What changed in HENNESSY ADVISORS INC's 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of HENNESSY ADVISORS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.
+162 added−156 removedSource: 10-K (2024-12-11) vs 10-K (2023-12-07)
Top changes in HENNESSY ADVISORS INC's 2024 10-K
162 paragraphs added · 156 removed · 138 edited across 5 sections
- Item 7. Management's Discussion & Analysis+65 / −64 · 52 edited
- Item 1A. Risk Factors+56 / −54 · 50 edited
- Item 1. Business+35 / −32 · 30 edited
- Item 5. Market for Registrant's Common Equity+5 / −5 · 5 edited
- Item 2. Properties+1 / −1 · 1 edited
Item 1. Business
Business — how the company describes what it does
30 edited+5 added−2 removed159 unchanged
Item 1. Business
Business — how the company describes what it does
30 edited+5 added−2 removed159 unchanged
2023 filing
2024 filing
Biggest changeHennessy Cornerstone Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICGX 27.89 % 19.23 % 8.60 % 9.67 % Investor Class Share - HFCGX 27.44 % 18.83 % 8.25 % 9.33 % Russell 2000 ® Index (1) 8.93 % 7.16 % 2.40 % 6.65 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Focus Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HFCIX 15.99 % 5.91 % 5.97 % 8.28 % Investor Class Share - HFCSX 15.57 % 5.52 % 5.58 % 7.89 % Russell 3000 ® Index (3) 20.46 % 9.38 % 9.14 % 11.28 % Russell Midcap ® Growth Index (4) 17.47 % 2.61 % 6.97 % 9.94 % Hennessy Cornerstone Mid Cap 30 Fund One Year Three Years Five Years Ten Years Institutional Class Share - HIMDX 33.60 % 23.00 % 13.26 % 11.28 % Investor Class Share - HFMDX 33.13 % 22.57 % 12.87 % 10.91 % Russell Midcap ® Index (5) 13.45 % 8.09 % 6.38 % 8.98 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Cornerstone Large Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HILGX 29.28 % 12.94 % 8.93 % 10.15 % Investor Class Share - HFLGX 28.96 % 12.64 % 8.62 % 9.88 % Russell 1000 ® Index (6) 21.19 % 9.53 % 9.63 % 11.63 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Cornerstone Value Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICVX 16.57 % 17.20 % 6.59 % 8.44 % Investor Class Share - HFCVX 16.32 % 16.94 % 6.38 % 8.22 % Russell 1000 ® Value Index (7) 14.44 % 11.05 % 6.23 % 8.45 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Total Return Fund One Year Three Years Five Years Ten Years Investor Class Share - HDOGX 11.86 % 6.81 % 3.04 % 5.52 % 75/25 Blended DJIA/Treasury Index (8) 15.66 % 7.14 % 6.10 % 8.53 % Dow Jones Industrial Average (9) 19.18 % 8.62 % 7.14 % 10.79 % 7 Table of Contents Hennessy Equity and Income Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HEIIX 11.47 % 3.88 % 4.34 % 6.00 % Investor Class Share - HEIFX 10.97 % 3.49 % 3.94 % 5.61 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Balanced Fund One Year Three Years Five Years Ten Years Investor Class Share - HBFBX 6.91 % 4.16 % 2.01 % 3.59 % 50/50 Blended DJIA/Treasury Index (10) 11.66 % 4.94 % 4.73 % 6.10 % Dow Jones Industrial Average (9) 19.18 % 8.62 % 7.14 % 10.79 % Hennessy Energy Transition Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HNRIX 26.63 % 50.26 % 5.77 % 4.05 % Investor Class Share - HNRGX 26.22 % 49.74 % 5.44 % 3.77 % S&P 500® Energy Index (11) 30.21 % 51.42 % 8.96 % 4.34 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.10 % Hennessy Midstream Fund* One Year Three Years Five Years Since Inception (12/31/13) Institutional Class Share - HMSIX** 33.28 % 38.81 % 5.73 % 1.84 % Investor Class Share - HMSFX 32.95 % 38.51 % 5.51 % 1.59 % Alerian US Midstream Energy Index (12) 25.56 % 40.32 % 8.95 % 4.29 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.10 % Hennessy Gas Utility Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HGASX** -0.12 % 8.73 % 4.76 % 6.01 % Investor Class Share - GASFX -0.42 % 8.41 % 4.44 % 5.78 % AGA Stock Index (13) 0.25 % 9.43 % 5.50 % 6.92 % S&P 500® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Japan Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJPIX 24.49 % -5.06 % -0.45 % 6.90 % Investor Class Share - HJPNX 24.04 % -5.41 % -0.84 % 6.52 % Russell/Nomura Total Market TM Index (14) 25.77 % 2.93 % 2.05 % 4.93 % Tokyo Stock Price Index (TOPIX) (15) 25.90 % 2.82 % 1.92 % 4.83 % Hennessy Japan Small Cap Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJSIX** 15.51 % -0.59 % -0.04 % 7.82 % Investor Class Share - HJPSX 15.16 % -0.98 % -0.43 % 7.50 % Russell/Nomura Small Cap TM Index (16) 18.86 % -0.80 % -1.20 % 4.51 % Tokyo Stock Price Index (TOPIX) (15) 25.90 % 2.82 % 1.92 % 4.83 % 8 Table of Contents Hennessy Large Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HILFX** -4.93 % -1.87 % 0.27 % 5.41 % Investor Class Share - HLFNX -5.21 % -2.21 % -0.07 % 5.09 % Russell 1000 ® Index Financials (17) 13.59 % 14.39 % 8.82 % 11.15 % Russell 1000 ® Index (6) 21.19 % 9.53 % 9.63 % 11.63 % Hennessy Small Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HISFX -12.52 % 19.01 % 2.21 % 6.00 % Investor Class Share - HSFNX -12.85 % 18.53 % 185.00 % 5.61 % Russell 2000 ® Index Financials (18) -3.89 % 10.55 % 0.51 % 6.06 % Russell 2000 ® Index (1) 8.93 % 7.16 % 2.40 % 6.65 % Hennessy Technology Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HTCIX** 30.01 % 8.10 % 9.15 % 10.26 % Investor Class Share - HTECX 29.71 % 7.84 % 8.88 % 9.95 % NASDAQ Composite Index (19) 26.11 % 6.60 % 11.41 % 14.52 % S&P 500 ® Index (2) 21.62 % 10.15 % 9.92 % 11.91 % Hennessy Stance ESG ETF* One Year Three Years Five Years Since Inception (3/15/21) STNC - Net Asset Value 8.41 % - - 0.71 % STNC - Market Price 8.35 % - - 0.73 % S&P 500® Index (2) 21.62 % - - 4.70 % * Performance information from prior to the date that we acquired the assets related to the management of the fund is included because the previous investment manager managed the fund using a similar investment strategy. ** Performance shown for periods prior to the inception of Institutional Class shares represents the performance of Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares.
Biggest changeHennessy Cornerstone Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICGX 42.60 % 18.78 % 20.69 % 11.76 % Investor Class Share - HFCGX 42.16 % 18.40 % 20.31 % 11.42 % Russell 2000 ® Index (1) 26.76 % 1.84 % 9.39 % 8.78 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Focus Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HFCIX 36.56 % 6.04 % 10.31 % 10.69 % Investor Class Share - HFCSX 36.04 % 5.64 % 9.90 % 10.28 % Russell 3000 ® Index (3) 35.19 % 10.29 % 15.26 % 12.83 % Russell Midcap ® Growth Index (4) 29.33 % 2.32 % 11.48 % 11.30 % Hennessy Cornerstone Mid Cap 30 Fund One Year Three Years Five Years Ten Years Institutional Class Share - HIMDX 44.44 % 24.34 % 24.70 % 13.38 % Investor Class Share - HFMDX 43.89 % 23.89 % 24.24 % 13.00 % Russell Midcap ® Index (5) 29.33 % 5.75 % 11.30 % 10.19 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Cornerstone Large Growth Fund One Year Three Years Five Years Ten Years Institutional Class Share - HILGX 21.13 % 8.83 % 13.04 % 10.09 % Investor Class Share - HFLGX 20.83 % 8.53 % 12.73 % 9.81 % Russell 1000 ® Index (6) 35.68 % 10.83 % 15.64 % 13.10 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Cornerstone Value Fund One Year Three Years Five Years Ten Years Institutional Class Share - HICVX 19.52 % 11.63 % 10.85 % 8.64 % Investor Class Share - HFCVX 19.24 % 11.37 % 10.61 % 8.42 % Russell 1000 ® Value Index (7) 27.76 % 9.03 % 10.69 % 9.23 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Total Return Fund One Year Three Years Five Years Ten Years Investor Class Share - HDOGX 16.77 % 7.05 % 5.18 % 5.98 % 75/25 Blended DJIA/Treasury Index (8) 22.74 % 8.58 % 9.67 % 9.58 % Dow Jones Industrial Average (9) 28.85 % 9.97 % 11.78 % 12.03 % 7 Table of Contents Hennessy Equity and Income Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HEIIX 17.98 % 4.65 % 7.19 % 6.53 % Investor Class Share - HEIFX 17.66 % 4.28 % 6.81 % 6.14 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Balanced Fund One Year Three Years Five Years Ten Years Investor Class Share - HBFBX 12.21 % 4.33 % 3.54 % 4.13 % 50/50 Blended DJIA/Treasury Index (10) 17.09 % 6.54 % 7.23 % 6.99 % Dow Jones Industrial Average (9) 28.85 % 9.97 % 11.78 % 12.03 % Hennessy Energy Transition Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HNRIX 6.63 % 20.91 % 15.80 % 3.30 % Investor Class Share - HNRGX 6.27 % 20.52 % 15.44 % 3.00 % S&P 500 ® Energy Index (11) 0.85 % 24.14 % 13.90 % 3.99 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Midstream Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HMSIX** 26.41 % 24.78 % 12.70 % 2.67 % Investor Class Share - HMSFX 26.06 % 24.49 % 12.42 % 2.42 % Alerian US Midstream Energy Index (12) 36.49 % 26.52 % 16.79 % 4.96 % S&P 500® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Gas Utility Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HGASX** 29.32 % 12.31 % 7.19 % 6.49 % Investor Class Share - GASFX 28.91 % 11.97 % 6.86 % 6.23 % AGA Stock Index (13) 30.16 % 13.01 % 7.90 % 7.39 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Japan Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJPIX 37.43 % 0.72 % 7.23 % 9.31 % Investor Class Share - HJPNX 36.86 % 0.34 % 6.81 % 8.90 % Russell/Nomura Total Market TM Index (14) 22.40 % 3.40 % 7.46 % 6.91 % Tokyo Stock Price Index (TOPIX) (15) 21.62 % 3.10 % 7.26 % 6.76 % Hennessy Japan Small Cap Fund One Year Three Years Five Years Ten Years Institutional Class Share - HJSIX** 19.81 % 0.16 % 5.08 % 8.04 % Investor Class Share - HJPSX 19.26 % -0.24 % 4.66 % 7.67 % Russell/Nomura Small Cap TM Index (16) 19.48 % 1.24 % 4.63 % 6.09 % Tokyo Stock Price Index (TOPIX) (15) 21.62 % 3.10 % 7.26 % 6.76 % 8 Table of Contents Hennessy Large Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HILFX** 34.70 % -3.45 % 6.45 % 7.15 % Investor Class Share - HLFNX 34.28 % -3.75 % 6.10 % 6.79 % Russell 1000 ® Index Financials (17) 41.42 % 10.17 % 14.64 % 13.29 % Russell 1000 ® Index (6) 35.68 % 10.83 % 15.64 % 13.10 % Hennessy Small Cap Financial Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HISFX 33.79 % 1.43 % 10.11 % 9.31 % Investor Class Share - HSFNX 33.44 % 1.09 % 9.74 % 8.92 % Russell 2000 ® Index Financials (18) 38.64 % 4.14 % 7.59 % 8.84 % Russell 2000 ® Index (1) 26.76 % 1.84 % 9.39 % 8.78 % Hennessy Technology Fund* One Year Three Years Five Years Ten Years Institutional Class Share - HTCIX** 29.82 % 5.64 % 13.90 % 11.74 % Investor Class Share - HTECX 29.42 % 5.38 % 13.60 % 11.44 % NASDAQ Composite Index (19) 38.64 % 8.84 % 18.81 % 16.13 % S&P 500 ® Index (2) 36.35 % 11.91 % 15.98 % 13.38 % Hennessy Stance ESG ETF* One Year Three Years Five Years Since Inception (3/15/21) STNC - Net Asset Value 24.31 % 6.56 % - 6.87 % STNC - Market Price 24.23 % 6.50 % - 6.87 % S&P 500 ® Index (2) 36.35 % 11.91 % - 12.80 % * Performance information from prior to the date that we acquired the assets related to the management of the fund is included because the previous investment manager managed the fund using a similar investment strategy. ** Performance shown for periods prior to the inception of Institutional Class shares represents the performance of Investor Class shares of the fund and includes expenses that are not applicable to, and are higher than, those of Institutional Class shares.
In each case, the sub‑advisor entity or the individuals working at the sub‑advisor entity is the same entity or are the same individuals who advised the fund prior to our purchase of the assets related to the management of such fund.
In each case, the sub‑advisor entity or the individuals working at the sub‑advisor entity is the same entity or are the same individuals who advised the fund prior to our purchase of assets related to the management of such fund.
The services that we provide to each Hennessy Fund pursuant to these investment advisory agreements include, among other things, the following: ● acting as portfolio manager for the fund or overseeing the sub‑advisor acting as portfolio manager for the fund, which includes managing the composition of the fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with the fund’s investment objectives, policies, and restrictions), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; ● performing a daily reconciliation of portfolio positions and cash for the fund; ● monitoring the liquidity of the fund; ● monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws; ● maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any sub‑advisor), including their codes of ethics, as appropriate, conducting on‑site visits to the fund’s service providers (including any sub‑advisor) as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records; ● if applicable, overseeing the selection and continued employment of the fund’s sub‑advisor, reviewing the fund’s investment performance, and monitoring the sub-advisor’s adherence to the fund’s investment objectives, policies, and restrictions; ● overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund; ● maintaining in‑house marketing and distribution departments on behalf of the fund; ● preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents; ● for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent 12‑month period; ● monitoring and overseeing the accessibility of the fund on financial institution platforms; ● paying the incentive compensation of the fund’s compliance officer and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives; ● providing a quarterly compliance certification to the Funds’ Board of Trustees; and ● preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees. 12 Table of Contents The investment advisory agreements also provide that we are responsible for performing any ordinary clerical and bookkeeping services needed by the Hennessy Funds that are not provided by the funds’ custodian, administrator, or transfer agent.
The services that we provide to each Hennessy Fund pursuant to these investment advisory agreements include, among other things, the following: ● acting as portfolio manager for the fund or overseeing the sub‑advisor acting as portfolio manager for the fund, which includes managing the composition of the fund’s portfolio (including the purchase, retention, and disposition of portfolio securities in accordance with the fund’s investment objectives, policies, and restrictions), seeking best execution for the fund’s portfolio, managing the use of soft dollars for the fund, and managing proxy voting for the fund; ● performing a daily reconciliation of portfolio positions and cash for the fund; ● monitoring the liquidity of the fund; ● monitoring the fund’s compliance with its investment objectives and restrictions and federal securities laws; ● maintaining a compliance program (including a code of ethics), conducting ongoing reviews of the compliance programs of the fund’s service providers (including any sub‑advisor), including their codes of ethics, as appropriate, conducting on‑site visits to the fund’s service providers (including any sub‑advisor) as feasible, monitoring incidents of abusive trading practices, reviewing fund expense accruals, payments, and fixed expense ratios, evaluating insurance providers for fidelity bond, directors and officers and errors and omissions insurance, and cybersecurity insurance coverage, managing regulatory examination compliance and responses, conducting employee compliance training, reviewing reports provided by service providers, and maintaining books and records; ● if applicable, overseeing the selection and continued employment of the fund’s sub‑advisor, reviewing the fund’s investment performance, and monitoring the sub-advisor’s adherence to the fund’s investment objectives, policies, and restrictions; ● overseeing service providers that provide accounting, administration, distribution, transfer agency, custodial, sales, marketing, public relations, audit, information technology, and legal services to the fund; ● maintaining in‑house marketing and distribution departments on behalf of the fund; ● preparing or directing the preparation of all regulatory filings for the fund, including writing and annually updating the fund’s prospectus and related documents; ● for each annual report of the fund, preparing or reviewing a written summary of the fund’s performance during the most recent 12‑month period; ● monitoring and overseeing the accessibility of the fund on financial institution platforms; ● paying the incentive compensation of the fund’s compliance officers and employing other staff such as legal, marketing, national accounts, distribution, sales, administrative, and trading oversight personnel, as well as management executives; ● providing a quarterly compliance certification to the Funds’ Board of Trustees; and ● preparing or reviewing materials for the Funds’ Board of Trustees, presenting to or leading discussions with the Funds’ Board of Trustees, preparing or reviewing all meeting minutes, and arranging for training and education of the Funds’ Board of Trustees. 12 Table of Contents The investment advisory agreements also provide that we are responsible for performing any ordinary clerical and bookkeeping services needed by the Hennessy Funds that are not provided by the funds’ custodian, administrator, or transfer agent.
The following table lists each of our sub‑advised funds, the sub‑advisor for such fund, and the percentage used to calculate the annual sub‑advisory fees payable by us to such fund’s sub‑advisor as of the end of fiscal year 2023: Hennessy Fund Sub-Advisory Fee (All Class Shares) Sub-Advisor (As a % of Fund Assets) Hennessy Focus Fund Broad Run Investment Management, LLC 0.29% Hennessy Equity and Income Fund FCI Advisors (fixed income allocation) 0.27% The London Company of Virginia, LLC (equity allocation) 0.33% Hennessy Japan Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Japan Small Cap Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Stance ESG ETF Stance Capital, LLC (portfolio composition sub-advisor) $0-$125 million: 0.40% Above $125-$250 million: 0.37% Above $250 million: 0.35% Vident Advisory, LLC* (trading sub-advisor) $0-$250 million: 0.05% Above $250-$500 million: 0.05% Above $500 million: 0.04% *Subject to a minimum sub-advisory fee to Vident Advisory, LLC of $18,750 on an annual basis.
The following table lists each of our sub‑advised funds, the sub‑advisor for such fund, and the percentage used to calculate the annual sub‑advisory fees payable by us to such fund’s sub‑advisor as of the end of fiscal year 2024: Hennessy Fund Sub-Advisory Fee (All Class Shares) Sub-Advisor (As a % of Fund Assets) Hennessy Focus Fund Broad Run Investment Management, LLC 0.29% Hennessy Equity and Income Fund FCI Advisors (fixed income allocation) 0.27% The London Company of Virginia, LLC (equity allocation) 0.33% Hennessy Japan Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Japan Small Cap Fund SPARX Asset Management Co., Ltd. $0-$500 million: 0.35% Above $500 million-$1 billion: 0.40% Above $1 billion: 0.42% Hennessy Stance ESG ETF Stance Capital, LLC (portfolio composition sub-advisor) $0-$125 million: 0.40% Above $125-$250 million: 0.37% Above $250 million: 0.35% Vident Advisory, LLC* (trading sub-advisor) $0-$250 million: 0.05% Above $250-$500 million: 0.05% Above $500 million: 0.04% *Subject to a minimum sub-advisory fee to Vident Advisory, LLC of $18,750 on an annual basis.
As of the end of fiscal year 2023, the percentages of each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows: Hennessy Fund Investment Advisory Fee (All Class Shares) (as a % of fund assets) Hennessy Cornerstone Growth Fund 0.74% Hennessy Focus Fund 0.90% Hennessy Cornerstone Mid Cap 30 Fund 0.74% Hennessy Cornerstone Large Growth Fund 0.74% Hennessy Cornerstone Value Fund 0.74% Hennessy Total Return Fund 0.60% Hennessy Equity and Income Fund 0.80% Hennessy Balanced Fund 0.60% Hennessy Energy Transition Fund 1.25% Hennessy Midstream Fund 1.10% Hennessy Gas Utility Fund 0.40% Hennessy Japan Fund 0.80% Hennessy Japan Small Cap Fund 0.80% Hennessy Large Cap Financial Fund 0.90% Hennessy Small Cap Financial Fund 0.90% Hennessy Technology Fund 0.74% Hennessy Stance ESG ETF 0.95% We waive a portion of our fees with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund, and the Hennessy Stance ESG ETF to comply with contractual expense ratio limitations.
As of the end of fiscal year 2024, the percentages of each fund’s assets used to calculate the annual investment advisory fees payable to us are as follows: Hennessy Fund Investment Advisory Fee (All Class Shares) (as a % of fund assets) Hennessy Cornerstone Growth Fund 0.74% Hennessy Focus Fund 0.90% Hennessy Cornerstone Mid Cap 30 Fund 0.74% Hennessy Cornerstone Large Growth Fund 0.74% Hennessy Cornerstone Value Fund 0.74% Hennessy Total Return Fund 0.60% Hennessy Equity and Income Fund 0.80% Hennessy Balanced Fund 0.60% Hennessy Energy Transition Fund 1.25% Hennessy Midstream Fund 1.10% Hennessy Gas Utility Fund 0.40% Hennessy Japan Fund 0.80% Hennessy Japan Small Cap Fund 0.80% Hennessy Large Cap Financial Fund 0.90% Hennessy Small Cap Financial Fund 0.90% Hennessy Technology Fund 0.74% Hennessy Stance ESG ETF 0.95% We waive a portion of our fees with respect to the Hennessy Midstream Fund, the Hennessy Technology Fund, and the Hennessy Stance ESG ETF to comply with contractual expense ratio limitations.
Hennessy is President, Chief Market Strategist, and a Portfolio Manager of the Hennessy Funds and is a member of the Funds’ Board of Trustees, (b) Ms. Nilsen is an Executive Vice President and Treasurer of the Hennessy Funds, (c) Ms. Fahy is Vice President, Assistant Treasurer, and Assistant Secretary of the Hennessy Funds, and (d) Mr.
Hennessy is President, Chief Market Strategist, and a Portfolio Manager of the Hennessy Funds and is a member of the Funds’ Board of Trustees, (b) Ms. Nilsen is an Executive Vice President and Treasurer of the Hennessy Funds, (c) Ms. Fahy is Senior Vice President, Assistant Treasurer, and Assistant Secretary of the Hennessy Funds, and (d) Mr.
The fund leverages optimization in an attempt to reduce portfolio level tail risk and mitigate downside losses. 6 Table of Contents Historical Investment Performance of the Hennessy Funds The following table presents the average annualized returns for each Hennessy Fund and its relevant benchmark indices for the one-year, three-year, five-year, and ten‑year (or since inception for Hennessy Funds that commenced operations less than ten years ago) periods ended September 30, 2023.
The fund leverages optimization in an attempt to reduce portfolio level tail risk and mitigate downside losses. 6 Table of Contents Historical Investment Performance of the Hennessy Funds The following table presents the average annualized returns for each Hennessy Fund and its relevant benchmark indices for the one-year, three-year, five-year, and ten‑year (or since inception for Hennessy Funds that commenced operations less than ten years ago) periods ended September 30, 2024.
However, a transaction is not an assignment under the 1940 Act or the Investment Advisers Act of 1940, as amended (the "Advisers Act") if it does not result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor. 15 Table of Contents If a sub‑advisor experienced a change of control but we did not, we could continue acting as an advisor to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub‑advisory agreement for the sub‑advisor.
However, a transaction is not an assignment under the 1940 Act or the Investment Advisers Act of 1940, as amended (the “Advisers Act”) if it does not result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor. 15 Table of Contents If a sub‑advisor experienced a change of control but we did not, we could continue acting as an advisor to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub‑advisory agreement for the sub‑advisor.
The ability to purchase various funds in a single location is very attractive to investors, and the majority of our assets under management as of the end of fiscal year 2023 was held at fund supermarkets. Additionally, we continually seek opportunities to form new relationships with financial institutions to make the Hennessy Funds even more accessible to investors.
The ability to purchase various funds in a single location is very attractive to investors, and the majority of our assets under management as of the end of fiscal year 2024 was held at fund supermarkets. Additionally, we continually seek opportunities to form new relationships with financial institutions to make the Hennessy Funds even more accessible to investors.
The amount of the purchased assets as of the closing date totaled approximately $253 million. In October, we purchased the assets related to the management of the two mutual funds previously managed by BP Capital Fund Services, LLC ("BP Capital") and reorganized the assets of such funds into the newly created Hennessy Energy Transition Fund and the Hennessy Midstream Fund.
The amount of the purchased assets as of the closing date totaled approximately $253 million. In October, we purchased the assets related to the management of two mutual funds previously managed by BP Capital Fund Services, LLC (“BP Capital”) and reorganized the assets of such funds into the newly created Hennessy Energy Transition Fund and the Hennessy Midstream Fund.
Because obtaining shareholder approval for a new sub‑advisor can be costly both in terms of expense and time, we recently sought and received an exemptive order from the Securities and Exchange Commission (“SEC”) to operate under a manager of managers structure.
Because obtaining shareholder approval for a new sub‑advisor can be costly both in terms of expense and time, we sought and received an exemptive order from the Securities and Exchange Commission (“SEC”) in 2023 to operate under a manager of managers structure.
The Hennessy Focus Fund seeks capital appreciation through a concentrated portfolio of approximately 20 companies that the portfolio managers believe are high‑quality businesses with large growth opportunities, excellent management, low tail risk, and discount valuations.
The Hennessy Focus Fund seeks capital appreciation through a concentrated portfolio of approximately 25 companies that the portfolio managers believe are high‑quality businesses with large growth opportunities, excellent management, low tail risk, and discount valuations.
Any decision to waive fees would apply only on a going‑forward basis. 13 Table of Contents Our investment advisory agreements must be renewed annually (except in limited circumstances) by (a) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (b) the vote of a majority of the disinterested trustees.
Any decision to waive fees would apply only on a going‑forward basis. 13 Table of Contents Our investment advisory agreements must be renewed annually (except in limited circumstances) by (i) the Funds’ Board of Trustees or the vote of a majority of the outstanding shares of the applicable Hennessy Fund and (ii) the vote of a majority of the disinterested trustees.
A violation of applicable law or regulations could also subject us, our directors, and our employees to civil actions brought by private parties. We believe we are in compliance in all material respects with all applicable SEC requirements. EMPLOYEES As of the end of fiscal year 2023, we had 17 employees, 16 of whom were full-time employees.
A violation of applicable law or regulations could also subject us, our directors, and our employees to civil actions brought by private parties. We believe we are in compliance in all material respects with all applicable SEC requirements. EMPLOYEES As of the end of fiscal year 2024, we had 18 employees, 17 of whom were full-time employees.
Our firm was founded on these principles over 30 years ago, and the same principles guide us today. We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Mutual Funds.
Our firm was founded on these principles 35 years ago, and the same principles guide us today. We earn revenues primarily by providing investment advisory services to the Hennessy Funds and secondarily by providing shareholder services to investors in the Hennessy Mutual Funds.
We recently obtained shareholder approval for the Hennessy Stance ESG ETF to operate under a manager of managers structure and are evaluating the timing and process for obtaining shareholder approval for the Hennessy Mutual Funds that have a sub‑advisor.
We obtained shareholder approval for the Hennessy Stance ESG ETF in 2023 to operate under a manager of managers structure and are evaluating the timing and process for obtaining shareholder approval for the Hennessy Mutual Funds that have a sub‑advisor.
Our 17 employees had an average tenure of 14 years as of the end of fiscal year 2023. We focus on providing our employees competitive compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team members.
Our 18 employees had an average tenure of 14 years as of the end of fiscal year 2024. We focus on providing our employees competitive compensation, a friendly and flexible office environment, and fostering close-knit working relationships among our team members.
(18) The Russell 2000® Index Financials is a subset of the Russell 2000® Index that measures the performance of securities classified in the Financials sector of the small‑cap U.S. equity market. (19) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The Nasdaq Stock Market LLC. Investors cannot invest directly in an index.
(18) The Russell 2000 ® Index Financials is a subset of the Russell 2000 ® Index that measures the performance of securities classified in the Financials sector of the small‑cap U.S. equity market. (19) The NASDAQ Composite Index is a broad-based capitalization-weighted index of all common stocks listed on The Nasdaq Stock Market LLC.
Our average assets under management for fiscal year 2023 was $3.0 billion, and our total assets under management as of the end of fiscal year 2023 was $3.0 billion. Our business strategy centers on (i) organic growth through our marketing, sales, and distribution efforts and (ii) growth through strategic purchases of management‑related assets.
Our average assets under management for fiscal year 2024 was $3.7 billion, and our total assets under management as of the end of fiscal year 2024 was $4.6 billion. Our business strategy centers on (i) organic growth through our marketing, sales, and distribution efforts and (ii) growth through strategic purchases of management‑related assets.
Through our asset purchase strategy, we have completed 11 purchases of the assets related to the management of investment funds over a 20‑year period, integrating $4.3 billion in net assets of 31 different investment funds into the Hennessy Funds family. ● Delivering strong, high ‑ quality financial results.
Through our asset purchase strategy, we have completed 12 purchases of the assets related to the management of investment funds over a nearly 25‑year period, integrating $4.4 billion in net assets of 33 different investment funds into the Hennessy Funds family. ● Delivering strong, high ‑ quality financial results.
The following table summarizes our sources of revenues, net of sub-advisory fees, for the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Investment advisory fees $ 22,090 $ 27,468 $ 30,367 Shareholder service fees 1,930 2,199 2,393 Subtotal 24,020 29,667 32,760 Sub-advisory fees (3,759) (5,727) (7,332) Revenue, net of sub-advisory fees $ 20,261 $ 23,940 $ 25,428 11 Table of Contents Investment Advisory Agreements and Fees We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with Hennessy Funds Trust.
The following table summarizes our sources of revenues, net of sub-advisory fees, for the past three fiscal years: Fiscal Years Ended September 30, 2024 2023 2022 (In thousands) Investment advisory fees $ 27,524 $ 22,090 $ 27,468 Shareholder service fees 2,122 1,930 2,199 Subtotal 29,646 24,020 29,667 Sub-advisory fees (4,169 ) (3,759 ) (5,727 ) Revenue, net of sub-advisory fees $ 25,477 $ 20,261 $ 23,940 11 Table of Contents Investment Advisory Agreements and Fees We provide investment advisory services to the Hennessy Funds pursuant to investment advisory agreements with Hennessy Funds Trust.
The following table summarizes our assets under management for the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Beginning assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 Acquisition inflows 43,088 - - Organic inflows 598,119 656,491 818,358 Redemptions (915,397 ) (1,147,888 ) (1,345,371 ) Market appreciation (depreciation) 410,515 (678,808 ) 1,028,338 Ending assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 As stated above, the amount of fees we receive for providing investment advisory and shareholder services increases or decreases as our average assets under management rises or falls.
The following table summarizes our assets under management for the past three fiscal years: Fiscal Years Ended September 30, 2024 2023 2022 (In thousands) Beginning assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 Acquisition inflows 71,656 43,088 - Organic inflows 1,554,303 598,119 656,491 Redemptions (1,005,191 ) (915,397 ) (1,147,888 ) Market appreciation (depreciation) 989,553 410,515 (678,808 ) Ending assets under management $ 4,642,363 $ 3,032,042 $ 2,895,717 As stated above, the amount of fees we receive for providing investment advisory and shareholder services increases or decreases as our average assets under management rises or falls.
If an investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement terminates. First, an investment advisory agreement automatically terminates if we assign it to another advisor (assignment includes “indirect assignment,” which is the transfer of our common stock in sufficient quantities deemed to constitute a controlling block).
First, an investment advisory agreement automatically terminates if we assign it to another advisor (assignment includes “indirect assignment,” which is the direct or indirect transfer of our common stock in sufficient quantities deemed to constitute a controlling block).
Total fee waivers during each of fiscal year 2023 and 2022 were $0.1 million. To date, we have only waived fees based on contractual obligations, but we have the ability to waive fees at our discretion.
Total fee waivers during fiscal years 2024 and 2023 were $0.18 million and $0.15 million, respectively. To date, we have only waived fees based on contractual obligations, but we have the ability to waive fees at our discretion.
(4) The Russell Midcap® Growth Index comprises those companies in the Russell Midcap® Index with relatively higher price‑to‑book ratio, higher forecasted growth values, and higher sales per share historical growth. (5) The Russell Midcap® Index comprises approximately 800 of the smallest securities in the Russell 1000® Index, representing approximately 27% of the total market capitalization of the Russell 1000® Index.
(4) The Russell Midcap ® Growth Index comprises those companies in the Russell Midcap ® Index with relatively higher price‑to‑book ratio, higher forecasted growth values, and higher sales per share historical growth.
On the same date, we entered into a new sub‑advisory agreement with Vident Advisory, LLC (“Vident Advisory”). 3 Table of Contents PRODUCT INFORMATION Investment Strategies of the Hennessy Funds We manage 16 mutual funds and one ETF, each of which is categorized as a Domestic Equity, Multi‑Asset, or Sector and Specialty product.
The amount of the purchased assets as of the closing date totaled approximately $59 million. 3 Table of Contents PRODUCT INFORMATION Investment Strategies of the Hennessy Funds We manage 16 mutual funds and one ETF, each of which is categorized as a Domestic Equity, Multi‑Asset, or Sector and Specialty product.
Russell does not promote, sponsor, or endorse the content of this communication. Standard & Poor’s Financial Services LLC is the source and owner of the S&P® and S&P 500® trademarks. The Dow Jones Industrial Average is the property of the Dow Jones & Company, Inc.
No further distribution of Russell data is permitted without Russell’s express written consent. Standard & Poor’s Financial Services LLC is the source and owner of the S&P ® and S&P 500 ® trademarks. The Dow Jones Industrial Average is the property of the Dow Jones & Company, Inc.
Performance data for an index does not reflect any deductions for fees, expenses, or taxes. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.
Investors cannot invest directly in an index. Performance data for an index does not reflect any deductions for fees, expenses, or taxes. Russell ® is a trademark of the London Stock Exchange Group (“LSEG”) and is used by Frank Russell Company (“Russell”) under license.
In July, VIA completed an acquisition transaction that resulted in a change of control of VIA and automatic termination of our sub‑advisory agreement with VIA.
The amount of the purchased assets as of the closing date totaled approximately $43 million. 2023 In July, VIA completed an acquisition transaction that resulted in a change of control of VIA and automatic termination of our sub‑advisory agreement with VIA. On the same date, we entered into a new sub‑advisory agreement with Vident Advisory, LLC (“Vident Advisory”).
The amount of the purchased assets as of the closing date totaled approximately $43 million. 2023 In April, we signed a definitive agreement with Community Capital Management, LLC (“CCM”) to purchase the assets related to the management of the CCM Core Impact Equity Fund and the CCM Small/Mid-Cap Impact Value Fund (the “CCM Equity Funds”).
The amount of the purchased assets as of the closing date totaled approximately $12 million. 2024 In February, we purchased the assets related to the management of a second mutual fund previously managed by CCM and reorganized the assets of such fund into the Hennessy Stance ESG ETF.
Removed
Upon completion of the transaction, which is subject to the approval of the shareholders of each of the CCM Equity Funds, the assets of the CCM Equity Funds will be reorganized into the Hennessy Stance ESG ETF.
Added
In November, we purchased the assets related to the management of a mutual fund previously managed by Community Capital Management, LLC (“CCM”) and reorganized the assets of such fund into the Hennessy Stance ESG ETF.
Removed
Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes or Russell ratings or underlying data, and no party may rely on any Russell Indexes or Russell ratings or underlying data contained in this communication. No further distribution of Russell data is permitted without Russell’s express written consent.
Added
(5) The Russell Midcap ® Index comprises approximately 800 of the smallest securities in the Russell 1000 ® Index, representing approximately 27% of the total market capitalization of the Russell 1000 ® Index.
Added
Neither we nor the Hennessy Funds are in any way sponsored, endorsed, sold, or promoted by Russell or by LSEG, and neither Russell nor LSEG makes any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the applicable indexes above and/or the figure at which such indexes stand at any particular time on any particular day or otherwise.
Added
Such indexes are compiled and calculated by Russell in connection with Nomura Securities Co., Ltd. (“Nomura”). However, neither Russell, LSEG, nor Nomura shall be liable (whether in negligence or otherwise) to any person for any inaccuracies in such indexes and neither Russell, LSEG, nor Nomura shall be under any obligation to advise any person of any inaccuracies therein.
Added
If an investment advisory agreement is not renewed, it terminates automatically. There are two additional circumstances in which an investment advisory agreement terminates.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
50 edited+6 added−4 removed100 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
50 edited+6 added−4 removed100 unchanged
2023 filing
2024 filing
Biggest changeWhile such an investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, certain errors or actions could be repeated or compounded before they are discovered and remediated, and communication to the public, regulators, shareholders, and investors in the Hennessy Funds may be inaccurate, any or all of which could further increase the costs and consequences of an information security incident.
Biggest changeWhile such an investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, certain errors or actions could be repeated or compounded before they are discovered and remediated, and communication to the public, regulators, shareholders, and investors in the Hennessy Funds may be inaccurate, any or all of which could further increase the costs and consequences of an information security incident. 27 Table of Contents If any of these events were to occur, we could suffer a financial loss, a disruption of our business, liability to the Hennessy Funds and their investors, regulatory intervention, or reputational damage, any of which could have a material adverse effect on our business, results of operations, and financial condition.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our future secured indebtedness, and structurally subordinated to all future indebtedness and other obligations of any future subsidiaries of ours.
We have implemented procedures and utilize the services of experienced administrators, accountants, and lawyers to assist in satisfying these requirements, but there can be no assurance that these precautions will protect us from potential liabilities. 29 Table of Contents We may need to raise additional capital to fund new business initiatives, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
We have implemented procedures and utilize the services of experienced administrators, accountants, and lawyers to assist in satisfying these requirements, but there can be no assurance that these precautions will protect us from potential liabilities. 24 Table of Contents We may need to raise additional capital to fund new business initiatives, and resources may not be available to us in sufficient amounts or on acceptable terms, which could have an adverse impact on our business.
However, a transaction is not an assignment under the 1940 Act or the Advisers Act if it does not result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor. 22 Table of Contents Generally, if a sub‑advisor experiences a change of control but we do not, we could continue acting as an advisor to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub‑advisory agreement for the sub‑advisor.
However, a transaction is not an assignment under the 1940 Act or the Advisers Act if it does not result in a change of actual control or management of us or, in the context of a sub-advisor, a change of actual control or management of the sub-advisor. 26 Table of Contents Generally, if a sub‑advisor experiences a change of control but we do not, we could continue acting as an advisor to the applicable Hennessy Fund, but the shareholders of such Hennessy Fund would have to approve a new sub‑advisory agreement for the sub‑advisor.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and therefore increase the risks associated with investing in our securities. 23 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and therefore increase the risks associated with investing in our securities. 29 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
As a result, our revenues could decline and our business, results of operations, and financial condition could be materially adversely affected. 26 Table of Contents We face intense competition in attracting investors and retaining net assets in the Hennessy Funds. The investment advisory industry is intensely competitive and new participants are continually entering the industry.
As a result, our revenues could decline and our business, results of operations, and financial condition could be materially adversely affected. 22 Table of Contents We face intense competition in attracting investors and retaining net assets in the Hennessy Funds. The investment advisory industry is intensely competitive and new participants are continually entering the industry.
In addition, insurance premiums and required retentions have increased in the past and may do so again in the future. 27 Table of Contents We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties.
In addition, insurance premiums and required retentions have increased in the past and may do so again in the future. 23 Table of Contents We are subject to regulatory and governmental inquiries and civil litigation. An adverse outcome of any such proceeding could involve substantial financial penalties.
On the other hand, if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our revenues from the fund.
On the other hand, if the fund’s operating expenses increase (other than Excluded Fees), this will lead to a reduction in our profitability from the fund.
This is because we recently sought and received an exemptive order from the SEC to operate under a manager of managers structure and subsequently obtained shareholder approval to implement such structure for the Hennessy Stance ESG ETF.
This is because we sought and received an exemptive order from the SEC in 2023 to operate under a manager of managers structure and subsequently obtained shareholder approval to implement such structure for the Hennessy Stance ESG ETF.
The fund and its shareholders bear the costs of Excluded Fees. The unitary fee structure generally eliminates the possibility for any decrease in the total fund expense ratio during periods when assets under management increased, which could lead to increased profitability for us if ware able to achieve economies of scale.
The fund and its shareholders bear the costs of Excluded Fees. The unitary fee structure generally eliminates the possibility for any decrease in the total fund expense ratio during periods when assets under management increase, which could lead to increased profitability for us if we are able to achieve economies of scale.
For the past several years, approximately 75% of our assets under management has been concentrated in five of our funds.
For the past several years, approximately 75% of our assets under management has been concentrated in five or six of our funds.
Additionally, for no compensation, we pay all other operating expenses of the fund, including sub-advisory fees, with the exception of the following: (1) the management fees paid to us; (2) distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (3) interest expenses; (4) brokerage expenses, trading expenses, and other expenses (such as stamp taxes) in connection with the execution of portfolio transactions or in connection with creation or redemption transactions; (5) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel; (6) tax expenses and governmental fees; and (7) extraordinary expenses not incurred in the course of ordinary business (the “Excluded Fees”).
Additionally, for no compensation, we pay all other operating expenses of the fund, including sub-advisory fees, with the exception of the following: (i) the management fees paid to us; (ii) distribution fees and expenses paid by the fund under any distribution plan adopted pursuant to Rule 12b-1 under the Investment Company Act; (iii) interest expenses; (iv) brokerage expenses, trading expenses, and other expenses (such as stamp taxes) in connection with the execution of portfolio transactions or in connection with creation or redemption transactions; (v) compensation paid to the independent trustees of the fund and fees paid to independent trustees’ counsel; (vi) tax expenses and governmental fees; and (vii) extraordinary expenses not incurred in the course of ordinary business (the “Excluded Fees”).
As a result, our operating results are particularly dependent upon the performance of a very small number funds and our ability to maintain and grow assets under management in these funds. These funds have experienced significant redemptions in recent years and may continue to do so for the future.
As a result, our operating results are particularly dependent upon the performance of a small number of funds and our ability to maintain and grow assets under management in these funds. These funds have from time to time experienced significant redemptions and may do so again in the future.
On an annual basis, the Funds’ Board of Trustees must assess the reasonableness of our investment advisory fees. While the Funds’ Board of Trustees has found our investment advisory fees to be reasonable in the past, we cannot guarantee that it will continue to do so.
While the Funds’ Board of Trustees has found our investment advisory fees to be reasonable in the past, we cannot guarantee that it will continue to do so.
Investors in the Hennessy Funds may redeem their investments at any time and for any reason without prior notice. Success in the investment advisory and fund business is largely dependent on investment performance, as well as investor servicing and distribution.
A decline in our assets under management adversely affects our revenues. Investors in the Hennessy Funds may redeem their investments at any time and for any reason without prior notice. Success in the investment advisory and fund business is largely dependent on investment performance, as well as investor servicing and distribution.
Under a unitary fee structure, we bear all operating expenses incurred in connection with providing services to the fund. The operating expenses covered by the unitary fee include third party data providers, transfer agency, custody, fund administration, legal, audit and other services.
The Hennessy Stance ESG ETF pays us a unitary fee under its investment advisory agreement with us. Under a unitary fee structure, we bear all operating expenses incurred in connection with providing services to the fund. The operating expenses covered by the unitary fee include third party data providers, transfer agency, custody, fund administration, legal, audit and other services.
In addition, while we strive to comply with the relevant laws and regulations, any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could materially adversely affect our business, results of operations, and financial condition. 28 Table of Contents We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability.
In addition, while we strive to comply with the relevant laws and regulations, any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could materially adversely affect our business, results of operations, and financial condition.
Finally, cybersecurity and data privacy have become high priorities for regulators, and many jurisdictions are enacting laws and regulations in these areas. Enactment of privacy laws or regulations could, among other things, result in additional costs of compliance or litigation.
Finally, cybersecurity and data privacy are high priorities for many regulators, and many jurisdictions have enacted laws and regulations in these areas. Enactment of privacy laws or regulations have, and may continue to, result in additional costs of compliance or litigation.
We have historically competed primarily on the performance of the Hennessy Funds and not on the level of our investment advisory fees relative to those of our competitors. In recent years, however, there has been a trend toward lower fees in the investment advisory industry.
We have historically competed primarily on the performance of the Hennessy Funds and not on the level of our investment advisory fees relative to those of our competitors, but there has been downward pressure on fees in the investment advisory industry for many years.
Additionally, particularly in the United States, certain financial institutions have substantially reduced the number of investment funds they make available to their clients. If a material portion of the financial institutions with whom we do business were to substantially narrow their product offerings, it could have a significant adverse effect on our assets under management, revenues, and net income.
If a material portion of the financial institutions with whom we do business were to substantially narrow their product offerings, it could have a significant adverse effect on our assets under management, revenues, and net income.
During fiscal year 2023, our average assets under management was concentrated in the following five funds: (i) the Hennessy Focus Fund (23% of average assets under management); (ii) the Hennessy Gas Utility Fund (17% of average assets under management); (iii) the Hennessy Cornerstone Midcap 30 Fund (15% of average assets under management); (iv) the Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone Value Fund (10% of average assets under management).
During fiscal year 2024, our average assets under management was concentrated in the following five funds: (i) the Hennessy Cornerstone Mid Cap 30 Fund (27% of average assets under management); (ii) the Hennessy Focus Fund (18% of average assets under management); (iii) the Hennessy Gas Utility Fund (12% of average assets under management); (iv) the Hennessy Japan Fund (10% of average assets under management); and (v) the Hennessy Cornerstone Growth Fund (9% of average assets under management).
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions and financial, business, and other factors affecting our consolidated operations, many of which are beyond our control. Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth.
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions and financial, business, and other factors affecting our operations, many of which are beyond our control.
We pursue strategic asset purchases as part of our regular business strategy, and such acquisitions involve inherent risks that could adversely affect our operating results and financial condition and potentially dilute the holdings of current shareholders. As part of our regular business strategy, we pursue strategic purchases of the assets related to the management of additional funds.
A significant increase in redemptions for any reason would reduce our assets under management and revenues. We pursue strategic asset purchases as part of our regular business strategy, and such acquisitions involve inherent risks that could adversely affect our operating results and financial condition and potentially dilute the holdings of current shareholders.
If the Hennessy Funds received an adverse rating, ranking, or assessment from a third party, it could result in an increase in the withdrawal of assets from the Hennessy Funds by existing investors and the inability to attract additional investments into the Hennessy Funds from existing and new investors, thereby reducing our assets under management and adversely affecting our revenues. 21 Table of Contents The failure or negative performance of products offered by competitors may have a negative impact on the Hennessy Funds within such similar product type, irrespective of our fund performance.
If the Hennessy Funds received an adverse rating, ranking, or assessment from a third party, it could result in an increase in the withdrawal of assets from the Hennessy Funds by existing investors and the inability to attract additional investments into the Hennessy Funds from existing and new investors, thereby reducing our assets under management and adversely affecting our revenues.
Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Focus Fund (27% of total revenue); (b) the Hennessy Cornerstone Midcap 30 Fund (15% of total revenue); (c) the Hennessy Gas Utility Fund (10% of total revenue); (d) the Hennessy Cornerstone Value Fund (10% of total revenue); and (e) the Hennessy Japan Fund (10% of total revenue).
Consequently, our revenues followed a similar pattern of concentration: (a) the Hennessy Cornerstone Mid Cap 30 Fund (26% of total revenue); (b) the Hennessy Focus Fund (21% of total revenue); (c) the Hennessy Japan Fund (10% of total revenue); (d) the Hennessy Cornerstone Growth Fund (9% of total revenue); and (e) the Hennessy Cornerstone Value Fund (8% of total revenue).
In addition to an increased number of applicable laws, the investment fund industry has undergone increased scrutiny by the SEC and state regulators in recent years, resulting in numerous enforcement actions and sweep examinations.
The laws to which we are subject are designed primarily to protect investors in the Hennessy Funds as opposed to our shareholders. In addition to an increased number of applicable laws, the investment fund industry has undergone increased scrutiny by the SEC and state regulators in recent years, resulting in numerous enforcement actions and sweep examinations.
We generate all of our operating revenues from the investment advisory and shareholder servicing agreements with the Hennessy Funds. These agreements may be terminated without penalty on 60 days’ notice and may not be assigned without the consent of investors in the Hennessy Funds.
These agreements may be terminated without penalty on 60 days’ notice and may not be assigned without the consent of investors in the Hennessy Funds.
Our continued financial performance may depend on our ability to react to changes in the asset management industry, respond to evolving investor demands and develop, market, and manage new investment products.
Our continued financial performance may depend on our ability to react to changes in the asset management industry, respond to evolving investor demands and develop, market, and manage new investment products. Conversely, the development and introduction of new products requires continued innovative effort on our part and may require significant time and resources, as well as ongoing support and investment.
Moreover, in order to retain key personnel, we may be required to increase compensation to such individuals, resulting in additional expense. We have debt and may incur additional debt, which may increase the risk of investing in us and may harm our financial condition and results of operations.
We have debt and may incur additional debt, which may increase the risk of investing in us and may harm our financial condition and results of operations.
This could, in theory, result in relatively low performance of the formula‑driven Hennessy Funds and adversely affect the net assets of such Hennessy Funds. A decrease in the net assets of the Hennessy Funds would adversely affect our revenues.
This could, in theory, result in relatively low performance of the formula‑driven Hennessy Funds and adversely affect the net assets of such Hennessy Funds. A decrease in the net assets of the Hennessy Funds would adversely affect our revenues. Management contracts purchased by us are currently classified as an indefinite ‑ life asset subject to impairment analysis.
We utilize a unitary fee structure for the Hennessy Stance ESG ETF, and we bear the risk that the Fund ’ s operating expenses may increase and lead to a reduction in our revenues from the fund. The Hennessy Stance ESG ETF pays us a unitary fee under its investment advisory agreement with us.
Moreover, in order to retain key personnel, we may be required to increase compensation to such individuals, resulting in additional expense. We utilize a unitary fee structure for the Hennessy Stance ESG ETF, and we bear the risk that the Fund ’ s operating expenses may increase and lead to a reduction in our revenues from the fund.
Certain of the financial institutions upon whom we rely to distribute the Hennessy Funds also sell their own competing proprietary investment products, which could limit the distribution of our products. Investors increasingly rely on external consultants and other third parties for advice on the choice of investment manager.
Mergers and other corporate transactions among distributors also may affect our relationships with financial institutions. Certain of the financial institutions upon whom we rely to distribute the Hennessy Funds also sell their own competing proprietary investment products, which could limit the distribution of our products.
Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our net income. These financial institutions generally can terminate their relationships with us on short notice. Mergers and other corporate transactions among distributors also may affect our relationships with financial institutions.
We cannot guarantee we will be able to retain access to these channels at similar pricing or at all. Increasing competition for these distribution channels could cause our distribution costs to rise, which could have a material adverse effect on our net income. These financial institutions generally can terminate their relationships with us on short notice.
Any of these results could have an adverse effect on our business, results of operations, and financial condition. Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable, and must be renewed annually; the loss of such agreements would reduce our revenues.
Our investment advisory and shareholder servicing agreements can be terminated on short notice, are not freely assignable, and must be renewed annually; the loss of such agreements would reduce our revenues. We generate all of our operating revenues from the investment advisory and shareholder servicing agreements with the Hennessy Funds.
We are subject to regulation under the Securities Act of 1933, as amended, the Exchange Act, the 1940 Act, the Advisers Act, and various other statutes. The laws to which we are subject are designed primarily to protect investors in the Hennessy Funds as opposed to our shareholders.
Our business is subject to extensive regulation in the United States, particularly by the SEC. We are subject to regulation under the Securities Act of 1933, as amended, the Exchange Act, the 1940 Act, the Advisers Act, and various other statutes.
The impairment analysis is based on anticipated future cash flows, which are calculated based on assets under management. Although the management contract asset is not currently impaired, there is always a possibility of impairment in the future, which could require us to write off all or a portion of the asset.
Although the management contract asset is not currently impaired, there is always a possibility of impairment in the future, which could require us to write off all or a portion of the asset. A write-off, depending on the amount, could have operational risks and could have a significant impact on the value of our equity and our earnings per share.
These consultants and third parties tend to exert a significant degree of influence over their clients’ choices, and they may favor one of our competitors as better meeting their particular clients’ needs. There is no assurance that the Hennessy Funds will be among their recommended choices in the future.
Investors increasingly rely on external consultants and other third parties for advice on the choice of investment manager. These consultants and third parties tend to exert a significant degree of influence over their clients’ choices, and they may favor one of our competitors as better meeting their particular clients’ needs.
Our business, results of operations, financial condition, and stock price could be materially adversely affected by any of the risks we face, including those described below. RISKS RELATING TO OUR ASSETS UNDER MANAGEMENT Volatility in and disruption of the capital markets and changes in the economy has and may continue to significantly affect our assets under management and revenues.
Our business, results of operations, financial condition, and stock price could be materially adversely affected by any of the risks we face, including those described below. RISKS RELATING TO OUR ASSETS UNDER MANAGEMENT Investors in the Hennessy Funds can redeem their investments at any time and for any reason, including poor investment performance and volatile equity markets.
The management contracts we have purchased, an $81.3 million asset on the balance sheet as of the end of fiscal year 2023, are considered an intangible asset with an indefinite useful life. Management reviews the indefinite life classification of our management contract asset each reporting period.
The impairment analysis is based on subjective criteria, and an impairment loss could be recorded. The management contracts we have purchased, an $82.3 million asset on the balance sheet as of the end of fiscal year 2024, are considered an intangible asset with an indefinite useful life.
The termination or non-renewal of these agreements, or the renegotiation of the terms of these agreements in a manner detrimental to us, could result in a substantial reduction in revenues, which could have a material adverse effect on our business, results of operations, and financial condition. RISKS RELATING TO OUR INDUSTRY Investor behavior is influenced by short-term investment performance.
The termination or non-renewal of these agreements, or the renegotiation of the terms of these agreements in a manner detrimental to us, could result in a substantial reduction in revenues, which could have a material adverse effect on our business, results of operations, and financial condition. 28 Table of Contents The Hennessy Japan Fund and the Hennessy Japan Small Cap Fund invest in the Japanese stock market in yen, which involves foreign exchange and economic uncertainties.
Moreover, the historical performance of the Hennessy Funds should not be considered indicative of the future results that should be expected from such funds.
Moreover, the historical performance of the Hennessy Funds should not be considered indicative of the future results that should be expected from such funds. RISKS RELATING TO OUR BUSINESS MODEL AND OPERATIONS We derive a substantial portion of our revenues from a limited number of the Hennessy Funds.
Our primary source of distribution of the Hennessy Funds is through a variety of financial institutions. Our success is highly dependent on access to these various distribution channels. We cannot guarantee we will be able to retain access to these channels at similar pricing or at all.
Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth. Our primary source of distribution of the Hennessy Funds is through a variety of financial institutions. Our success is highly dependent on access to these various distribution channels.
If the management contract asset is ever reclassified as an asset with a definite life, we would begin amortizing the management contracts over their remaining useful life. If the management contract asset continues to be classified as an indefinite‑life asset, we will continue to periodically review the carrying value to determine if any impairment has occurred.
Management reviews the indefinite life classification of our management contract asset each reporting period. If the management contract asset is ever reclassified as an asset with a definite life, we would begin amortizing the management contracts over their remaining useful life.
We are subject to a number of sources of potential legal liability, including, by way of example, investors in the Hennessy Funds, our own shareholders, our employees, or regulators. Lawsuits or investigations that we may become involved in could be very expensive and highly damaging to our reputation, even if the underlying claims are without merit.
We are exposed to legal risk and litigation, which could increase our expenses and reduce our profitability. We are subject to a number of sources of potential legal liability, including, by way of example, investors in the Hennessy Funds, our own shareholders, our employees, or regulators.
The outbreak and spread of contagious diseases such as COVID-19 has adversely impacted global commercial activity, contributed to significant volatility in global equity and debt markets, and disrupted supply chains, operations, and economic activity. The COVID-19 pandemic adversely impacted the value and performance of the Hennessy Funds, which resulted in declines in our revenues.
The outbreak and spread of contagious diseases may adversely impact global commercial activity, contribute to significant volatility in global equity and debt markets, and disrupt supply chains, operations, and economic activity.
It also limited our ability to source and pursue potential acquisitions. Future outbreaks of contagious diseases could have similar adverse impacts on our business and financial performance. RISKS RELATING TO OUR BUSINESS MODEL AND OPERATIONS We derive a substantial portion of our revenues from a limited number of the Hennessy Funds.
Such outbreaks may adversely impact the value and performance of the Hennessy Funds, which may result in declines in our revenues and limit our ability to source and pursue potential acquisitions. Future outbreaks of contagious diseases could have adverse impacts on our business and financial performance. RISKS RELATING TO OUR INDUSTRY Investor behavior is influenced by short-term investment performance.
Our business is extensively regulated, which increases our costs of doing business, and our failure to comply with regulatory requirements may harm our financial condition. Our business is subject to extensive regulation in the United States, particularly by the SEC.
Lawsuits or investigations that we may become involved in could be very expensive and highly damaging to our reputation, even if the underlying claims are without merit. Our business is extensively regulated, which increases our costs of doing business, and our failure to comply with regulatory requirements may harm our financial condition.
A write-off, depending on the amount, could have operational risks and could have a significant impact on the value of our equity and our earnings per share. 24 Table of Contents We may be required to forego all or a portion of our fees under our investment advisory agreements with the Hennessy Funds.
We may be required to forego all or a portion of our fees under our investment advisory agreements with the Hennessy Funds. On an annual basis, the Funds’ Board of Trustees must assess the reasonableness of our investment advisory fees.
This has reduced, and may continue to reduce, our assets under management and revenues.
Volatility in and disruption of the capital markets and changes in the economy has and may continue to significantly affect our assets under management and revenues.
If any of these events were to occur, we could suffer a financial loss, a disruption of our business, liability to the Hennessy Funds and their investors, regulatory intervention, or reputational damage, any of which could have a material adverse effect on our business, results of operations, and financial condition.
Any of these results could have an adverse effect on our business, results of operations, and financial condition.
Removed
Changing market conditions could also cause an impairment to the value of our management contract asset. Investors in the Hennessy Funds can redeem their investments at any time and for any reason, including poor investment performance and volatile equity markets. A decline in our assets under management adversely affects our revenues.
Added
Changing market conditions could also cause an impairment to the value of our management contract asset. 21 Table of Contents The failure or negative performance of products offered by competitors may have a negative impact on the Hennessy Funds within such similar product type, irrespective of our fund performance.
Removed
Management contracts purchased by us are currently classified as an indefinite ‑ life asset subject to impairment analysis. The impairment analysis is based on subjective criteria, and an impairment loss could be recorded.
Added
As part of our regular business strategy, we pursue strategic purchases of the assets related to the management of additional funds.
Removed
The Hennessy Japan Fund and the Hennessy Japan Small Cap Fund invest in the Japanese stock market in yen, which involves foreign exchange and economic uncertainties.
Added
There is no assurance that the Hennessy Funds will be among their recommended choices in the future. Additionally, particularly in the United States, certain financial institutions have substantially reduced the number of investment funds they make available to their clients.
Removed
Conversely, the development and introduction of new products, including the creation or acquisition of products with a focus on ESG matters, requires continued innovative effort on our part and may require significant time and resources, as well as ongoing support and investment.
Added
If the management contract asset continues to be classified as an indefinite‑life asset, we will continue to periodically review the carrying value to determine if any impairment has occurred. The impairment analysis is based on anticipated future cash flows, which are calculated based on assets under management.
Added
Certain provisions in our employment agreements and bonus agreements with key personnel could delay or discourage an acquisition of the Company.
Added
Our employment agreements with key personnel provide for certain payments in the event of certain terminations of employment of such persons or changes of control of the Company The obligation of the Company to make such payments upon the occurrence of such events could significantly increase the cost of an acquisition of the Company and make potential acquirers hesitant to proceed.
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed1 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed1 unchanged
2023 filing
2024 filing
Biggest changeITEM 2. PROPERTIES. Our principal executive office is located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945, where we occupy approximately 13,728 square feet and have the right to use all common areas. We also lease office space in Austin, Texas, Dallas, Texas, Boston, Massachusetts, and Chapel Hill, North Carolina.
Biggest changeITEM 2. PROPERTIES. Our principal executive office is located at 7250 Redwood Boulevard, Suite 200, Novato, California 94945, where we occupy approximately 14,000 square feet and have the right to use all common areas. We also lease office space in Austin, Texas, Dallas, Texas, Boston, Massachusetts, and Chapel Hill, North Carolina.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
5 edited+0 added−0 removed1 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
5 edited+0 added−0 removed1 unchanged
2023 filing
2024 filing
Biggest changeWe announced the stock buyback program in August 2010, and the program has no expiration date. In August 2022, the Board of Directors increased the number of shares that may be repurchased under the stock buyback program by 500,000 shares, to a total of 2,000,000 shares.
Biggest changeWe announced the stock buyback program in August 2010, and the program has no expiration date. In August 2022, the Board of Directors increased the number of shares that may be repurchased under the stock buyback program by 500,000 shares, to a total of 2,000,000 shares. A total of 1,096,368 shares remain available for repurchase under the stock buyback program.
The equity compensation plan information required by Item 201(d) of Regulation S‑K is set forth in the “Equity Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 31 Table of Contents PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS During fiscal year 2023, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.
The equity compensation plan information required by Item 201(d) of Regulation S‑K is set forth in the “Equity Compensation Plan Information” subheading under Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” 32 Table of Contents PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS During fiscal year 2024, we repurchased shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs.
We did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2023. (2) The shares that we repurchased in August and September 2023 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.
We did not repurchase any shares pursuant to the stock buyback program during the three months ended September 30, 2024. (2) The shares that we repurchased in September 2024 are not subject to a maximum per plan or program because we did not repurchase them pursuant to a plan or program.
The stock repurchases are presented in the following table for the three months ended September 30, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) July 1-31, 2023 - $ - - 596,368 August 1-31, 2023 (2) 7,849 6.89 - 1,096,368 September 1-30, 2023 (2) 26,343 6.79 - 1,096,368 Total 34,192 $ 6.81 - 1,096,368 (1) We are authorized to purchase a maximum of 2,000,000 shares under our stock buyback program.
The stock repurchases are presented in the following table for the three months ended September 30, 2024: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) July 1-31, 2024 - $ - - 1,096,368 August 1-31, 2024 - - - 1,096,368 September 1-30, 2024 (2) 39,410 10.24 - 1,096,368 Total 39,410 $ 10.24 - 1,096,368 (1) We are authorized to purchase a maximum of 2,000,000 shares under our stock buyback program.
As of the end of fiscal year 2023, we had 127 holders of record of our common stock. In addition, there were 45 brokerage firm accounts that represent 1,977 additional individual shareholders for a total of 2,104 shareholders.
As of the end of fiscal year 2024, we had 119 holders of record of our common stock. In addition, there were 42 brokerage firm accounts that represent 1,997 additional individual shareholders for a total of 2,116 shareholders.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
52 edited+13 added−12 removed32 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
52 edited+13 added−12 removed32 unchanged
2023 filing
2024 filing
Biggest changeRESULTS OF OPERATIONS The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue: Fiscal Years Ended September 30, 2023 2022 Amounts Percent of Total Revenue Amounts Percent of Total Revenue (In thousands, except percentages) Revenue Investment advisory fees $ 22,090 92.0 % $ 27,468 92.6 % Shareholder service fees 1,930 8.0 2,199 7.4 Total revenue 24,020 100.0 29,667 100.0 Operating expenses Compensation and benefits 7,732 32.2 8,322 28.0 General and administrative 5,479 22.8 5,036 17.0 Fund distribution and other 486 2.0 536 1.8 Sub-advisory fees 3,759 15.6 5,727 19.3 Depreciation 230 1.0 207 0.7 Total operating expenses 17,686 73.6 19,828 66.8 Net operating income 6,334 26.4 9,839 33.2 Interest expense 2,256 9.4 2,122 7.2 Interest income (2,522 ) (10.5 ) (229 ) (0.8 ) Income before income tax expense 6,600 27.5 7,946 26.8 Income tax expense 1,829 7.6 1,756 5.9 Net income $ 4,771 19.9 % $ 6,190 20.9 % Revenue – Investment Advisory Fees and Shareholder Service Fees Total revenue comprises investment advisory fees and shareholder service fees.
Biggest changeThe 2026 Notes mature on December 31, 2026. 36 Table of Contents RESULTS OF OPERATIONS The following table sets forth items in the statements of income as dollar amounts and as percentages of total revenue: Fiscal Years Ended September 30, 2024 2023 Amounts Percent of Total Revenue Amounts Percent of Total Revenue (In thousands, except percentages) Revenue Investment advisory fees $ 27,524 92.8 % $ 22,090 92.0 % Shareholder service fees 2,122 7.2 1,930 8.0 Total revenue 29,646 100.0 24,020 100.0 Operating expenses Compensation and benefits 9,064 30.5 7,732 32.2 General and administrative 6,484 21.9 5,479 22.8 Fund distribution and other 818 2.8 486 2.0 Sub-advisory fees 4,169 14.1 3,759 15.6 Depreciation 244 0.8 230 1.0 Total operating expenses 20,779 70.1 17,686 73.6 Net operating income 8,867 29.9 6,334 26.4 Interest income (3,112 ) (10.5 ) (2,522 ) (10.5 ) Interest expense 2,275 7.7 2,256 9.4 Income before income tax expense 9,704 32.7 6,600 27.5 Income tax expense 2,607 8.8 1,829 7.6 Net income $ 7,097 23.9 % $ 4,771 19.9 % Revenue – Investment Advisory Fees and Shareholder Service Fees Total revenue comprises investment advisory fees and shareholder service fees.
The costs related to our purchase of the assets related to the management of investment funds are capitalized as incurred. The costs are defined as an intangible asset per the FASB standard “Intangibles – Goodwill and Other.” The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.
The costs related to our purchase of assets related to the management of investment funds are capitalized as incurred. The costs are defined as an intangible asset per the FASB standard “Intangibles – Goodwill and Other.” The acquisition costs include legal fees, fees for soliciting shareholder approval, and a percent of asset costs to purchase the management contracts.
The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.” All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward‑looking by their nature. 32 Table of Contents OVERVIEW Our primary business activity is providing investment advisory services to a family of 16 open-end mutual funds and one ETF branded as the Hennessy Funds.
The success of our business strategy may be influenced by the factors discussed in Item 1A, “Risk Factors.” All statements regarding our business strategy, as well as statements regarding market trends and risks and assumptions about changes in the marketplace, are forward‑looking by their nature. 33 Table of Contents OVERVIEW Our primary business activity is providing investment advisory services to a family of 16 open-end mutual funds and one ETF branded as the Hennessy Funds.
In such cases, we pay the minimum fee. 36 Table of Contents The distribution component of fund distribution and other expenses is affected by many factors, including the following: ● average daily net assets held by financial institutions; ● the split of average daily net assets held by financial institutions in Institutional Class shares of the Hennessy Mutual Funds versus Investor Class shares of the Hennessy Mutual Funds; and ● fee minimums at various financial institutions.
In such cases, we pay the minimum fee. 38 Table of Contents The distribution component of fund distribution and other expenses is affected by many factors, including the following: ● average daily net assets held by financial institutions; ● the split of average daily net assets held by financial institutions in Institutional Class shares of the Hennessy Mutual Funds versus Investor Class shares of the Hennessy Mutual Funds; and ● fee minimums at various financial institutions.
If an entity determines that it is more likely than not that an indefinite‑lived intangible asset is impaired, then it must conduct an impairment analysis. We were able to forego the annual impairment analysis for fiscal year 2023 as the more-likely-than-not threshold was not met as of the end of fiscal year 2023.
If an entity determines that it is more likely than not that an indefinite‑lived intangible asset is impaired, then it must conduct an impairment analysis. We were able to forego the annual impairment analysis for fiscal year 2024 as the more-likely-than-not threshold was not met as of the end of fiscal year 2024.
Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2023 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer‑term capital requirements for periods beyond one year from the issuance date of this report.
Management anticipates that cash and other liquid assets on hand as of the end of fiscal year 2024 will be sufficient to meet our capital requirements for one year from the issuance date of this report, as well as our longer term capital requirements for periods beyond one year from the issuance date of this report.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our future secured indebtedness, and structurally subordinate to all future indebtedness and other obligations of any future subsidiaries of ours.
(See Note 16 in Item 8, “Financial Statements and Supplementary Data.”) 34 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
(See Note 5 in Item 8, “Financial Statements and Supplementary Data.”) 35 Table of Contents On October 20, 2021, we completed a public offering of the 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
As discussed above, on October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
We provide service to over 149,000 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us.
We provide service to over 198,500 fund accounts nationwide, including accounts held by investors who employ financial advisors to assist them with investing as well as accounts held by retail investors who invest directly with us.
We receive a unitary investment advisory fee from the Hennessy Stance ESG ETF and then pay all of its operating expenses (with limited exceptions), including fund administration, fund accounting, transfer agency, custody, licensing, audit, and tax services. Comparing fiscal year 2022 to fiscal year 2023, fund distribution and other expense decreased by 9.3%, from $0.54 million to $0.49 million.
We receive a unitary investment advisory fee from the Hennessy Stance ESG ETF and then pay all of its operating expenses (with limited exceptions), including fund administration, fund accounting, transfer agency, custody, licensing, audit, and tax services. Comparing fiscal year 2023 to fiscal year 2024, fund distribution and other expense increased by 68.3%, from $0.49 million to $0.82 million.
The Hennessy Fund with the largest average daily net assets for fiscal year 2023 was the Hennessy Focus Fund, with $684 million. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets.
The Hennessy Fund with the second largest average daily net assets for fiscal year 2024 was the Hennessy Focus Fund, with $645 million. We collect an investment advisory fee from the Hennessy Focus Fund at an annual rate of 0.90% of average daily net assets.
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2023. 39 Table of Contents
There have been no other significant changes to our critical accounting policies and estimates during fiscal year 2024. 40 Table of Contents
The primary sources of our revenues, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under management. Our average assets under management for fiscal year 2023 was $3.0 billion. As of the end of fiscal year 2023, we had cash and cash equivalents of $60.5 million.
The primary sources of our revenues, liquidity, and cash flow are our investment advisory fees and shareholder service fees, which are based on, and generated by, our average assets under management. Our average assets under management for fiscal year 2024 was $3.7 billion. As of the end of fiscal year 2024, we had cash and cash equivalents of $63.9 million.
We serve approximately 11,600 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 800 who purchased one of our Funds for the first time during fiscal year 2023. Approximately 14% of such advisors own two or more Hennessy Funds, and over 400 advisors hold a position of over $500,000.
We serve approximately 11,200 financial advisors who utilize the Hennessy Funds on behalf of their clients, including nearly 500 who purchased one of our Funds for the first time during fiscal year 2024. Approximately 18% of such advisors own two or more Hennessy Funds, and over 650 advisors hold a position of over $500,000.
The following table shows average assets under management by share class over the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Hennessy Mutual Funds Investor Class $ 1,930,294 $ 2,199,250 $ 2,394,194 Institutional Class 1,027,166 1,445,112 1,595,106 Hennessy Stance ESG ETF 34,230 - - Average assets under management $ 2,991,690 $ 3,644,362 $ 3,989,300 The principal asset on our balance sheet, management contract asset, represents the capitalized costs incurred in connection with the purchase of the assets related to the management of investment funds.
The following table shows average assets under management by share class over the past three fiscal years: Fiscal Years Ended September 30, 2024 2023 2022 (In thousands) Hennessy Mutual Funds Investor Class $ 2,121,824 $ 1,930,294 $ 2,199,250 Institutional Class 1,475,335 1,027,166 1,445,112 Hennessy Stance ESG ETF 89,784 34,230 - Average assets under management $ 3,686,943 $ 2,991,690 $ 3,644,362 The principal asset on our balance sheet, the management contract asset, represents the capitalized costs incurred in connection with the purchase of assets related to the management of investment funds.
The amounts are included in the management contract asset, totaling $81.3 million as of the end of fiscal year 2023.
The amounts are included in the management contract asset, totaling $82.3 million as of the end of fiscal year 2024.
The following table illustrates the year-by-year changes in our assets under management over the past three fiscal years: Fiscal Years Ended September 30, 2023 2022 2021 (In thousands) Beginning assets under management $ 2,895,717 $ 4,065,922 $ 3,564,597 Acquisition inflows 43,088 - - Organic inflows 598,119 656,491 818,358 Redemptions (915,397 ) (1,147,888 ) (1,345,371 ) Market appreciation (depreciation) 410,515 (678,808 ) 1,028,338 Ending assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 As stated above, the fees we receive for providing investment advisory and shareholder services are based on average assets under management.
The following table illustrates the year-by-year changes in our assets under management over the past three fiscal years: Fiscal Years Ended September 30, 2024 2023 2022 (In thousands) Beginning assets under management $ 3,032,042 $ 2,895,717 $ 4,065,922 Acquisition inflows 71,656 43,088 - Organic inflows 1,554,303 598,119 656,491 Redemptions (1,005,191 ) (915,397 ) (1,147,888 ) Market appreciation (depreciation) 989,553 410,515 (678,808 ) Ending assets under management $ 4,642,363 $ 3,032,042 $ 2,895,717 As stated above, the fees we receive for providing investment advisory and shareholder services are based on average assets under management.
The decrease in investment advisory fees was due mainly to decreased average daily net assets of the Hennessy Funds. The decrease in shareholder service fees was due to a decrease in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds.
The increase in investment advisory fees was due mainly to increased average daily net assets of the Hennessy Funds. The increase in shareholder service fees was due to an increase in the average daily net assets held in Investor Class shares of the Hennessy Mutual Funds.
As a percentage of total revenue, fund distribution and other expense increased 0.2 percentage points to 2.0%. The decrease in dollar value of fund distribution and other expense was primarily due to decreased average daily net assets of the Hennessy Mutual Funds, which in turn decreases the fees we pay to financial institutions.
As a percentage of total revenue, fund distribution and other expense increased 0.8 percentage points to 2.8%. The increase of fund distribution and other expense was due to increased average daily net assets of the Hennessy Mutual Funds, which in turn increases the fees we pay to financial institutions.
These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for fiscal year 2023 was $3.0 billion, which represents a decrease of $0.7 billion, or 17.9%, compared to fiscal year 2022.
These annual rates range between 0.40% and 1.25% of average daily net assets. Average daily net assets of the Hennessy Funds for fiscal year 2024 was $3.7 billion, which represents an increase of $0.7 billion, or 23.2%, compared to fiscal year 2023.
Our total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022.
Our total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.
Comparing fiscal year 2023 to fiscal year 2022, total revenue decreased by 19.0%, from $29.7 million to $24.0 million, investment advisory fees decreased by 19.6%, from $27.5 million to $22.1 million, and shareholder service fees decreased by 12.2%, from $2.2 million to $1.9 million.
Comparing fiscal year 2024 to fiscal year 2023, total revenue increased by 23.4%, from $24.0 million to $29.6 million, investment advisory fees increased by 24.6%, from $22.1 million to $27.5 million, and shareholder service fees increased by 9.9%, from $1.9 million to $2.1 million.
The Hennessy Funds with the three largest amounts of net inflows were as follows: Fiscal Year Ended September 30, 2023 Fund Name Amount Hennessy Cornerstone Mid Cap 30 Fund $ 169 million Hennessy Japan Small Cap Fund $ 18 million Hennessy Midstream Fund $ 1 million The Hennessy Funds with the three largest amounts of net outflows were as follows: Fiscal Year Ended September 30, 2023 Fund Name Amount Hennessy Focus Fund $ (203) million Hennessy Gas Utility Fund $ (89) million Hennessy Japan Fund $ (82) million Redemptions as a percentage of assets under management decreased from an average of 2.6% per month during fiscal year 2022 to an average of 2.5% per month during fiscal year 2023.
The Hennessy Funds with the three largest amounts of net inflows were as follows: Fiscal Year Ended September 30, 2024 Fund Name Amount Hennessy Cornerstone Mid Cap 30 Fund $ 564 million Hennessy Cornerstone Growth Fund $ 252 million Hennessy Japan Fund $ 29 million The Hennessy Funds with the three largest amounts of net outflows were as follows: Fiscal Year Ended September 30, 2024 Fund Name Amount Hennessy Focus Fund $ (95 ) million Hennessy Gas Utility Fund $ (81 ) million Hennessy Value Fund $ (28 ) million Redemptions as a percentage of assets under management decreased from an average of 2.5% per month during fiscal year 2023 to an average of 2.3% per month during fiscal year 2024.
The following table summarizes key financial data relating to our liquidity and use of cash: Fiscal Years Ended September 30, 2023 2022 (In thousands) Net cash provided by operating activities $ 7,134 $ 8,665 Net cash used in investing activities (819 ) (231 ) Net cash (used in) provided by financing activities (4,326 ) 34,217 Net increase in cash and cash equivalents $ 1,989 $ 42,651 The decrease in cash provided by operating activities of $1.5 million was mainly due to decreased net income in the current period.
The following table summarizes key financial data relating to our liquidity and use of cash: Fiscal Years Ended September 30, 2024 2023 (In thousands) Net cash provided by operating activities $ 9,277 $ 7,134 Net cash used in investing activities (1,303 ) (819 ) Net cash used in financing activities (4,528 ) (4,326 ) Net increase in cash and cash equivalents $ 3,446 $ 1,989 The increase in cash provided by operating activities of $2.1 million was mainly due to increased net income in the current period.
The longer‑term performance numbers remain strong, with 13 of the Hennessy Funds posting positive returns for the three-year and five‑year periods ended September 30, 2023, and all 14 Hennessy Funds with at least 10 years of operating history posting positive returns for the 10‑year period ended September 30, 2023. 33 Table of Contents As always, we are committed to providing superior service to investors and employing a consistent and disciplined approach to investing based on a buy‑and‑hold philosophy that rejects the idea of market timing.
Finally, all 16 Hennessy Funds with at least 10 years of operating history posted positive returns for both the 5-year and 10‑year periods ended September 30, 2024. 34 Table of Contents As always, we are committed to providing superior service to investors and employing a consistent and disciplined approach to investing based on a buy‑and‑hold philosophy that rejects the idea of market timing.
The decrease in dollar value of compensation and benefits expense was due primarily to a decrease in head count and incentive-based compensation during fiscal year 2023. General and Administrative Expense : Comparing fiscal year 2022 to fiscal year 2023, general and administrative expense increased by 8.8% from $5.0 million to $5.5 million.
The increase in dollar value of compensation and benefits expense was due primarily to an increase in incentive-based compensation during fiscal year 2024. General and Administrative Expense : Comparing fiscal year 2023 to fiscal year 2024, general and administrative expense increased by 18.3% from $5.5 million to $6.5 million.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS We reviewed accounting pronouncements issued between December 7, 2022, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 6, 2023, the filing date of this Annual Report on Form 10-K, and have determined that no accounting pronouncement issued would have a material impact on our financial position, results of operations, or disclosures.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS We reviewed accounting pronouncements issued between December 7, 2023, the filing date of our most recent previously filed Annual Report on Form 10-K, and December 11, 2024, the filing date of this Annual Report on Form 10-K, and are currently in the process of evaluating the impact of adoption on our financial position, results of operations, and disclosures.
The 2026 Notes mature on December 31, 2026. 38 Table of Contents CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
The increase in net income was primarily due to increased average assets under management in the current period, which resulted in higher revenue and net operating income. 39 Table of Contents CRITICAL ACCOUNTING ESTIMATES AND POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
As a percentage of total revenue, total operating expenses increased 6.8 percentage points to 73.6%. Compensation and Benefits Expense : Comparing fiscal year 2022 to fiscal year 2023, compensation and benefits expense decreased by 7.1%, from $8.3 million to $7.7 million. As a percentage of total revenue, compensation and benefits expense increased 4.2 percentage points to 32.2%.
Compensation and Benefits Expense : Comparing fiscal year 2023 to fiscal year 2024, compensation and benefits expense increased by 17.2%, from $7.7 million to $9.1 million. As a percentage of total revenue, compensation and benefits expense decreased 1.7 percentage points to 30.5%.
The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.
The 2026 Notes mature on December 31, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2023.
The Japanese equity market increased 25.56% (in U.S. dollar terms) for the one‑year period ended September 30, 2023, as measured by the Tokyo Stock Price Index (TOPIX). Like many other markets, Japan’s stock market has rebounded sharply from its weakness in the prior twelve-month period.
The Japanese equity market increased 21.6% (in U.S. dollar terms) for the one‑year period ended September 30, 2024, as measured by the Tokyo Stock Price Index (TOPIX).
The increase in cash used in investing activities of $0.6 million was due to the purchase of assets related to the management of an ETF that were reorganized into the Hennessy Stance ESG ETF and the costs associated with the definitive agreement signed with CCM in the current period.
The increase in cash used in investing activities of $0.5 million was due to the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG STF.
However, we pay a sub‑advisory fee at an annual rate of 0.29% to the fund’s sub‑advisor, which reduces the net operating profit contribution of the fund to our financial operations. The Hennessy Fund with the second largest average daily net assets for fiscal year 2023 was the Hennessy Gas Utility Fund, with $509 million.
However, we pay a sub‑advisory fee at an annual rate of 0.29% to the fund’s sub‑advisor, which reduces the net operating profit contribution of the fund to our financial operations. 37 Table of Contents Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.
U.S. equities had strong, positive performance for the one‑year period ended September 30, 2023, with the S&P 500® Index returning 21.62% and the Dow Jones Industrial Average returning 19.18% for the period (on a total return basis).
U.S. equities had strong, positive performance for the one‑year period ended September 30, 2024, with the S&P 500® Index returning 36.35% and the Dow Jones Industrial Average returning 28.85% for the period (on a total return basis). Equity prices advanced in anticipation of the Federal Reserve lowering its benchmark interest rate, which ultimately happened in September.
Total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022. The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.
Total assets under management as of the end of fiscal year 2024 was $4.6 billion, an increase of $1.6 billion, or 53.1%, compared to the end of fiscal year 2023.
On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option. The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.
The 2026 Notes bear interest at 4.875% per annum, payable on the last day of each calendar quarter and at maturity, beginning December 31, 2021.
Income Tax Expense Comparing fiscal year 2022 to fiscal year 2023, income tax expense increased by 4.2%, from $1.76 million to $1.83 million. The increase in income tax expense was due to a higher effective income tax rate, partially offset by lower net operating income in the current period.
The increase in income tax expense was due to higher net operating income in the current period, partially offset by a lower effective income tax rate in the current period. The lower effective tax rate in the current period is due to an increased tax benefit in the current period due to restricted stock vesting at a higher share price.
As a percentage of total revenue, depreciation expense increased 0.3 percentage points to 1.0%. Interest Expense Comparing fiscal year 2022 to fiscal year 2023, interest expense increased by 6.3% from $2.1 to $2.3 million. The increase in interest expense was due to a full period of 2026 Notes interest expense incurred in the current period.
Depreciation Expense : Comparing fiscal year 2023 to fiscal year 2024, depreciation expense increased by 6.1% from $0.23 million to $0.24 million due to additional fixed asset purchases. As a percentage of total revenue, depreciation expense decreased 0.2 percentage points to 0.8%.
The 2026 Notes are the principal liability on our balance sheet at $39.2 million, net of issuance costs.
The 2026 Notes are the principal liability on our balance sheet at $39.5 million, net of issuance costs. LIQUIDITY AND CAPITAL RESOURCES We continually review our capital requirements to ensure that we have funding available to support our business model.
Operating Expenses Comparing fiscal year 2022 to fiscal year 2023, total operating expenses decreased by 10.8%, from $19.8 million to $17.7 million. The decrease in operating expenses was primarily due to decreases in sub-advisory fee, compensation and benefits, and fund distribution and other expenses, partially offset by an increase in general and administrative and depreciation expenses.
Operating Expenses Comparing fiscal year 2023 to fiscal year 2024, total operating expenses increased by 17.5%, from $17.7 million to $20.8 million. As a percentage of total revenue, total operating expenses decreased 3.5 percentage points to 70.1%. The increase in dollar value of operating expenses was primarily due to increases in compensation and benefits and general and administrative expenses.
The increase is related to the purchase of assets related to the management of an ETF that were reorganized into the Hennessy Stance ESG ETF and the costs associated with the definitive agreement signed with CCM in April 2023.
The increase in total assets was attributable to market appreciation, net inflows of the Hennessy Funds, and the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.
Our quarterly dividend rate remained constant during fiscal years 2023 and 2022, and our dividend payments totaled $4.2 and $4.1 million in each such fiscal year, respectively. 2026 Notes .
Our quarterly dividend rate remained constant during fiscal years 2024 and 2023, and our dividend payments totaled $4.2 million in each such fiscal year. 2026 Notes . On October 20, 2021, we completed a public offering of our 2026 Notes in the aggregate principal amount of $40.25 million, which included the full exercise of the underwriters’ overallotment option.
As a percentage of total revenue, sub‑advisory fees expense decreased 3.7 percentage points to 15.6%.
As a percentage of total revenue, general and administrative expense decreased 0.9 percentage points to 21.9%.
The increase in total assets was attributable to market appreciation, partially offset by net outflows of the Hennessy Funds.
The increase in total assets was attributable to market appreciation, net inflows of the Hennessy Funds, and the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.
As of the end of fiscal year 2023, this asset had a net balance of $81.3 million, an increase of $0.4 million since the end of fiscal year 2022.
As of the end of fiscal year 2024, this asset had a net balance of $82.3 million, an increase of $1.0 million since the end of fiscal year 2023. This increase is related to the purchase of assets related to the management of two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.
The decrease in sub‑advisory fees expense was due to a decrease in average daily net assets of the sub‑advised Hennessy Funds, with an additional decrease as a result of us no longer paying sub‑advisory fees with respect to the Hennessy Energy Transition Fund and the Hennessy Midstream Fund after January 31, 2022.
The dollar value increase in sub‑advisory fees expense was due to an increase in average daily net assets of the sub‑advised Hennessy Funds, with an additional increase due to the expense associated with new sub‑advisory relationships relating to the Hennessy Stance ESG ETF that began in December 2022.
Against this positive equity performance backdrop, 14 of the 17 Hennessy Funds posted positive returns for the one‑year period ended September 30, 2023.
The longer‑term performance numbers remain strong, with 15 of the Hennessy Funds posting positive returns for the three-year period ended September 30, 2024.
We collect an investment advisory fee from the Hennessy Gas Utility Fund at an annual rate of 0.40% of average daily net assets. 35 Table of Contents Total assets under management as of the end of fiscal year 2023 was $3.0 billion, an increase of $0.1 billion, or 4.7%, compared to the end of fiscal year 2022.
The Hennessy Fund with the largest average daily net assets for fiscal year 2024 was the Hennessy Cornerstone Mid Cap 30 Fund, with $981 million. We collect an investment advisory fee from the Hennessy Cornerstone Mid Cap 30 Fund at an annual rate of 0.74% of average daily net assets.
The decrease in cash provided by financing activities of $38.5 million was due to the issuance of the 2026 Notes in the prior comparable period. Dividend Payments . We have consistently paid dividends each year since 2005.
The increase in cash used in financing activities of $0.2 million was due to repurchases of shares underlying vested restricted stock units (“RSUs”) from employees to satisfy tax withholding obligations arising in connection with the vesting of RSUs in the current period. Dividend Payments . We have consistently paid dividends each year since 2005.
The 2026 Notes were issued on October 20, 2021, and therefore incurred a partial period of interest expense in the first quarter of the prior comparable period. Interest Income Comparing fiscal year 2022 to fiscal year 2023, interest income increased from $0.2 to $2.5 million. The increase was due to rising interest rates.
Interest Income Comparing fiscal year 2023 to fiscal year 2024, interest income increased from $2.52 million to $3.11 million. The increase was due to increased interest rates and increased principal balances. Interest Expense Comparing fiscal year 2023 to fiscal year 2024, interest expense increased by 0.8% from $2.26 million to $2.28 million.
The decrease was partly offset by the expense associated with the operations of the Hennessy Stance ESG ETF that began in December 2022. Sub-Advisory Fees Expense : Comparing fiscal year 2022 to fiscal year 2023, sub‑advisory fees expense decreased by 34.4%, from $5.7 million to $3.8 million.
Sub-Advisory Fees Expense : Comparing fiscal year 2023 to fiscal year 2024, sub‑advisory fees expense increased by 10.9%, from $3.8 million to $4.2 million. As a percentage of total revenue, sub‑advisory fees expense decreased 1.5 percentage points to 14.1%.
Removed
Equity prices advanced despite a rise in interest rates as it appears investors now expect that the Federal Reserve is likely to be near the end of raising the Federal Funds rate. The United States economy continues to create jobs with the unemployment rate now standing at 3.8% while inflation continues to moderate.
Added
Further, the markets have appeared to continue pricing in the prospect of several more rate cuts over the next year as market participants have appeared to continue to view recent inflation data in a favorable light.
Removed
The steady drop in inflation from levels one year ago, within the backdrop of a strong labor market, has helped to propel the stock market higher. The Consumer Price Index advanced 8.0% in 2022 and is expected to rise 4.1% in 2023, according to Bloomberg.
Added
While lower short-term interest rates have propelled the market higher, a strong second quarter earnings season and the expectation of a reasonably robust third quarter earnings season seem to have given investors increased confidence that the economy is on firm footing. According to Bloomberg, consensus estimates call for the economy to grow 2.6% in 2024.
Removed
While this current level is still above the Federal Reserve’s 2% target for inflation, the market seems to be pricing in the Federal Reserve standing on the sidelines for the foreseeable future.
Added
While that rate is slightly behind last year’s growth rate of 2.9%, we believe it is nonetheless a stronger rate than many had predicted at the beginning of the year. Yields on long-term U.S. bonds decreased meaningfully during the one‑year period ended September 30, 2024, as the Federal Reserve has started to lower its benchmark interest rate.
Removed
According to Bloomberg, the market is not expecting any reasonable chance of any Fed action until next July, when the market is pricing in a better than even chance of a rate cut. Long-term U.S. bonds increased meaningfully during the one‑year period ended September 30, 2023, as the Federal Reserve continued raising the Federal Funds rate.
Added
After the rate cut in September 2024, investors appear to have continued to price in further reductions in interest rates. According to Bloomberg, the market is currently pricing in nearly two more rate cuts by the end of the year and roughly six rate cuts by the end of 2025.
Removed
With a yield curve that remains inverted, investor attention has focused on economic growth that continues to defy consensus expectations. While real GDP increased 1.9% in 2022, it is expected to accelerate slightly in 2023 with consensus growth expectation of 2.1%, according to Bloomberg.
Added
Recent inflation data seems to have calmed the nerves of investors who feared that inflation would continue to be a headwind. Inflation data released for September 2024 indicated that consumer prices increased 2.4% from a year earlier, compared to 2.5% in August 2024, according to the Labor Department.
Removed
The idea that the economy was inevitably headed toward a recession has been reconsidered and the market seems to now believe that the economy, while perhaps slowing, is not likely to go into a recession. For the one‑year period ended September 30, 2023, 10-year U.S. Government Bond yields rose from 3.83% to 4.57%.
Added
The 2.4% rate is the smallest annual increase since February 2021 and now only modestly above the Federal Reserve’s stated goal of 2.0% inflation. For the one‑year period ended September 30, 2024, 10-year U.S. Treasury Note yields fell from approximately 4.57% to 3.78%.
Removed
A relatively strong earnings backdrop in Japan has been supported by the weakening of the yen and strong domestic demand. The market is now focusing its attention on the idea that the Bank of Japan could announce an end to negative interest rates by the end of the year.
Added
In our view, business sentiment in Japan remains strong, with the Bank of Japan stating that it expects large companies to increase capital spending by 10.6% in the current fiscal year through March 2025.
Removed
As a percentage of total revenue, general and administrative expense increased 5.8 percentage points to 22.8%. The increase in general and administrative expense was due to an increase in professional services, including investment banking, legal and marketing costs, in the current period.
Added
Bank of Japan Governor Kazuo Ueda has said that the central bank will continue to raise interest rates as long as business conditions remain strong, which is expected to help keep inflation under control around 2.0%. Against this positive equity performance backdrop, all 17 Hennessy Funds posted positive returns for the one‑year period ended September 30, 2024.
Removed
The decrease was partly offset by the expense associated with new sub‑advisory relationships relating to the Hennessy Stance ESG ETF that began in December 2022. Depreciation Expense : Comparing fiscal year 2022 to fiscal year 2023, depreciation expense increased by 11.1% from $0.21 million to $0.23 million due to additional fixed asset purchases.
Added
The dollar value increase in general and administrative expense was primarily due to increases in sales and distribution expenses (not including fees paid to various financial institutions that offer the Hennessy Funds as potential investments to their clients, which are reflected in “Fund Distribution and Other Expense”), as well as professional services expenses, in the current period.
Removed
The higher effective tax rate in the current period is due to the release of a portion of uncertain tax benefit position in the prior comparable period, as discussed in Item 8, “Financial Statements and Supplementary Data.” Net Income Comparing fiscal year 2022 to fiscal year 2023, net income decreased by 22.9%, from $6.2 million to $4.8 million.
Added
Additionally, fund distribution and other expense increased due to the additional expenses relating to the Hennessy Stance ESG ETF resulting from the purchase of assets related to the management of the two mutual funds previously managed by CCM that were reorganized into the Hennessy Stance ESG ETF.
Removed
The decrease in net income was primarily due to decreased average assets under management in the current period, which resulted in lower revenue and net operating income. 37 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We continually review our capital requirements to ensure that we have funding available to support our business model.
Added
The increase in interest expense was due to the manner in which interest expense is calculated under U.S. GAAP. The issuance costs related to the 2026 Notes that have been capitalized are amortized over time and therefore increase the carrying amount of the 2026 Notes.
Removed
The 2026 Notes are direct unsecured obligations, rank equally in right of payment with any of our future unsecured unsubordinated indebtedness, senior to any of our future indebtedness that expressly provides that it is subordinate to the 2026 Notes, effectively subordinate to all of our existing and future secured indebtedness, and structurally subordinated to all existing and future indebtedness and other obligations of any future subsidiaries of ours.
Added
As the carrying amount of the 2026 Notes increases, the interest expense on the 2026 Notes for financial statement purposes also increases. Income Tax Expense Comparing fiscal year 2023 to fiscal year 2024, income tax expense increased by 42.5%, from $1.8 million to $2.6 million.
Added
Net Income Comparing fiscal year 2023 to fiscal year 2024, net income increased by 48.8%, from $4.8 million to $7.1 million.