Small Cap Blend fund seekers should not consider taking a look at Hodges Small Cap Fund Institutional Class (HDSIX Quick QuoteHDSIX - Free Report) at this time. HDSIX carries a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

HDSIX is one of many Small Cap Blend funds to choose from. Small Cap Blend mutual funds allow investors a way to diversify their funds among various types of small-cap stocks. These funds seek companies with market capitalization of less than $2 billion, and aid in reducing volatility inherent in lower market cap stocks.

History of Fund/Manager

HDSIX finds itself in the Hodges Capital family, based out of Dallas, TX. Hodges Small Cap Fund Institutional Class made its debut in December of 2008, and since then, HDSIX has accumulated about $37.47 million in assets, per the most up-to-date date available. The fund's current manager is a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. HDSIX has a 5-year annualized total return of 13.76%, and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 9.99%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of HDSIX over the past three years is 21.66% compared to the category average of 15.29%. Over the past 5 years, the standard deviation of the fund is 24.26% compared to the category average of 16.82%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should not forget about beta, an important way to measure a mutual fund's risk compared to the market as a whole. HDSIX has a 5-year beta of 1.29, which means it is likely to be more volatile than the market average. Another factor to consider is alpha, as it reflects a portfolio's performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. HDSIX has generated a negative alpha over the past five years of -3.08, demonstrating that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Examining the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is largely on equities that are traded in the United States.

Currently, this mutual fund is holding 82.36% in stocks, which have an average market capitalization of $6.64 billion. The fund has the heaviest exposure to the following market sectors:

• Industrial Cyclical
• Finance
• Technology
• Retail Trade
• Consumer Durables
• Energy

Turnover is 60%, which means, on average, the fund makes fewer trades than the average comparable fund.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, HDSIX is a no load fund. It has an expense ratio of 1.04% compared to the category average of 0.98%. HDSIX is actually more expensive than its peers when you consider factors like cost.

While the minimum initial investment for the product is $1.00 million, investors should also note that there is no minimum for each subsequent investment.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, Hodges Small Cap Fund Institutional Class ( HDSIX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, this fund looks like a poor potential choice for investors right now.

For additional information on the Small Cap Blend area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into HDSIX too for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.