Hennessy Funds uses four-part filter to outperform S&P 500 for over 20 years

Hennessy Funds has used a four-step filter for mid-cap stocks to achieve a 12.39% annualized return over 21 years, outperforming the S&P 500 and Russell Midcap Index. This method, developed in the 1990s, emphasizes fundamental quantitative investing. The strategy focuses on companies with market capitalizations between $1 billion and $10 billion, a price-to-sales ratio below $1.50, and positive annual earnings growth. It also considers stocks with upward price momentum over the past three to six months. After applying these criteria, the fund narrows its selection to about 30 stocks from a larger pool of 125 to 150. The portfolio is rebalanced annually, maintaining a disciplined approach to investing based on data rather than speculation.