Media

A Value Investor’s Guide to Navigating Tech Disruption in the Tech Sector

Homestead’s equity portfolio manager, Mark Iong, authored a recently published article for Barron’s about how a technology company’s location on the S-curve offers insight into which firms could thrive and which could fall prey to the “innovator’s dilemma.”

“In a technology industry where tectonic trend shifts occur with more frequency than in other sectors, investors should be wary of companies approaching the mature stage of their S-curve lifespan.”

“As value investors, we naturally gravitate to the uppermost section of the S-curve. Quality companies often become distorted at this stage, providing the opportunity to buy at a significant discount relative to their long-term intrinsic value. But we need to be highly selective, identifying businesses that have the competitive moats and defensive characteristics that will extend the upward slope of the S-curve into the new technology frontier instead of entering the plateau stage.”

“There are several important traits we look for when evaluating maturing technology businesses. They need to be innovative with an eye toward the future, developing new products and services that can position them for the next paradigm shift. Management needs to be willing to disrupt themselves, even if risking revenue and earnings loss in the near term to ensure their survival long term. We witnessed several companies created in the early days of the internet, for instance, that successfully navigate their way into mobile computing in the 2010s and are now attempting to repeat the same playbook as they make strides in the AI era of the 2020s.”

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. Investments in value securities may be subject to risks that (1) the issuer’s potential business prospects will not be realized; (2) their potential values will never be recognized by the market; and (3) their value was appropriately priced when acquired and they do not perform as anticipated.

Barron’s April 24, 2024

Fed’s Inflation Fight Complicated by Weak Economic Data

Head of fixed income investments at Homestead Funds, Mauricio Agudelo, was quoted in a Reuters article after the release of weak economic data, including a contraction in U.S. manufacturing activity and a decline in consumer sentiment. This led to a drop in Treasury yields, with the market pricing in expectations of potential interest rate cuts by the Federal Reserve. Agudelo said that we “are seeing growth re-accelerating because with stability in lower rates, corporations are able to borrow,” which “will continue to make the Fed’s job difficult if they want to cut and how aggressive they want to be in cutting rates.” In essence, low rates boost the economy through increased borrowing, but make it harder to control inflation, complicating the Fed’s policy decisions.

Past performance does not guarantee future results. Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. Government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. Government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated, securities involve greater risk than higher-rated securities.

Herbert Lash – Reuters March 1, 2024

























Small stocks are sinking, showing Wall Street is still anxious about the US economy

Head of equity investments, Jim Polk, was quoted in a recent article for CNN discussing the state of small-cap stocks so far this year and what the decline in small-cap stocks could suggest about Wall Street’s lingering concerns about the health of the U.S. economy. “That decline reflects pessimism about the economy’s health, as investors grapple with elevated interest rates and geopolitical strife,” says Jim Polk. “Polk sees opportunities in beaten-down energy and financial stocks. His firm manages a small-cap fund with investments in both sectors.”

Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally. Securities of small and medium-sized companies tend to be riskier than those of larger companies. Compared to large companies, small and medium-sized companies may face greater business risks because they lack the management depth or experience, financial resources, product diversification or competitive strengths of larger companies, and they may be more adversely affected by poor economic conditions. There may be less publicly available information about smaller companies than larger companies. In addition, these companies may have been recently organized and may have little or no track record of success. Diversification does not ensure a profit or protect against loss. It is a method used to help manage investment risk.

Krystal Hur – CNN Business Before the Bell November 2, 2023





U.S. Markets News

Jim Polk was quoted in a recent article in The Wall Street Journal on the stock market and investors’ thoughts on future moves by the Federal Reserve to tame inflation. ‘“The market is trying to sort out what the Fed is going to do,” said Jim Polk, head of equity investments at Homestead Advisers. “I think that’s going to drive the market for a while.”’

Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally.

Karen Langley – The Wall Street Journal October 5, 2023

Best Augmented Reality and Virtual Reality Stocks in 2023

Equity portfolio manager Mark Iong was included in a recent Forbes article seeking to help investors make sense of augmented and virtual reality technologies and how they might transform the digital landscape. On the difficulty of predicting a breakthrough advancement or surge in consumer demand, Mark notes, “I think it’s a sobering reminder that AR and VR has been long in the making for ten-plus years.”

Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally.

Erik Sherman – Forbes July 31, 2023





The Contrarian Case for Adding Tech Stocks to a Value Fund

Homestead’s head of equity investments, Jim Polk, authored a recently published article for Barron’s encouraging value investors not to overlook tech stocks.

“But now that the decade-plus bull run — one that tech stocks helped to fuel — has come to an end, the recent derating in higher-multiple stocks has created an opportunity for dedicated value advisors to deploy a contrarian strategy by including beaten-down tech stocks in clients’ portfolios.”

“Long-term secular trends like automation, artificial intelligence, and machine learning could make technology an exciting area to invest for years to come. It is important to keep in mind that not all tech is growth, and opportunities can arise in a market when good companies reach reasonable valuations while maintaining good long-term prospects.”

Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. Investments in value securities may be subject to risks that (1) the issuer’s potential business prospects will not be realized; (2) their potential values will never be recognized by the market; and (3) their value was appropriately priced when acquired and they do not perform as anticipated.

Barron’s May 22, 2023

Homestead Short-Term Bond Fund Makes List of Best Taxable Bond Funds

Investor’s Business Daily included Homestead’s Short-Term Bond Fund on its 2023 list of the top U.S. taxable bond funds. Funds included on this list outperformed the Bloomberg U.S. Aggregate Bond Index over the last one-, three-, five- and 10-year periods, signaling their ability to outperform in both the short-and long-term.

Rankings are based on total return and all returns are as of the year ended Dec. 31, 2022. Of 777 U.S. taxable bond funds at least 10 years old, 350 of them, or 45%, won IBD Best Mutual Funds 2023 awards. The Short-Term Bond Fund ranked 347 out of 350 funds, based on 10-year performance.

Past performance does not guarantee future results. Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated securities involve greater risk than higher-rated securities.









What Are Small-Cap Stocks and 5 to Buy Now

Head of equity investments, Jim Polk, was featured in a Forbes’ article summarizing the risks and opportunities of investing in the small-cap space.

“’The small caps aren’t going to end up being large caps,’ despite some notable cases to the contrary, says Polk, who does actively trade small-caps at Homestead. He says an investor who wants to trade individual small-caps needs about 55 in a portfolio, most of which will deliver the value they can within a few years. It takes constant monitoring. Most people he says would be better off with a fund that focuses on small-caps or on a small-cap index fund.”

Past performance does not guarantee future results. Equity securities generally have greater volatility than fixed-income securities. The market price of equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting the issuer or equity securities markets generally. Securities of small and medium-sized companies tend to be riskier than those of larger companies. Compared to large companies, small and medium-sized companies may face greater business risks because they lack the management depth or experience, financial resources, product diversification or competitive strengths of larger companies, and they may be more adversely affected by poor economic conditions. There may be less publicly available information about smaller companies than larger companies. In addition, these companies may have been recently organized and may have little or no track record of success.

Erik Sherman – Forbes May 12, 2023





Q&A with AdvisorHub CEO Tony Sirianni and Homestead Advisers’ Jim Polk and Mark Iong

Homestead’s Small-Company Stock Fund portfolio managers were recently featured in an AdvisorHub Q&A. The digital outlet’s CEO asked about the fund company’s start-up as a subsidiary of NRECA, how that makes us different from other money managers and what we see ahead for the markets and investors. The managers also discussed the portfolio’s “quality value” approach and why we believe that and other factors could help the fund weather uncertain times.

Past performance does not guarantee future results. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Securities of small and medium-sized companies tend to be riskier than those of larger companies.

Tony Sirianni – AdvisorHub March 8, 2023

Passive investing in volatile markets: Experts weigh in

“’Broadly speaking it’s not a good idea to try to time the market, whether you’re buying an index fund or an actively managed fund. For the past decade plus we were in a period of cheap money where fundamentals were less important,’ Jim Polk, head of equity investments at Homestead Advisers, told Yahoo Finance.

‘Almost all stocks were going up so being in an index was fine. The more assets that flowed into an index fund the more the fund had to buy what they already owned, which created a virtuous circle,’ he added.’”

Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall. Growth stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall.

Ines Ferré – Yahoo Finance October 9, 2022





U.S. growth funds squeezed by rate hike worries

“’We haven’t really been in an economic cycle since 2009, given the artificially low rates the Fed has used to stimulate growth in the economy,’ said Jim Polk, head of equity investments at Homestead Advisers. ‘If we’re now seeing a more typical economic cycle, where the Fed raises rates to curb inflation, often leading to a recession then, coming out of the recession, value stocks which are more economically sensitive should outperform growth.’”

Past performance does not guarantee future results. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall. Growth stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall.

Patturaja Murugaboopathy and Gaurav Dogra – Reuters September 22, 2022

Cheap Alphabet Can’t Escape Pull of Weak Ad Market: Tech Watch

“Jim Polk, head of equity investments at Homestead Advisers, said he was prepared to wait out the stock’s weakness given the company’s long-term potential. ‘We understand that what’s happening with the Fed, and rates and inflation, will all have an impact on valuations,’ he said. ‘In tech, we feel it’s important to pay up for the companies with stronger potential, and which have strong competitive moats around their business. That’s why we own Microsoft and Alphabet. We feel very confident about their positions.’”

Past performance does not guarantee future results. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall.

As of June 30, 2022, Microsoft and Alphabet each represented 4.5% of the Value Fund’s portfolio.

Ryan Vlastelica and Jeran Wittenstein – Bloomberg September 22, 2022





U.S. yields jump after CPI surprises to upside in August

“’It really comes down to how sticky inflation remains,’ said Mauricio Agudelo, senior fixed income portfolio manager at Homestead Advisers. ‘It’s a battle that the Fed will continue to fight and they will have to continue pressing, unfortunately at the risk of breaking something,’ Mauricio Agudelo, head of fixed-income investments at Homestead Funds, was quoted as saying.”

Past performance does not guarantee future results. Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk.

Herbert Lash – Reuters September 13, 2022

Munis stronger on the day amid Fed rate hike

“Mauricio Agudelo, head of fixed income investments at Homestead Advisers, noted the Fed is still playing catch up to runaway inflation.

‘We think inflation is still too high and they need to continue pressing forward with rate hikes and quantitative tightening,’ Agudelo said.

For the September meeting, the Fed will have the benefit of having multiple economic data points before deciding on the next move. The committee is taking a “wait and see” approach to the future path of monetary policy,’ Agudelo noted.”

Past performance does not guarantee future results. Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk.

Jessica Lerner – The Bond Buyer July 27, 2022

Profiled in Barron’s: Homestead Funds’ active value strategy

The fund and co-managers Prabha Carpenter and Jim Polk were recently profiled in Barron’s magazine where they discussed their approach to money management and their rationale for several of the fund’s holdings.

Past performance does not guarantee future results. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Value stocks are subject to the risk that returns on stocks within the style category will trail returns of stocks representing other styles or the market overall.

Lewis Braham – Barron’s February 9, 2022

Homestead Fund Makes “Category Kings” Ranking

Homestead’s Small-Company Stock Fund appeared in the “Category Kings” section of The Wall Street Journal for the period ending January 31, 2022.

Past performance does not guarantee future results. Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk. Securities of small and medium-sized companies tend to be riskier than those of larger companies.

The Wall Street Journal February 7, 2022

Municipal yields continue rising even before Fed statement

Expect continued market volatility, said Mauricio Agudelo, head of fixed income investments at Homestead Funds. Balance sheet reduction is “complicated” he said.

Gary Siegel, Jessica Lerner and Lynne Funk – The Bond Buyer January 26, 2022

Fed’s inflation policy walks ‘tightrope’ between 2 constituencies

“We think the market [has] gotten ahead of itself both from a valuation standpoint and from a speculative standpoint,” Jim Polk, head of equity investments at Homestead Funds, wrote in a note to clients.

Javier David – Yahoo Finance January 27, 2022

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