Although we are still navigating with limited visibility on certain trade deals, much of the uncertainty has been alleviated compared to three months ago. The recent passage of the “One Big Beautiful Bill” brought clarity on tax rates and policy, giving corporate boards greater confidence to reinvest capital, especially with favorable treatment for depreciation of property, plant, and equipment. While some trade deal outcomes remain uncertain, clarity around key tariff policies should help further ease market anxiety in the months ahead. As investors have begun to accept the unknowns, and a renewed fear of missing out (FOMO) on pro-growth policy benefits has driven markets back to prior highs. Notably, new policy developments are expected to benefit small-cap industrials and emerging technology sectors, including data centers and AI infrastructure.

Expectations for GDP growth in the US were subdued by a soft start to the year, but growth rebounded in the second quarter, partly due to trade distortions ahead of the pending tariffs. Although below the peak levels experienced in 2024, a recent rebound in consumer confidence and improved visibility for many businesses could bode well for corporate earnings in the months ahead. As for second-quarter earnings, the Wall Street consensus earnings estimates for the S&P 500 have declined from 8-9% growth at the beginning of the quarter to 5-6% year-over-year growth currently. However, P/E multiples have expanded over this period, suggesting the lowered earnings revisions may prove too conservative. According to FactSet data, the 12-month forward P/E multiple for the S&P 500 was 22.2X at the end of the second quarter, compared to 19.4X at the beginning and above the 5-year average of 19.9X. The inverse of the current S&P 500 P/E multiple is a forward earnings yield of 4.5%, which is just slightly above the recent 10-year Treasury yield of 4.24%. This comparison suggests that equity valuations are within reason, assuming FactSet earnings estimates hold steady this year and continue in a modest upward trend in 2026.

Over the past several months, our discussions with public company management teams have highlighted growing concerns over tariffs, trade tensions, and tax policy uncertainty. These factors are affecting visibility into cost structures and delaying capital investment decisions, particularly for companies with global supply chains. Despite near-term challenges, we see long-term growth drivers in infrastructure, AI data centers, energy, and the reshoring of manufacturing. As policy clarity improves, companies are expected to resume investment to meet demand and maintain competitiveness. This dynamic environment presents opportunities for active portfolio managers to capitalize on shifting trends and structural changes across sectors.

As we enter the second half of 2025, we are balancing long-term optimism with near-term caution as we weigh the risks and rewards of each stock in our portfolios. Although global trade tensions and uncertainty over inflation will continue to cloud near-term growth expectations, we are encouraged by the long-term prospects for less regulation, lower taxes, and new capital investments in public infrastructure and private enterprise. Any reacceleration of inflation in the second half of 2025 could pressure the P/E multiples of growth stocks and keep interest rates higher for an extended period. What we know for sure is what we do not know. We do not know what actions the Fed may take to curtail a resurgence in inflation or the exact structure and timing of new trade deals. What we do know is that change is inevitable. As a result, we would expect to see volatility in the months ahead. While short-term market volatility can sometimes seem overwhelming, we anticipate that the second half of this year will create opportunities for active portfolio managers to pursue mispriced stocks. As a result, our investment team is laser-focused on the fundamentals of individual stock selection and the prospects for future earnings power. Furthermore, we would not be surprised to see new leadership emerge within the market or, at the very least, a broader number of stocks participating in any upside from earnings growth over the next twelve months.

At Hodges Capital, our commitment to a fundamental, research-driven investment philosophy remains steadfast. We are dedicated to uncovering opportunities in well-managed businesses that can deliver enduring value to our shareholders.

Returns (% Retail Class) as of 06/30/2025

Performance data quoted represents past performance and 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. The current performance of the Funds may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 866-811-0224. The Funds impose a 1.00% redemption fee on shares held for thirty days or less (60 days or less for Institutional Class shares). Performance data quoted does not reflect the redemption fee. If reflected, total returns would be reduced. Performance reflected is net of all other fees and expenses.

Hodges Small Cap Fund (HDPSX)

Hodges Fund (HDPMX)

Hodges Small Intrinsic Value Fund (HDSVX)

Hodges Blue Chip Equity Income Fund (HDPBX)

The Hodges Blue Chip Equity Income Fund experienced a 13.50% increase in the second quarter of 2025, compared to an 11.11% increase for its benchmark, the Russell 1000 Total Return Index. The Blue Chip Fund's year-to-date performance as of June 30, 2025, amounted to a gain of 9.40% compared to a gain of 6.12% for the Russell 1000 Index during the same period. Positive relative performance in the recent quarter was attributed to stock selection and sector allocation. We believe the current investment landscape offers ample opportunities among high-quality, dividend-paying stocks with solid upside potential. We expect underleveraged balance sheets and robust corporate profits across most blue-chip stocks to support stable dividend yields over the next several years. The Blue Chip Equity Income Fund remains well-diversified in companies that we believe can generate above-average income and total returns on a risk-adjusted basis. The number of positions held in the Fund at the end of the recent quarter was 27. The top ten holdings at the end of the quarter represented 48.90% of the Fund's holdings and included Nvidia (NVDA), Broadcom Inc (AVGO), Walmart Inc (WMT), Microsoft Corp (MSFT), Apple Inc (AAPL), American Express Co (AXP), Meta Platforms Inc (META), Wells Fargo & Company (WFC), Citigroup Inc (C), and Vistra Corp (VST).

Learn more about Hodges Funds:

 

The above discussion is based on the opinions of Eric Marshall, CFA, and is subject to change. It is not intended to be a forecast of future events, a guarantee of future results, and is not a recommendation to buy or sell any security. Portfolio composition and company ownership in the Hodges Funds are subject to daily change.  

The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the Hodges Funds, and it may be obtained by calling 866-811-0224, or visiting hodgescapital.com/mutual-funds. Read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for investments in emerging markets. Options and future contracts have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. These risks may be greater than risks associated with more traditional investments. Short sales of securities involve the risk that losses may exceed the original amount invested. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer term debt securities. Investments in small and medium capitalization companies involve additional risks such as limited liquidity and greater volatility. Funds that are non-diversified are more exposed to individual stock volatility than a diversified fund.   Investments in companies that demonstrate special situations or turnarounds, meaning companies that have experienced significant business problems but are believed to have favorable prospects for recovery, involve greater risk.

Value investing carries the risk that the market will not recognize a security’s inherent value for a long time, or that a stock judged to be undervalued may be appropriately priced or overvalued.

Diversification does not assure a profit or protect against a loss in a declining market.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

Investment performance reflects fee waivers in effect. In the absence of such waivers, total return would be reduced.

The S&P 500 Index is a broad-based unmanaged index of 500 stocks that is widely recognized as representative of the equity market in general. The Russell 1000 Total Return Index is a subset of the Russell 3000 Index and consists of the 1,000 largest companies comprising over 90% of the total market capitalization of all listed stocks. The Russell 2000 Index consists of the smallest 2,000 companies in a group of 3,000 US companies in the Russell 3000 Index, as ranked by market capitalization. The Russell 2500 Index consists of the smallest 2,500 companies in a group of 3,000 US companies in the Russell 3000 Index, as ranked by market capitalization. The Russell 3000 Index is a stock index consisting of the 3000 largest publicly listed companies, representing about 98% of the total capitalization of the entire US stock market. You cannot invest directly in an index. The Russell 2000 Value Index measures the performance of the small-cap value segment of the US equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Value Index is constructed to provide a comprehensive and unbiased barometer for the small-cap value segment. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set and that the represented companies continue to reflect value characteristics.

Cash Flow: A revenue or expense stream that changes a cash account over a given period.

Price/earnings (P/E): The most common measure of how expensive a stock is.

Earnings Growth is not a measure of the Fund’s future performance. 

Hodges Capital Management is the Advisor to the Hodges Funds.

The Hodges Funds are distributed by Northern Lights Distributors, LLC.