by Eric Marshall, CFA, on Oct 15, 2025
Although it’s easy to forget sometimes, a share of stock is not a lottery ticket. It’s part ownership of a business.”
– Peter Lynch
Equity markets delivered solid gains in 3Q25, despite elevated multiples, geopolitical tensions, and a mixed economic backdrop due to tariff uncertainty. For the most part, the rally was led by large-cap growth stocks, especially technology and AI-related names. However, strength extended to small and mid-cap stocks, as a September rate cut and resilient corporate earnings underpinned investor optimism. The S&P 500 rose 8.12% in the recent quarter, reaching an all-time high, while the S&P 500 Equal Weight Index increased by only 4.35%. This performance was driven by large-cap growth stocks outperforming value stocks again. Sector performance was mixed, with industrials, technology, and communication services experiencing substantial gains, while energy and healthcare lagged for the second consecutive quarter. October 7th marked the 6-month point from the April Liberation Day low, and, remarkably, the S&P 500 has advanced by more than 35%, which ranks the fourth best recovery over six months since 1950 (according to Strategas Research).
Our recent conversations with corporate leadership have revealed a shift in focus—from trade and tariff concerns to questions around consumer confidence and capital deployment timing. Despite short-term headwinds, we continue to see compelling long-term investment themes in infrastructure development, AI-driven data centers, energy innovation, and the reshoring of U.S. manufacturing. Encouragingly, sentiment among management teams has improved since the April tariff announcements, signaling a potential rebound in corporate investment as policy clarity improves and financing costs ease. For investors, this evolving environment presents a timely opportunity to identify companies poised to benefit from structural shifts and sector-specific momentum, particularly through active management and fundamental stock selection.
As we enter the final quarter 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 rising investor sentiment and the markets' renewed appetite for risk make us a little more cautious in the near term, we are encouraged by the long-term prospects for less regulation, lower taxes, and new capital investments in public infrastructure and private enterprise. Furthermore, a broader earnings reacceleration in the coming quarters could result in higher stock prices with room for P/E multiples to contract in 2026. While the path forward remains uncertain, particularly regarding the pace of interest rate cuts and the short-term trajectory of inflation data, we recognize that market volatility is a natural part of the investment landscape. We anticipate that the remainder of the year will present meaningful opportunities for active managers to uncover undervalued stocks. Our team remains focused on rigorous fundamental analysis and identifying companies with strong earnings potential. Looking ahead, we anticipate increased market participation and the potential for new leadership to emerge across sectors, driven by improving corporate fundamentals and earnings growth.
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 09/30/2025
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 Growth Fund (HDPSX)
The return for the Hodges Small Cap Growth Fund amounted to a gain of 12.27% in the third quarter of 2025, compared to a 12.39% gain for the Russell 2000 Index. The Small Cap Growth Fund's year-to-date performance as of September 30, 2025, amounted to a gain of 3.86 % compared to a gain of 10.39% for the Russell 2000 Index during the same period. Although small-cap stocks have underperformed large-cap stocks for the better part of the past decade, we still consider the current risk-reward for holding quality small-cap stocks to be attractive. While smallcap stocks tend to experience greater volatility during market turmoil, we expect this segment to generate aboveaverage relative risk-adjusted returns over the long term. Furthermore, many small-cap companies are uniquely positioned to benefit from deregulation, a pick-up in M&A activity, AI productivity enhancements, and the reshoring of manufacturing activity in the year ahead.
The Hodges Small Cap Growth Fund remains well diversified across industrials, transportation, technology, and consumer-related names, which we expect to contribute to the Fund's long-term performance. The Fund recently took profits in several stocks that appeared overvalued relative to their underlying fundamentals and established new positions with an attractive risk/reward profile. The Fund held a total of 43 positions as of September 30, 2025. The top ten holdings amounted to 37.42% of the Fund's holdings and included Terawulf Inc (WULF), Matador Resources (MTDR), Eagle Materials Inc (EXP), Genius Sports Ltd (GENI), Cleveland-Cliffs Inc (CLF), Taylor Morrison Home Corp (TMHC), Academy Sports & Outdoors (ASO), Banc of California Inc (BANC), Tower Semiconductor (TSEM) and Texas Pacific Land Corp (TPL).
Hodges Fund (HDPMX)
The Hodges Fund delivered a robust third quarter 2025 return of 11.38%, significantly outperforming the S&P 500 Index’s gain of 8.12%. Year-to-date, the Fund has returned 21.93%, outperforming the S&P 500's 14.83%. This performance reflects strength in individual holdings within a concentrated portfolio, with several key stocks rising more than 20% during the quarter, including Terawulf (WULF), Micron Technologies (MU), Clear Secure Inc (YOU), and Genius Sports Ltd (GENI). Elevated portfolio turnover enabled timely updates to holdings, targeting companies with above-average return potential relative to downside risks over the next 12 to 18 months.
The Hodges Fund's portfolio managers remain focused on investments where we have the highest conviction based on fundamentals and relative valuations. The number of positions held in the Fund at the end of the recent quarter was 40. As of September 30, 2025, the top ten holdings accounted for 43.90% of the Fund's assets. They included Uber Technologies (UBER), Palantir Technologies Inc (PLTR), Terawulf Inc (WULF), SharkNinja, Inc. (SN), DraftKings Inc. (DKNG), Texas Pacific Land Corp (TPL), Matador Resources Co. (MTDR), Clear Secure Inc (YOU), Genius Sports Ltd (GENI), and Freeport-McMoRan Inc (FCX).
Hodges Small Intrinsic Value Fund (HDSVX)
The Hodges Small Intrinsic Value Fund experienced a gain of 11.59% in the third quarter of 2025 compared to an increase of 12.60% for its benchmark, the Russell 2000 Value Index. The Small Intrinsic Value Fund's year-to-date performance as of September 30, 2025, amounted to a gain of 0.48% compared to an increase of 9.04% for the Russell 2000 Value Index during the same period. The Fund's year-to-date underperformance relative to the benchmark has been due to weakness in a handful of consumer stable and energy stocks this year. The number of positions held in the Fund at the end of the recent quarter was 47. As of September 30, 2025, the top holdings represented 33.44% of the Fund's assets. They included Taylor Morrison Home Corp (TMHC), Texas Capital Bancshares (TCBI), Academy Sports & Outdoors (ASO), Primoris Services Corp (PRIM), Eagle Materials Inc (EXP), BancFirst Corp (BANF), Shoe Carnival Inc (SCVL), Cleveland-Cliffs Inc (CLF), Banc of California Inc (BANC), and Ethan Allen Interiors Inc (ETD).
Hodges Blue Chip Equity Income Fund (HDPBX)
The Hodges Blue Chip Equity Income Fund experienced an 8.74% increase in the third quarter of 2025, compared to a 7.99% increase for its benchmark, the Russell 1000 Total Return Index. The Blue Chip Fund's year-to-date performance as of September 30, 2025, was a gain of 18.96%, compared to an increase of 14.60% 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 highquality, 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 48.88% of the Fund's holdings and included Nvidia (NVDA), Broadcom Inc (AVGO), Apple Inc (AAPL), Walmart Inc (WMT), Tesla Inc (TSLA), Microsoft Corp (MSFT), Citigroup Inc (C), American Express Co (AXP), Taiwan Semiconductor (TSM), and Meta Platforms Inc (META).
In conclusion, we remain optimistic about the long-term investment opportunities surrounding the Hodges Mutual Funds. With four distinct mutual fund strategies that cover most segments of the domestic equity market, we are wellpositioned to meet the diverse needs of financial advisors and individual investors. Our dedicated investment team continues to rigorously analyze companies, engage with management teams, and monitor market trends to navigate the ever-changing economic landscape. If you have any specific questions, please don't hesitate to contact us directly.
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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.
