A Small-Cap Fund That Beat the Market by Taking ‘Buy and Hold’ to the Extreme

Key Takeaways

• The Kinetics Small Cap Opportunities Fund has averaged a 12.2% annualized return over the past 25 years, giving it the sixth-highest return out of all US stock funds.
• The fund follows a long-term value strategy that focuses on finding firms with high free cash flow and sustainable competitive advantages.
• Texas Pacific Land, a land-leasing firm, makes up 42.9% of the fund’s assets.

Few funds take buy-and-hold investing as far as the Kinetics Small-Cap Opportunities Fund KSCOX. The fund has offered market-beating returns for investors willing to stomach high concentration and volatility.

The $501 million Kinetics Small-Cap Opportunities Fund has returned an annualized 12.2% over the 25 years ending Dec. 31, 2025, beating all but five of the 774 US stock funds—excluding sector funds, those launched after Dec. 31, 2000, and funds with under $100 million in assets. The Kinetics fund’s returns beat its peers in the small-cap growth category and the benchmark Morningstar US Small Growth Index, each of which gained an annualized 6.9% per year over the past 25 years.

While the fund falls into Morningstar’s small-cap growth category, portfolio manager and president of Kinetics Mutual Funds Peter Doyle says it is a value fund, owing to the team’s focus on “paying a lot less than one dollar for one dollar’s worth of value.” Doyle also emphasized that after buying a stock, “We’ll hopefully never have to sell it.”

The fund’s holdings are dominated by one stock, Texas Pacific Land TPL. They originally invested in the company in the fourth quarter of 2002. The stock gained 46,950% between the end of 2002 and the end of 2025. The team has never trimmed the position, instead allowing it to grow to a heavy 42.9% of the fund’s portfolio as of its most recent disclosure. The fund holds a total of 61 stocks as of Sept. 30, 2025.

Murray Stahl, who is CEO, CIO, chairman, and co-founder of Horizon Kinetics, also sits on the board of Texas Pacific Land, what Morningstar analysts said was a clear conflict of interest. Stahl personally owns 7,980 shares of Texas Pacific Land. Before dropping the fund from analyst coverage, Morningstar gave it a negative

, denoting a lack of conviction in its ability to outperform. Morningstar analysts said that the fund could not sell the stock without pushing down its share price, potentially leaving them without an exit strategy.

Kinetics Small Cap Opportunities Fund’s Process

Doyle says he and his team focus on companies with strong free cash flow and long-lasting competitive advantages. Doyle believes that free cash flow gives a better picture of profits than net income, because it captures the profits that can flow to shareholders, as opposed to being reinvested in the business.

“Say Exxon Mobil reports $2 in earnings, but they need to reinvest 75% of that to find new oil and gas reserves,” he explains. “As an investor, you don’t really get the $2 in earnings; you get a fraction of that. But when Texas Pacific Land reports $2 in earnings, that’s pure cash flow.” Doyle says this exemplifies the fund’s value-investing approach. Texas Pacific Land has a comparatively high price/earnings ratio of 50.3, but those earnings are nearly all free cash flow. Therefore, he argues that the stock is a better deal than companies that carry lower P/E ratios but higher capital expenditures.

The fund’s focus on competitive advantages is shown through its third-largest holding, Hawaiian Electric Industries HE, which has a 4.5% weighting. The company is a regulated electric utility with a monopoly on providing electricity to most of Hawaii. The regulation means it can’t indefinitely raise prices and so can’t reap the same excess returns that other firms in the industry could. That’s okay by Doyle, since its monopoly provides a consistent revenue stream over the long term, which is critical to the fund’s investment thesis.

Hawaiian Electric had to take on a large amount of debt as part of a legal settlement for its role in the state’s 2023 wildfires, which has pushed down its stock price. Doyle says that because the firm’s underlying business is intact and very predictable, it will pay down debt and restore its dividend, but that the process will take three or four years. Doyle argues that the company is cheap because many investors aren’t willing to wait that long.

Holding On: Intelligent Inactivity

The fund’s investments in Texas Pacific Land and Hawaiian Electric show that it doesn’t just distinguish itself in what stocks it holds, but also in how it holds them. “You don’t make money in the buying and selling; you make money in the holding,” says Doyle, quoting the late Charlie Munger. “We allow our funds to naturally un-diversify, and we allow the best-performing securities to rise to the top.”

The fund’s 0% turnover ratio as of September 2025 attests to the team’s devotion to this idea. Avoiding trading for the sake of trading is a principle Doyle calls “intelligent inactivity.”

Doyle isn’t worried about the fund’s high level of concentration, and he says that with the exception of regulatory requirements, there isn’t a ceiling for concentration as long as he continues to believe in the investment case for a stock. “Would I personally feel comfortable owning 100.00% of and having 99.99% of my net worth in Texas Pacific Land? The answer is yes.”

Doyle has over $1 million of his own assets invested in the fund. “If you look at how wealth is accumulated in general, it happens in high concentrations in an individual stock, whether you take Michael Dell, Bill Gates, Steve Jobs, etc. You own something great, you leave it alone, and it becomes the overwhelming majority of your net worth.”

Usually, firms will shrink their position in a stock before it grows to take up an overwhelming position in their portfolio. Managers do this either because a stock has risen as much as they expected it to and they see better investments elsewhere, or because they want to diversify their fund to reduce the risk in case the stock declines. Doyle and his team’s refusal to do that has brought ample returns, but it requires investors to share their immense confidence in their investment theses.

A Bumpy Ride to Success

The fund’s long-term success has come with high volatility. Between 2015 and 2025, the fund ranked in the top decile of small-growth funds for five of those years and the bottom decile in three of them. While the Kinetics Small Cap Opportunities Fund has outperformed over the long term, over the shorter term, it’s often had years in which it significantly underperformed.

“Volatility is the price of admission for better results,” says Doyle. “[The top funds’] best performers start having a much higher weights in the portfolio, and in any given year, even a great company can go down 30%-40% for no good reason. We’re willing to live through that.” Doyle credits the fund’s consistent focus on the long term with its ability to stay the course with investments that can take years to pay off.