Hodges Fund Boasts Texas-Size Market Returns

Don't mess with Texas.

A slogan that started as an expression of state pride and then became an antilitter campaign can help you shape your portfolio, believe it or not.

President Bush's re-election last week showed that the concept applies handily to politics, for instance. And the long-lived success of the Dallas-based (HDPMX)Hodges fund makes it hard to overlook the merits of investing in the Lone Star state.

Of course, taking financial advice from a bumper sticker is rarely prudent. But fund manager Don Hodges has beaten the market over the space of a decade, and nearly a third of the 60-plus companies in his portfolio are based in the Lone Star state.

Hodges' fund has thrived using a three-part strategy that mixes core growth companies -- household names like Home Depot (HD) and E*Trade(ET) -- with turnaround candidates such as Texas restaurant chain Luby's(LUB) and momentum stocks like XM Satellite Radio (XMSR).

Texas-based companies, meanwhile, have been some of the fund's biggest winners. They range from real estate play Texas Pacific Land Trust (TPL) and retailer Neiman-Marcus (NMGa) to railroad Burlington Northern Santa Fe (BNI). As you can see, the fund -- like the state -- isn't just about the oil industry.

The fund has run up an impressive 10-year annualized return of 11.9%. That's nearly a full percentage point better than the S&P 500 over the same period. This year, the index is up 8.8%, handily beating the S&P once again.

TheStreet.com sat down with Hodges recently to seek out more values deep in the heart of you-know-where.

TSC: What is it about Texas that makes you invest there?

Hodges: Frankly, I view Texas businessmen as being very aggressive from a marketing and risk-taking standpoint, but somewhat conservative financially. And that's a good combination. They are entrepreneurial and have what we in Texas call horse sense.