Bonhoeffer Q4 2025 Letter: Long Korean Health Insurer And Broker

Bonhoeffer Fund’s commentary for the fourth quarter ended December 31, 2025.

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Dear Partner,

Throughout the fourth quarter of 2025, Bonhoeffer Fund 1) continued to sell slower-growth firms, 2) purchased durable, faster-growing firms in temporarily depressed sectors and 3) identified similar opportunities in new industries. Our new holding aligns with our longer-term growth themes of consolidation (serial acquirers), buyers from forced sellers, insurance operations, financial compounders, distribution, infrastructure investors, and housing construction. Additionally, I continue to identify and analyze opportunities in the following areas: banks, insurance, natural resource royalties, distributors, logistics companies, housing, and specialty finance. New investments have a combined expected growth rate (return on equity (RoE) * (1-payout ratio)) plus earnings yield of at least 30 to 40%, a metric of deep value incorporating growth. Currently, about 33% of the portfolio is exposed to cyclical end markets. As a result, I will continue to diversify the portfolio to minimize exposure to potential risks of firms servicing cyclical end markets.

Throughout this period of transformation, I have examined the sectors and stocks that have worked well over time. Before the launch of Bonhoeffer, I held a portfolio of primarily media, telecom and finance (bank and insurance) stocks. Media and telecom stocks were prevalent in the early Bonhoeffer portfolio but for the most part have been removed due to the competitive markets and declining nature of many of these firms. Recently, banks have been a feature of the Bonhoeffer portfolio. We have also added select insurance companies including Meritz Financial, the subject of this quarter’s case study.

One ideal way to manage a portfolio is to invest in a set of potential investment winners, let the market work, retain the firms that maintain or increase return on invested capital (“RoIC”), and replace lagging investments with new potential investment winners. Warren Buffet has managed his portfolio this way. Examining Berkshire’s resulting portfolios, the retained firms continue to grow their earnings over time. At this point, Bonhoeffer has gone through the process of liquidating two sets of potential winners. Patience is a virtue when investing, but with the first set of telecom and media, I was too patient and held onto firms with declining RoICs for too long. With the second set, I more quickly began to remove firms that have declining RoEs and few catalysts to increase RoEs over time. A recent example, is Asbury Automotive Group which was recently replaced in the portfolio with newer firms that have high ROEs and multiple catalysts for higher RoEs (Meritz Financial being one example).

The Bonhoeffer Fund returned a gain of 2.7% net of fees in the fourth quarter of 2025. In the same time period, the MSCI World ex-US, a broad-based index, returned a gain of 6.6%, the S&P 500 returned a gain of 2.7% and the DFA International Small Cap Value Fund returned a gain of 7.4%. A US benchmark was added since the fund’s exposure to the US equities is now greater than 50%. As of December 31, 2025, our securities have a weighted average earnings/free cash flow yield of 11.6% and an average EV/EBITDA of 4.4 with 25% historical growth.

The current Bonhoeffer portfolio has projected earnings/free cash flow growth of about 16%. The DFA International Small Cap Value Fund had an average earnings yield of 9% with -2% growth. Both Bonhoeffer and the indices’ multiples are higher than in the previous quarter, primarily due to share price increases.