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The Frank Worth Fund Institutional Class (FNKIX) returned 12.29% in 2025, in comparison with 11.05% for the Russell Midcap Worth Index. Since totally integrating catalyst-unlocking worth into the technique in January 2022, Frank Worth Institutional Class produced a complete return of 61.3%, outperforming each the Russell Midcap Worth ETF return of 23.5% and the S&P 500 ETF return of 51.8%. For the three years ended December 31, 2025, the Frank Worth Fund Institutional class ranked within the high 11% of its Morningstar class, Mid-Cap Worth. Please see the top of this letter for extra efficiency data.
Why Do it the Onerous Method
Although the fund has outperformed the Nasdaq, S&P 500, numerous small/mid-cap indices, and our friends cumulatively since January 2022, this calendar yr we underperformed the S&P 500 and Nasdaq. Why do all this analysis to underperform up to now twelve months? The reply resides partially in 2022, the place our fairness technique posted a optimistic 4% acquire whereas the S&P and Nasdaq fell 18% and 33%, respectively. The remainder of the reply resides sooner or later, the place math makes it almost inconceivable for the indices to outperform a fairly valued portfolio like Frank Worth in the long run. Proper now, in the event you had been to buy all of Microsoft (MSFT) for $3.6 trillion, analysts count on $75 billion of free money manufacturing in 2026. That’s about 2% of your buy value. Distinction that with considered one of our high holdings, Garrett Movement (GTX), the place 2026 expectations are 7 occasions the money move relative to the acquisition value, or 14%. Microsoft is anticipated to considerably develop its money move sooner or later, however no person expects 7x free money move development within the subsequent decade. This math makes it inconceivable for Microsoft to return more cash to shareholders than any inventory in our portfolio. Absent exponential money move development, the one approach a 2% FCF yield outperforms a 14% yield is that if the costly firm will get much more costly. That might definitely occur (it occurred in 2025), however related valuation ranges all through historical past have by no means been sustainable and at all times suffered painful declines in the long run. Historical past tells us it’s much more prudent to take a position based mostly on money flows than counting on a “greater idiot” to buy your inventory at excessive valuations.
Microsoft is consultant of many of the S&P 500 – spectacular corporations engaged on wonderful applied sciences valued at ranges that make long-term returns ferociously mediocre. After we see down years like 2022, these inventory costs should freefall to draw value-conscious consumers like ourselves. This setup occurred earlier than in 1999, 2021, and with the Nifty Fifty in 1972. Historical past repeats itself as a result of human nature is fixed.
In the meantime, S&P 500 and different index holders endure alternative value. Undervalued corporations like Garrett Movement are so low cost that paying shareholders only a fraction of their money move leads to shareholder yields (dividend + repurchase + debt discount) far increased than any of the Magnificent Seven. The dividend yield on the Frank Worth Fund is at the moment about 2%, which is double the S&P 500. Seven of our holdings are actively repurchasing greater than 5% of their shares excellent on an annualized foundation! If Microsoft had been to allocate 100% of its free money move to repurchases, they must minimize the 0.75% dividend to zero and nonetheless solely have the cash to cut back shares by 2% per yr.
What’s Subsequent
Low valuations allow our holdings to repurchase far more inventory, which accelerates our sleepy client staples corporations into double-digit earnings growers. In brief, we now have completed nicely on this three-year bull market AI insanity, however our onerous work on fundamentals goes unnoticed till the good points cease or decelerate on the big indices. I consider that is inevitable long-term and possible in 2026. The setup is eerily just like 2021 going into 2022.
Sincerely,
Brian Frank – Frank Worth Fund Portfolio Supervisor
* Represents an estimate based mostly on the efficiency of the Fund’s Investor share class, adjusted for charges.
Efficiency information quoted represents previous efficiency and doesn’t assure future outcomes. The funding return and principal worth of an funding will fluctuate in order that an investor’s shares, when redeemed, could also be price roughly than their unique value. Present efficiency could also be decrease or increased than the efficiency information quoted. You could acquire efficiency information present to the latest month-end by calling the Fund at 1-888-217-5426 or visiting our web site at www.frankfunds.com. Returns embody reinvestment of any dividends and capital acquire distributions.
Non-FDIC insured. Might lose worth. No financial institution assure. The Fund’s funding targets, dangers, expenses and bills should be thought of fastidiously earlier than investing. The prospectus accommodates this and different essential details about the Fund, and it might be obtained by calling 1-888-217-5426. Please learn it fastidiously earlier than you make investments or ship cash.
This publication doesn’t represent a proposal or solicitation of any transaction in any securities. Any advice contained herein might not be appropriate for all buyers. Info contained on this publication has been obtained from sources we consider to be dependable, however can’t be assured.
The knowledge on this portfolio supervisor letter represents the opinions of the person portfolio managers and isn’t meant to be a forecast of future occasions, a assure of future outcomes or funding recommendation. Additionally, please observe that any dialogue of the Fund’s holdings, the Fund’s efficiency, and the portfolio managers’ views are as of January 6, 2026 and are topic to alter with out discover.
Editor’s Be aware: The abstract bullets for this text had been chosen by Looking for Alpha editors.
Editor’s Be aware: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.
