According to a new study by S.&P. Dow Jones Indicies, only two out of 2,862 mutual funds managed to attain top-quartile performance for the five years between March 2010 and current day. One of those two funds was the family-run Hodges Small Cap Fund based in Dallas, Texas.

Yahoo Finance spoke with Craig Hodges, president and portfolio manager of the small cap fund about his success. “We’re doing something that’s become rare in the last five to six years,” says Hodges. “Which is actively managing portfolios.”

Hodges believes that it’s become easier to pick between companies that will provide great returns and those that won’t, but finds that the markets tends to treat those companies as correlated.

In order to make big returns, Hodges looks for businesses with large barriers to entry. “We look for industries that are getting harder to get into—where there’s been a lot of consolidation, where there’s regulation. Cement companies and steel companies, the airlines which have gone from eight big players down to four, the railroads,” he says.

An important revelation in the S.&P. study was that past performance is no indicator of future returns, so will Hodges continue to strongly outperform the market? “We’ve been doing well and I think our process works but there will be a time when our stocks may go out of favor…but you’re not always going to be able to outperform and we tell people that,” he says.

But as for the short-term, “I believe that this is the golden-age of stock-picking and I think that the more people buy ETFs and index funds it’s easier for firms like us that are doing the bottoms up research,” he says.