied broadly, without a clear definition or criteria, resulting in companies being labeled as ‘high quality’ without a rigorous assessment of their fundamentals.

Critique of the investment community’s reliance on the term

Hench argues that the investment community’s reliance on the term ‘quality’ can lead to complacency and missed opportunities. By solely focusing on ‘quality’ companies, investors may overlook companies with fixable problems that offer greater potential for returns. Hench believes in a more comprehensive approach that considers not only quality but also recognizes the potential for improvement and growth in undervalued companies.

Broad Approach to Holdings

Typical range of shares held: 180-300

Unlike some fund managers who concentrate their holdings in a smaller number of companies, Hench takes a broader approach. He typically holds shares of 180 to 300 companies in his portfolio. This diversification strategy allows him to spread the risk across various stocks and industries, reducing the impact of any individual company’s performance on the overall portfolio.

Diversification as a key strategy

Diversification is a key strategy for Hench when constructing his portfolio. By investing in a wide range of companies, he aims to create a portfolio that is less susceptible to individual company-specific risks. This approach allows him to capture growth opportunities across different sectors and industries, potentially mitigating the negative impact of an underperforming stock.

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Reducing risk through broad holdings

Hench believes that broad holdings can help reduce risk in his portfolio. By diversifying his investments, he can spread the risk across multiple companies and sectors, minimizing the potential negative impact of a single company’s poor performance. Through this strategy, Hench aims to protect his investors’ capital and generate consistent returns over the long term.

First Eagle Small Cap Opportunity Fund

Fund’s age and lack of Morningstar rating

The First Eagle Small Cap Opportunity Fund is a relatively new fund that has yet to receive a Morningstar rating. As a recent addition to the First Eagle family of funds, it is still establishing its track record and performance history. Despite its youth, the fund has already attracted attention due to Hench’s proven expertise and success in managing small-cap stocks.

Overview of the fund’s performance

While the First Eagle Small Cap Opportunity Fund is new, Hench’s investment strategy and approach have been yielding positive results. By focusing on fixer-uppers and value investing, Hench has been able to identify opportunities that have the potential for significant upside. The fund’s performance reflects Hench’s ability to navigate the complexities of the small-cap market and capitalize on undervalued companies.

Hench’s role in managing the fund

As the fund manager, Hench plays a crucial role in managing the First Eagle Small Cap Opportunity Fund. His extensive experience and expertise in identifying fixer-uppers and managing small-cap stocks contribute to the fund’s investment decisions. Hench provides strategic guidance and oversees the stock selection process, aiming to generate attractive returns for the fund’s investors.

Solid Performance Record at Royce Investment Partners

Hench’s past success at Royce Investment Partners

Before joining First Eagle Investments, Hench had a solid performance record at Royce Investment Partners. His ability to identify undervalued small-cap stocks and drive impressive returns caught the attention of investors and solidified his reputation as a skilled fund manager. Hench’s successful tenure at Royce Investment Partners has laid the foundation for his continued success at First Eagle.

Long-term performance record

Hench’s long-term performance record speaks volumes about his ability to consistently deliver results. His expertise in identifying fixer-uppers and his disciplined approach to value investing have led to above-average returns over time. Hench’s long-term performance record demonstrates his commitment to generating value for his investors and solidifies his position as a trusted stock-fund manager.

Relevance to his current approach

Hench’s past success at Royce Investment Partners is relevant to his current approach at First Eagle Investments. The strategies, insights, and lessons he learned from his previous experiences have shaped his investment philosophy and approach. Hench leverages his extensive knowledge gained from successfully managing small-cap stocks in his current position, allowing him to identify low valuation opportunities and drive positive outcomes for his investors.

Identifying Low Valuation Opportunities

Criteria for selecting companies

Hench has a clear set of criteria when selecting companies for investment. He looks for companies trading at low book value or revenue multiples, indicating that the market may be undervaluing their true worth. Additionally, he focuses on companies with fixable problems that can be resolved, allowing for potential improvement and stock price appreciation over time.

Focus on low book value or revenue

When identifying low valuation opportunities, Hench pays particular attention to companies trading at low book value or revenue multiples. He believes that these metrics can provide valuable insights into a company’s true worth. By targeting companies with these low valuation ratios, he aims to capitalize on the market’s temporary undervaluation and unlock hidden potential in the stock.

Indicators that ‘something is wrong’

Hench actively seeks out companies with indicators that “something is wrong.” These indicators can range from recent declines in revenue or profitability to market overreactions to short-term challenges. By identifying these signs, Hench believes there is an opportunity to profit by investing in companies that the market has temporarily mispriced due to fixable problems. His focus on fixer-uppers allows him to take advantage of market inefficiencies and drive positive outcomes for his investors.

Successful Holdings

AAR Corp.: Turning the corner with operational improvements

One of the successful holdings in Hench’s portfolio is AAR Corp. This aerospace and defense company experienced operational challenges that led to a decline in its stock price. However, through operational improvements and effective cost management, AAR Corp. was able to turn the corner and improve its performance. Hench’s investment in AAR Corp. showcases his ability to identify undervalued companies with fixable problems and provide investors with significant returns.

HealthStream Inc.: Overcoming challenges and improving performance

HealthStream Inc. is another successful holding in Hench’s portfolio. This company, which provides learning and talent management solutions for healthcare organizations, faced challenges that affected its stock price. However, through proactive measures and strategic initiatives, HealthStream Inc. was able to overcome these challenges and improve its performance. Hench’s investment in HealthStream Inc. demonstrates his ability to identify the potential for improvement in undervalued companies and generate positive results.

Chuy’s Holdings Inc.: Achieving growth with proactive measures

Chuy’s Holdings Inc., a restaurant chain specializing in Tex-Mex cuisine, is a prime example of Hench’s success with fixer-uppers. The company faced various challenges, including declining sales and increased competition. However, through proactive measures, such as menu enhancements and targeted marketing strategies, Chuy’s Holdings Inc. was able to achieve growth and improve its profitability. Hench’s investment in Chuy’s Holdings Inc. underscores his ability to identify undervalued companies and leverage their potential for growth and success.

In conclusion, Bill Hench’s expertise in identifying and capitalizing on fixer-uppers has solidified his reputation as a skilled stock-fund manager. Through his value approach and focus on undervalued small-cap companies, Hench aims to generate attractive returns for his investors. His challenging of the use of ‘quality’ in the investment community and broad approach to holdings further enhance his ability to identify opportunities. With a successful performance record and a keen eye for low valuation opportunities, Hench continues to drive positive outcomes for his investors at First Eagle Investments.

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