Akre Capital’s Akre Focused Fund 3rd-Quarter Letter: A Review

Greetings from Middleburg. We hope this finds you enjoying the start of fall.

The Akre Focus Fund’s third quarter 2024 performance for the Institutional share class was 11.89% compared with S&P 500 Total Return at 5.89%. Performance for the trailing 12-month period ending September 30, 2024 for the Institutional share class was 38.60% compared with 36.35% for the S&P 500 Total Return.

The Akre Focus Fund (the Fund) turned fifteen years old on August 31st and has begun its 16th year. Since inception on August 31, 2009 through September 30, 2024, the Fund has compounded shareholder capital at 15.70% annually compared to 14.34% for the S&P 500 Total Return. These annualized rates of compounding mean that an investment in the Fund at inception is now worth over 9.0x the original investment compared with over 7.5x if invested in the S&P 500.

How deceptively placid this 15+ year experience appears in hindsight! How easy it is to forget all the doubt, fear, and tumult that dogged these past 15 years. The Fund was founded in the immediate aftermath of the Great Financial Crisis and has since invested through recession, pandemic, social unrest, political turmoil, the end of rock-bottom interest rates, investment fads and fashions, and a myriad of global conflicts. Despite all the above, 9.0x.

Compounding takes place over time periods long enough to include a host of bad and scary things. We find this a very comforting thought. Still, many investors try to anticipate, avoid, or otherwise navigate the next scary or uncertain thing. Their challenge is two-fold. First, many bad and scary things are unforeseen prior to their occurrence (e.g. 9/11, COVID). Second, even if investors correctly anticipated such events, gauging the timing, direction, and extent of market reaction is another matter entirely. For example, if you were told in advance that there would be a global pandemic in early 2020 that would shut down much of the world for 12-18 months and take the lives of millions, would you have then guessed that the ensuing bear market would last just one month (which it did)? Foreknowledge of events does not necessarily translate into market wisdom.

Story continues

The upcoming U.S. presidential election offers yet another focal point for tacticians to navigate and opportunity for Wall Street to generate transactions. This will be done by positioning portfolios in anticipation of what industries or businesses they expect to fare better or worse under the next political regime. We hope it comes as no surprise to hear that we will not be doing this. Our investments are not subject to preordained timing, including the four-year cycle of presidential elections. Compounding takes place over much longer time periods and has little need for short-term tactical maneuvering.

The top five contributors to performance during the quarter were KKR (NYSE:KKR), Brookfield Corporation (NYSE:BN), American Tower (NYSE:AMT), Constellation Software (TSX:CSU) and Moody’s (NYSE:MCO). Nothing noteworthy but we observe that these are among our more interest-rate sensitive names and their share prices likely benefitted from the anticipation of the Federal Reserve’s interest rate cut in September.

The top five detractors from performance this quarter were Airbnb (NASDAQ:ABNB), Roper Technologies (NASDAQ:ROP), CCC Intelligent Solutions (NASDAQ:CCCS), CarMax (NYSE:KMX) and CoStar Group (NASDAQ:CSGP). For these names, there was no common performance factor. These businesses are generally performing well, though some have their own unresolved questions. In the case of Airbnb, these include the extent of the slowdown in travel-related spend following a sharp recovery post-COVID, an overhang which provided us an opportunity to establish our position. In the case of CoStar, the company’s significant investment in its residential offering (Homes.com) continues to be a focal point given the certainty of expense and uncertainty of return. We would relish the opportunity to add to most of these positions at lower prices. Cash and equivalents stood at 2.0% of the Fund as of September 30th.

We wish you a wonderful fall season and thank you for your continued support.

Sincerely,

John

The Fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The summary and statutory prospectus contains this and other important information about the investment company and it may be obtained by calling (877) 862-9556 or visiting www.akrefund.com. Read it carefully before investing.

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 1.31% and 1.04% 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. In addition to large- capitalization companies, the Fund invests in small- and medium- capitalization companies, which involve additional risks such as limited liquidity and greater volatility than larger capitalization companies.

This article first appeared on GuruFocus.