Homestead Funds, a mutual fund and investment services firm based in Arlington, Va., has reached back to its roots in rural America to launch a fund that focuses on the rural economy, according to Mark Santero, director, president and CEO of Homestead Funds.
The company was created in 1990 by the National Rural Electric Cooperative Association to serve the financial needs of rural electric cooperatives, their employees and intermediaries to manage their pension funds. The company's mutual funds are open to the public. Rural electric cooperatives are not-for-profit organizations that date back to the 1930s and were created to provide electricity in rural areas.
The new Rural Growth and Income Fund has been in the works for more than two years, but it is poised to take advantage of the many companies expected to receive a boost from the infrastructure funding now making its way through Congress, Santero said.
The fund will be actively managed and will invest primarily in equity and fixed-income securities of companies that are important to the economic development of rural America. It will focus on the agri-business supply chain, industrial transportation, financial services, consumer products and services, healthcare and technology.
The Homestead Rural Growth and Income Fund is thought to be the only registered thematic fund focused on rural economies, Its main holdings include Federal Farm Credit Banks Funding Corp., Zoetis Inc., Crown Castle International Corp., American Tower Corp., Square Inc., Paycom Software Inc., Deere & Co., ANSYS Inc., Jack Henry & Associates Inc. and Tennessee Valley Authority. Net expense ratio is 1%.
The rural community is poised for a strong comeback from the disruptions of Covid, said Santero, who predicts more "hiccups" for the market as the country continues to emerge from lockdown. “We’re not out of this yet,” he said. Some others think rural areas could benefit at the expense of major urban centers.
In the near future, rural areas will need additional broadband capabilities, financial services and insurance products. These sectors provide opportunities for investors, Santero added.
The allocation of the Fund’s investments across equity and fixed-income asset classes will vary substantially from time to time, Santero said.
Homestead Funds also has 10 no-load mutual funds. The core fund is the Homestead Value Fund that aims to create long-term growth of capital—along with current income—by investing in companies selling below their fundamental value.
“We are long-term investors with a value tilt to our investments,” Santero said. “Other than the Rural Growth and Income Fund, the company’s investments are not directed strictly at rural investments. On the equity side, we are looking for strong management teams and strong earnings potential for our investments.”