Bretton Fund's letter to shareholders for the third quarter ended September 30, 2024.
Dear Fellow Shareholders:
Both the fund and the market reached all-time highs again this quarter, along with many of our holdings. While it’s extremely unlikely the next 12 months will be as financially rewarding as the last 12, we continue to believe our companies are in a good position to thrive.
Total Returns as of September 30, 2024
| 3rd Quarter | 1 Year | 3 Years | 5 Years | 10 Years | Since 9/30/10 Inception |
|
| Bretton Fund | 9.99% | 39.48% | 15.02% | 15.98% | 12.65% | 13.18% |
| S&P 500 Index (B) | 5.89% | 36.35% | 11.91% | 15.98% | 13.38% | 14.43% |
(A) 1 Year, 3 Years, 5 Years, 10 Years, and Since Inception returns include change in share prices and, in each case, include reinvestment of any dividends and capital gain distributions. The inception date of the Bretton Fund was September 30, 2010.
(B) The S&P 500® Index is a broad-based stock market index based on the market capitalizations of 500 leading companies publicly traded in the US stock market, as determined by Standard & Poor’s, and captures approximately 80% coverage of available market capitalization.
Performance data quoted represents past performance. Past performance 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. Current performance may be lower or higher than the performance data quoted. You may obtain performance data current to the most recent month-end at here or by calling 800.231.2901.
All returns include change in share prices, reinvestment of any dividends, and capital gains distributions. The index shown is a broad-based, unmanaged index commonly used to measure performance of US stocks. The index does not incur expenses and is not available for investment. The fund’s expense ratio is 1.35%.
Contributors to Performance
We think Progressive (NYSE:PGR) is the most sophisticated auto insurer in the business. It leverages its vast amount of driver data and is usually one of the first in the industry to recognize important shifts in things like driver behavior and collision costs. Progressive was one of the first to raise rates aggressively in 2021 to offset the higher costs from the more frequent car crashes and higher repair costs post-Covid. By raising prices before its competitors did, Progressive lost customers and wasn’t able to grow as fast as it usually does. The rest of the industry has since caught up and increased rates. Progressive’s rates are now comparatively attractive once again, and that’s led to highly profitable growth. Through September 30, its premiums are up 20% over last year, which is great for a low-growth industry like auto insurance. Progressive added 1.5% to the fund this quarter.
After the Federal Reserve cut interest rates this quarter, investors became even more enthusiastic about the outlook for new home construction. Home builders NVR (NYSE:NVR) and Dream Finders (NYSE:DFH) added 1.5% and 1.2% to performance, respectively. Relatedly, our newish investment in building materials manufacturer Eagle Materials (NYSE:EXP) added 0.9%.
While Alphabet (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) continued to put up strong numbers, they didn’t quite meet investors’ high expectations last quarter. Both companies took 0.9% off the fund. No other investment had a negative impact on the fund.
Portfolio as of September 30, 2024
| Security | % of Net Assets |
| Alphabet, Inc. | 9.04% |
| The Progressive Corporation | 8.04% |
| NVR, Inc. | 6.42% |
| AutoZone, Inc. | 5.98% |
| American Express Co. | 5.94% |
| UnitedHealth Group Incorporated | 5.44% |
| The TJX Companies, Inc. | 5.24% |
| Microsoft Corporation | 5.23% |
| Ross Stores, Inc. | 4.96% |
| JPMorgan Chase & Co. | 4.80% |
| Bank of America Corp. | 4.74% |
| Visa, Inc. | 4.64% |
| S&P Global, Inc. | 4.56% |
| Mastercard, Inc. | 4.39% |
| Dream Finders Homes, Inc. | 4.28% |
| Eagle Materials, Inc. | 3.82% |
| Moody's Corporation | 3.74% |
| Union Pacific Corp. | 3.59% |
| Berkshire Hathaway, Inc. | 3.28% |
| Revvity, Inc. | 1.33% |
| Cash* | 0.54% |
*Cash represents cash equivalents less liabilities in excess of other assets.
The fund didn’t add or eliminate any investments this quarter.
Longtime readers know we invest on a company-specific basis. Longtime readers also know we are at least somewhat aware of overall market trends. As of the end of September, the forward price/earnings estimate for the S&P 500 was about 22 times. While less than the peak market multiple of late 2020, it has not escaped our notice this is still on the high side of its historical average. It would be hard to argue we are not in a frothy market.
Mathematically, a lot of the high multiple is driven by some of the larger tech companies that have driven many of the market’s returns the past four years. Just eight companies—Alphabet, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta (NASDAQ:META), Microsoft, Netflix (NASDAQ:NFLX), NVIDIA (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA)—represent an astonishing nearly 32% of the S&P 500 and trade for 29 times forward earnings. Without those companies, the S&P 500 multiple is a lot lower and closer to its historical average. Smaller companies outside the S&P 500—small-cap and mid-cap stocks—are trading around 16 times forward earnings, which is perfectly ordinary on a historical basis.
We try to not get caught up on predicting what sectors or market cap ranges might outperform; we simply look for good and great businesses that are trading for substantially less than what we think they’ll be worth in the future. Sometimes that means buying high-multiple technology stocks like Alphabet and Microsoft, two of the eight companies listed above that are driving the market’s high multiple. We are invested in them because we were struck by the incredible opportunity these firms have to compound earnings. Alphabet has run-rate earnings of roughly $8/share. Our cost basis in our shares is $36.54. We were not so skilled as to purchase the shares for 4.5 times earnings; we paid 22 times earnings, and the earnings almost quintupled during our ownership.
Our most recent addition, Eagle Materials, is in the more prosaic business of making cement and wallboard, and while it’s unlikely to match the earnings growth of Alphabet, it trades for a lower multiple. We’re optimistic on both stocks. We remain hopeful all our companies will continue to grow their earnings and cash flow over time, and our share prices will ultimately reflect this value creation.
As always, thank you for investing.
Stephen Dodson
Portfolio Manager
Raphael de Balmann
Portfolio Manager
Bretton Capital Management, LLC
