Avalon_Studio
Performance: Total Annualized Returns % as of 06/30/22
|
Net Assets |
QTD |
YTD |
1 YR |
3 YR |
5 YR |
10 YR |
Since Inception 8/31/09 |
|
Retail Share Class (MUTF:AKREX) |
-13.09 |
-22.85 |
-15.97 |
7.21 |
14.03 |
14.39 |
14.53 |
|
Institutional Share Class (MUTF:AKRIX) |
-13.03 |
-22.75 |
-15.75 |
7.48 |
14.32 |
14.69 |
14.83 |
|
S&P 500 TR |
-16.10 |
-19.96 |
-10.62 |
10.60 |
11.31 |
12.96 |
12.98 |
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 1.30% 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. The Fund invests in small- and medium- capitalization companies, which involve additional risks such as limited liquidity and greater volatility than larger capitalization companies.
Greetings and regards from Middleburg. We hope this quarter’s letter finds you well.
The Akre Focus Fund’s second quarter 2022 performance for the Institutional share class was negative 13.03% compared with S&P 500 Total Return at negative 16.10%. Performance for the trailing 12-month period ending June 30, 2022, for the Institutional share class was negative 15.75% compared with S&P 500 Total Return at negative 10.62%.
The first half of 2022 offered little in the way of safe harbors for investors as inflation and recession fears resulted in steep losses for both equities and bonds alike. In fact, the first half of 2022 was the worst first half of a year for U.S. equities since 1970. Is it a prelude to further losses or are we approaching a bottom? We wish we knew, but as is ever the case, we do not. It seems reasonable to expect deteriorating economic conditions along with the possibility for some nasty shocks, what Jamie Dimon recently termed “economic hurricanes.” Smooth sailing does not appear imminent, and headlines may grow darker. However, at some point, that will stop mattering to Mr. Market. As Warren Buffett wrote in his October 16, 2008, opinion piece in The New York Times: “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
We believe that one potential green shoot in an otherwise bleak investment landscape is the unwinding of speculative excesses. The substantial damage already suffered in Crypto and IPOs are good examples. According to Stock Analysis, calendar year 2021 saw a record 1,035 IPOs (including SPACs) in the U.S., more than doubling 2020’s IPO tally of 480, the prior annual record. By our count, approximately 84% of the 2021 IPOs are trading below their offering price. Moreover, many profitless “story stocks” are down 60-90% or more from their 2021 highs as we have seen gravity reassert itself in terms of valuations. While painful for those involved, we view the unwinding of these speculative excesses as indicative of at least some “time served” during this broad market pullback.
The holdings that comprise the Akre Focus Fund bear little fundamental resemblance to the speculative areas referenced above. The businesses owned in the Fund are established and durable franchises with strong balance sheets and have provided high levels of profitability. We continue to be strong believers in what the Fund owns and do not intend to alter our quality standards in the name of adapting to a “new” investment paradigm featuring, for example, persistently higher interest rates and inflation. We believe that our holdings, generally asset-light that have provided high returns on tangible capital and pricing power, are already well suited to such an environment.
As of June 30, cash stood at 4.3% of Fund assets. We remain defensive when it comes to cash, meaning we continue to place a greater priority on liquidity than investment. This is not our preferred stance, but one we deem prudent.
We wish you a great rest of summer and thank you for your continued support.
John & Chris
Top Ten Holdings as of 06/30/22
| Name |
% of net assets |
|
Mastercard, Inc. (MA) |
12.0% |
|
American Tower Corp. (AMT) |
11.9% |
|
Moody’s Corp. (MCO) |
10.7% |
|
Visa, Inc. (V) |
7.8% |
|
Constellation Software, Inc. (OTCPK:CNSWF) |
7.0% |
|
O’Reilly Automotive, Inc. (ORLY) |
6.1% |
|
KKR & Co., Inc. (KKR) |
5.1% |
|
Roper Technologies, Inc. (ROP) |
4.8% |
|
CarMax, Inc. (KMX) |
4.6% |
|
Brookfield Asset Management, Inc. (BAM) |
4.4% |
Sector Weightings as of 06/30/22
| Type |
% of net assets |
|
Information Technology |
43.0% |
|
Financials |
20.6% |
|
Real Estate |
11.9% |
|
Consumer Discretionary |
10.7% |
|
Industrials |
6.3% |
|
Health Care |
3.2% |
|
Cash & Equivalents |
4.3% |
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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