Dear Fellow Shareholders:
We were pleased to mark the sixth anniversary of the Akre Focus Fund on August 31, 2015. Thank you for your support and interest during the first six years of the Fund.
Our notion of good investing is to identify and invest in multi-year compounding opportunities. We believe such opportunities are made possible through the rare combination of a strong and durable business model, skilled and trustworthy operators, and ample avenues for reinvestment. We call this notion our “threelegged stool” approach to investing.
Two outcomes of this investment approach are a portfolio that is relatively concentrated in our best ideas and that tends to change slowly. Our top ten holdings as of July 31, 2015, were:
Top Ten Holdings as of July 31, 2015 (Unaudited) Percentage of Net Assets:
- American Tower Corp. (AMT, Financial) 10.4%
- Markel Corp. (MKL, Financial) 9.3%
- Moody’s Corp. (MCO, Financial) 8.3%
- MasterCard, Inc. (MA, Financial) 7.9%
- Dollar Tree, Inc. (DLTR, Financial) 5.8%
- Colfax Corp. (CFX, Financial) 5.4%
- Roper Technologies, Inc.( ROP) 4.7%
- Visa, Inc. (V, Financial) 4.2%
- Live Nation Entertainment, Inc. (LYV, Financial) 3.6%
- Verisk Analytics, Inc. (VRSK, Financial) 3.6%
Roper Technologies (ROP, Financial) is a collection of more than 40 asset light, high margin, cash generative businesses that are top performers in obscure markets such as laboratory software, toll tags, and specialized pumps, meters, and sensors. Roper’s small headquarters team understands compounding and returns on invested capital. Better yet they have applied the knowledge to deliver exceptional shareholder returns. We owned Roper a year ago, but it was not yet a Top Ten position.
Verisk Analytics (VRSK, Financial) began life more than 40 years ago as the Insurance Service Office, an organization dedicated to providing common information and policy language that is relied on by hundreds of property and casualty insurers to manage risk and avoid fraud. The Insurance Service Office is a great business, but Verisk has also proven adept at reinvestment. Cash flows have been reinvested at high returns, expanding services to new customers in energy, healthcare, and finance. Like Roper, we owned Verisk a year ago, but it was not yet a Top Ten position.
As two new companies have joined our Top Ten, two others have fallen off. These were Discovery Communications and SBA Communications. At Discovery Communications, the long-term risk that eyeballs and ad dollars would migrate away from traditional television suddenly became a short term risk, and then a reality. This created a new set of challenges for these very capable operators. As facts change, so too do our position sizes. For SBA Communications, a cell tower business, we hold exactly the same number of shares as a year ago. Business, people, and reinvestment remain on target. By chance, SBA just missed our Top Ten list.
Below, we present the Sector Allocation as of fiscal year end. As we have said in the past, we do not purposefully allocate capital among sectors as defined by GICS® or any other third-party classification system. Rather, the chart below represents outcomes of our individual security selection process. We present the data here for the convenience of those who find sector classifications helpful:
In analyzing our investment results for both the fiscal year and since inception, we conclude that we have had a better than average experience for the following reasons:
- Individual security selection
- Concentration or “focus” of the portfolio holdings
- Absence of substantial losses
The five portfolio holdings that contributed the most to our overall fiscal 2015 returns were, in descending order:
- Markel (MKL, Financial)
- MasterCard (MA, Financial)
- Moody’s (MCO, Financial)
- Dollar Tree (DLTR, Financial)
- Visa (V, Financial)
Two portfolio holdings that were the greatest detractors from our overall fiscal 2015 returns were Colfax and Discovery Communications. We’ve already noted the challenges at Discovery. As for Colfax, we entered the investment with a long term view, acknowledging that the business is likely to be more cyclical than a typical holding. Colfax has weathered a difficult year marked by a slowdown in end markets demand, dramatic foreign exchange movements, and CEO retirement. Growth during the year disappointed, but we believe operations within each business unit continue to improve. Reinvestment opportunities remain abundant. Management depth has improved under the retiring CEO’s leadership. And so we maintain a meaningful investment in Colfax.
Once again, thank you for your support and interest in the Fund. We look forward to the upcoming years and the ten year mark in 2019.
