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Sydnee Gatewood
Sydnee Gatewood
Articles (2960) 

Chuck Akre's Akre Focus Fund 3rd-Quarter Commentary

Discussion of markets and holdings

Greetings from Middleburg. "May no new thing arise" is an old Spanish benediction spoken between friends at parting. With so much of normal life on hold, it seems the begrudging best one can hope for under COVID is, indeed, that no new thing arise. That remains the case at Akre Capital where (knock on wood) our employees remain healthy and productive. We hope the same applies to you.

The Akre Focus Fund's third quarter 2020 performance for the Institutional share class was 5.58% compared with S&P 500 Total Return at 8.93%. Year-to-date performance through September 30 for the Institutional share class was 14.14% compared with the S&P 500 Total Return at 5.57%. Performance for the trailing 12-month period ending September 30, 2020, for the Institutional share class was 18.08% as compared with 15.15% for the S&P 500 Total Return.

Compared to late March and April, when market tumult and opportunity abounded, the third quarter felt comparatively nondescript. We did initiate one new position and added modestly to several other positions. We modestly trimmed a core holding in order to take advantage of some short-term losses realized elsewhere and to reduce our cost basis. Our cash weighting at the end of September declined to 6.0% from roughly 8% at the end of June.

Overall, not much got us excited in the third quarter. The same cannot be said for some other investors. Tesla shares skyrocketed 70% from August 11 to September 15 in response to the news of a stock split. Apple shares also reacted strongly to news of a planned stock split. Bankrupt car rental company, Hertz, attempted to sell $500 million or more of its common stock after its share price spiked, reportedly due to the speculation of investors using the trading app Robinhood. And, according to one research group, the U.S. IPO market witnessed its busiest third quarter since the sun set on the dot-com era in 2000 with 81 IPOs. Many of the IPOs comprised of profitless biotech and software companies. Moreover, IPO alternatives, namely Special Purpose Acquisition Companies, reached record levels with 82 offerings during the quarter. In short, the market feels increasingly speculative to us. We remain sober and steadfast in our quality and valuation disciplines.

Performance Total Annualized Returns % as of 09/30/2020 Since Inception
Net Assets QTD YTD 1 YR 3 YR 5 YR 10 YR 8/31/09
Retail Share Class (AKREX) 5.52 13.92 17.79 20.07 19.20 17.73 16.97
Institutional Share Class (AKRIX) 5.58 14.14 18.08 20.39 19.51 18.05 17.18
S&P 500 TR 8.93 5.57 15.15 12.28 14.15 13.74

13.68

The largest five positive contributors to performance during the quarter were Mastercard (NYSE:MA), CoStar Group (NASDAQ:CSGP), Moody's (NYSE:MCO), Danaher (NYSE:DHR), and O'Reilly Automotive (NASDAQ:ORLY). Nothing notable on which to elaborate.

The only four detractors from performance this quarter were American Tower (NYSE:AMT), Alarm.com (NASDAQ:ALRM), Constellation (NYSE:STZ), and Dollar Tree (NASDAQ:DLTR). Dollar Tree announced a CEO transition in late July, and we are interested to see whether the move heralds sustained operating improvement for the Family Dollar banner.

With so much investor attention tuned to the upcoming Presidential election—what to buy or sell depending on who wins—we note that such considerations play no role whatsoever in our investment process. We invest in businesses we deem capable of compounding over the span of many Presidents, regardless of party. As discordant and unprecedented as this election may prove, we remain confident in our approach.

Thank you for your continued support. Be safe and be well.

Chuck, John, & Chris

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Fund performance current to the most recent month-end may be lower or higher than the performance quoted and can be obtained by calling 1-877-862-9556. The Fund's annual operating expense (gross) for the Retail Class shares is 1.32% and 1.05% for the Institutional Class shares. The Fund imposes a 1.00% redemption fee on shares held less than 30 days. Performance data does not reflect the redemption fee, and if reflected, total returns would be reduced.

Mutual fund investing involves risk. Principal loss is possible. The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The Fund invests in small- and medium- capitalization companies, which involve additional risks such as limited liquidity and greater volatility than larger capitalization companies.

About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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