Frank Value Fund Q2 2023 Letter to Shareholders

The Frank Value Fund Institutional Class returned 7.83% YTD compared to 5.23% for the Russell Midcap Value Index and 16.89% for the S&P 500 TR Index. Please see the end of this letter for more performance information.

According to Barron’s, less than 2% of all mutual funds and ETFs enjoyed positive returns in both 2022 and YTD in 2023. The Frank Value Fund is proud to be part of that illustrious group.

Buy the Anti-Hype

We purchased six companies for the Frank Value Fund in the second quarter, about twice as much buying as our norm. On average, these companies pay dividends at a 4.3% yield, compared to 1.6% for the S&P 500. The Fund’s new positions are defensive and trade at an average valuation about 30% cheaper than the S&P 500, yet companies in the index are cyclical, meaning they are prone to sharp earnings declines. As of the date of this letter, nearly every position in the Frank Value Fund is defensive, or resistant to cyclical earnings declines. You would expect defensive companies to be more desirable and therefore more expensive relative to the average company. However, in the second quarter stocks returned to 2021-style hype, where participants shunned steady for speculation. The Wall Street Journal sums up the environment nicely:

Investors Spurn Dividend-Paying Stocks as AI Booms

While the article highlights the drubbing in cyclical sectors like energy and financials, we believe investors, particularly in banks, could suffer further losses as the economy slows. Instead, our defensive positions are in industries like fast food and tax-prep, which could surprise investors on the upside in a weaker economy.

Overall, our portfolio boasts its highest dividend yield in its history at 2.7%, but dividend yields are secondary to a strong investment case. Each of our new positions has several ways to win such as valuation expansion, earnings growth, and material stock repurchases, among others. The dividends are just bonus payments as we wait for the stocks to trade in line with their fundamentals.

History Rhymes

On a fun note, a company we do not own is AI-leader Nvidia, which pays a 0.04% dividend. To receive the same amount of dividend payments from Nvidia as one year from the Frank Value Fund, investors would have to wait 65 years! Of course, investors own NVDA for the increasing profits, not the dividends. Eventually, should AI prove to be a multi-hundred-billion dollar market, how much profit would it take for NVDA to pay a 3% dividend? About, $30 billion, assuming 100% of the profits go to dividends and NVDA forgoes reinvesting in research and development to remain competitive. We should note that Nvidia’s most profitable year ever was fiscal 2022 with operating cashflow of $9 billion. Clearly tech stocks again trade on assumptions of perpetual world-domination while value expectations are in the basement. The stock market is a game of expectations, and we find setting the bar low is the best way to succeed.

This brings late 2020 and 2021 to mind. While investors and analysts competed for most bullish tech forecasts, ranging from Tesla’s robo taxis to Nvidia’s crypto mining, the Frank Value Fund purchased shares of H&R Block (NYSE: HRB). The below chart includes our full holding period for HRB and compares it to the hottest and most dominant tech companies of the past few years:

Boring old H&R Block returned us 200% (not including its generous 6% annual dividend) during this time! The company trounced Nvidia, Microsoft, and Apple despite growing revenue at a much slower rate. The cause is HRB’s low starting valuation. This time around in 2023, we not only repurchased H&R Block at a great valuation (share price declined after we sold in August of 2022) but as mentioned we have found numerous other compelling value opportunities. Starting valuations are key, and H&R Block and its fellow portfolio holdings in the Frank Value Fund reward shareholders at a much higher level than the typical company. One electricity company we recently purchased pays over a 4% annual dividend and has committed to repurchasing over 13% of shares outstanding in 2023. That is a 17% yield to shareholders! Value has been ignored and punished again in 2023 but we have capitalized on opportunities. This tech frenzy too shall pass, and hopefully no lessons are learned whatsoever so we can repeat the above performance again in future years!


Brian Frank – Frank Value Fund Portfolio Manager

Performance as of 6/30/23Total ReturnAverage Annualized Total Returns
 YTD1 Yr. %3 Yr. %5 Yr. %10 Yr. %Since 7/21/04 %
Frank Value Fund7.8316.468.266.814.816.49*
Russell Midcap Value5.2310.5015.046.849.039.07
S&P 500 Total Return16.8919.5914.6012.3112.869.79

* Represents an estimate based on the performance of the Fund’s Investor share class, adjusted for fees.

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. Current performance may be lower or higher than the performance data quoted. You may obtain performance data current to the most recent month-end by calling the Fund at 1-888-217-5426 or visiting our website at Returns include reinvestment of any dividends and capital gain distributions.

Non-FDIC insured. May lose value. No bank guarantee. The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Fund, and it may be obtained by calling 1-888-217-5426.   Please read it carefully before you invest or send money.

This publication does not constitute an offer or solicitation of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this publication has been obtained from sources we believe to be reliable, but cannot be guaranteed.

The information in this portfolio manager letter represents the opinions of the individual portfolio managers and is not intended to be a forecast of future events, a guarantee of future results or investment advice. Also, please note that any discussion of the Fund’s holdings, the Fund’s performance, and the portfolio managers’ views are as of July 5, 2023 and are subject to change without notice.