Broad Run Investment Management from Virginia was founded in 2012 by Brian Macauley, David Rainey, and Ira Rothberg. The fund’s investment approach is based on a concentrated portfolio consisting of 20 to 30 holdings. The firm is on the lookout for high-quality, and growth-oriented businesses offered at discount prices. The current Broad Run portfolio is valued at $750 million.
Key Takeaways
- Broad Run Investment Management is a firm founded in 2012
- They focus on high-quality companies that can generate compounded returns
- The companies should have the quality to deliver 15% annual returns over the course of a decade
- The firm tries to look at the long term which can be seen from their portfolio
- Most of the biggest holdings are dated back to the inception of the fund
- The fund generated a 132% gain in the last decade
- Their current AUM is $750 million which is a reduction from $900 million at the beginning of 2023
It consists of 25 holdings of which the first five take almost 40% of the portfolio. The largest holding is Brookfield Corporation Class A stock, followed by Markel Group Inc., and O`Reilly Automotive Inc. Other top holdings are divided between Aon Plc Class A, Carmax Inc., and American Tower Corporation.
Recent important changes in the portfolio are trimmings of the American Woodmark Corp. (NASDAQ:AMWD) and SS&C Technologies. Significant increases include Danaher Corp (NYSE:DHR) and AST Space Mobile Class A stock (NASDAQ:ASTS). Stay with us while we do an in-depth analysis of the funds that generated 132% returns in the last decade.
Key Holdings
Brookfield Corporation is a newer part of Broad Run Investment portfolio dating back to Q4 2022. Then they bought a solid 2.1 million share stake at $40. Since then they have been trimming this portfolio to a current 1.61 million shares size. The original investment cost $64.2 million, while its current value is $64.8 million, generating a gain of 1%.
Markel Group Inc. (NYSE:MKL) with 8.61% of the portfolio
Markel Group’s holding goes back to the inception of the fund in 2012. Between 2012 and 2017 they constantly increased their position, and since then they have been slowly reducing it. Presently they own 42.8 thousand shares valued at $64.6 million. The firm invested a total of $24.7 million resulting in a gain of 161%.
O`Reilly Automotive Inc. (NASDAQ:ORLY) with 8.37% of the portfolio
O`Reilly Automotive is another company in which Broad Run has placed its belief since its foundation. This belief proved to be founded on solid ground that generated an 853% gain since then. The company now owns 56.7 thousand shares valued at $62.8 million, while the total investment is at a reported $6.58 million. They have been slowly selling their shares since 2017, and in the last 6 years, the stock price rose from $270 to $1,100. This is a great example of the company’s strategy of finding investments that can generate compounded returns.
Aon Plc Class A (NYSE:AON) with 8.04% of the portfolio
Aon holding goes back to 2020 when partners from Broad Run bought 658 thousand shares at $186. The price of stock slowly grew, and at the same time, they slowly reduced their stake. They are now at 189 owned shares that are valued at $60.3 million, while their initial investment was $35.3 million. Aon’s position generated a return of 71% so far.
Carmax Inc. (NYSE:KMX) with 7.80% of the portfolio
Like several other major holdings, the Carmax holding was one of the first picks that are still a solid part of the company’s portfolio. In 2012 they bought 1.84 million shares at $34, while the current value of the stock is $81. Carmax went through a bad patch in 2022 and 2023 when they dropped from $153 to $56. In 2024 they are showing signs of better times. Broad Run now owns 718 thousand shares valued at $58.5 million, and the holding generated a 76% gain.
American Tower Corporation (NYSE:AMT) with 7.15% of the portfolio
Between 2012 and 2016 Broad Run acquired a massive stake in the company at prices between $74 and $110. Since then they trimmed the holding to the current 282 thousand shares valued at $53.7 million. AMT went through a bad spell in 2023 dropping from $280 to $155, but in 2024 the stock rose to $200. The company invested in this holding $23.9 million generating a gain of 125%.
Applied Materials Inc. (NASDAQ:AMAT) with 7.03% of the portfolio
Applied Materials is a recent addition, being a part of Broad Run’s portfolio since Q3 2021. In the first year, they bought about 300 thousand shares, but now they own 252 thousand. In 2024 the company saw a steep rise in valuation jumping from $150 to $210. Their initial investment was $32.8 million, while the present value of the holding is $52.7 million. In three years it generated a return of 61%.
Encore Capital Group (NASDAQ:ECPG) with 6.68% of the portfolio
Broad Run used the same strategy with Encore, like with American Tower, and several other holdings. They picked the investment in the beginning, increased their stake, and now are slowly downsizing the position. Now they own 1.13 million shares with a value of $50.1 million. The stock price fluctuated over the years moving between the lowest $16 to the highest $72. In the last year and a half, it has been between $30 and $50. This investment wasn’t lucrative like most of their original investment, generating only a 23% gain so far.
CDW Group (NASDAQ:CDW) with 5.95% of the portfolio
In three and a half years of trading CDW Group stocks, the company got a gain of 66%. They invested $26.8 million in the holding, while its value grew to $44.6 million. The company holds 175 thousand shares after selling 65 thousand in 2023. The stock price is on the rise, and since mid-2023 it moved from $175 to $255.
Cogent Communication Holdings Inc. (NASDAQ:CCOI) with 5.39% of the portfolio
In Q4 2022 Broad Run bought 152 thousand shares at $55. A month later they increased the stake for another 282 thousand shares at $64. The stock price had major ups and downs during 2023, with a recent downturn trend. Recently the stock value dropped from $77 to $63. The total investment into this holding is $40 million, while they gained a mere 1.1% gain in the one-and-a-half-year period.
Sector Allocation
Broad Run always preferred a concentrated portfolio consisting of 20 to 30 stocks with the top 10 stocks taking up between 60% and 80% of the portfolio. However, they are very keen on diversification of the portfolio among different sectors. Their key investment sector is Finance, but they have solid stakes in other crucial industries. Their present sector allocation is:
- Finance with 41.7% of the portfolio valued at $313 million
- Consumer Discretionary with 19.8% of the portfolio valued at $149 million
- Technology with 17.6% of the portfolio valued at $132 million
- Industrials with 7.4% of the portfolio valued at $55.3 million
- Healthcare with 3.2% of the portfolio valued at $23.8 million
- Telecommunication with 2.1% of the portfolio valued at $15.6 million
- Consumer Staples with 1.1% of the portfolio valued at $8.37 million
- Other with 7.2% of the portfolio valued at $53.7 million
Broad Run Portfolio Investment Approach & Strategies
Three partners In Broad Run, Macauley, Rainey, and Rothberg worked in 2004 in the same company before they decided in 2012 to found this fund. The cornerstone of their investment approach is buying stakes in high-quality and long-term growth prospects, at discount prices.
They have their unique five criteria approach for choosing the companies to invest in:
- It must be a high-quality business
- Large growth potential
- Excellent management
- Low tail risk
- Discount valuation
Partners are constantly analyzing the market for high-quality businesses called compounders. Those have a strong competitive position that is hard to replicate, a potential for growth, and management with an understanding of how to double down on those benefits.
The management must be capable both in operations and capital allocation and have a long-term mindset. The management must be aware of the low tail risk that can refer to high financial leverage, excessive valuation, or unsustainable levels of demand.
The target security must have a potential of as much as 15% at an annual rate for the next decade. According to research, there are only 8% of public companies in the United States with that kind of potential.
They are avoiding trending stocks, and are often opting for companies that are usually under the radar. The other reason why they do not regularly invest in popular stocks is that they are almost always too expensive to begin with.
Broad Run is focused on United States-based companies because they best understand the legal, regulatory, and business environment. Their search process doesn’t rely on any formula or a program. They systematically go through industries looking for attractive businesses that fulfill the criteria.
Regarding industry sectors, they have the most experience in financial, consumer, and business services. They avoid investing in oil, gas, commodities, electronic hardware, or traditional banks.
Broad Run Portfolio Performance Analysis
Historical Performance
Sources about the historical performance of Broad Run Investment are limited, and from what we could get they managed to generate 132% returns in the past decade. In the past 5 years, they have been underperforming delivering 39% returns. In the last year, it is reported that they generated a gain of 15.89%.
Notable Success
- O`Reilly Automotive Inc. holding. A great early finding that generated over 800% gains over the past decade
- Penn Entertainment holding. In 2012 they bought 1.4 million shares at $4. In 2018 they sold the entire stake at $31 resulting in almost 8 times higher selling price
- Alphabet Inc. Class A holding. The firm bought 1.41 million shares in 2015 at $37. They sold the majority of the stake at prices between $58 and $60. They still own 10 thousand shares whose value is now $154
Notable Failure
- Drive Shack Inc. holding. Broad Run bought in 2017 over 2 million shares at $4. They bought an additional 850 thousand shares at $3.6. Later they exited from the holding by selling at below a dollar per share
- AST Mobile Space Inc Class A shares. This is still an active holding with 3.96 million shares taking 1.20% of the portfolio. The fund invested 2021 $26.4 million, while the current value of the holding is $9 million resulting in a 66% loss
Final Thoughts
Finding companies that are capable of generating 15% annual returns over a decade is not an easy task. But, when we look at the Broad Run Investment Management portfolio we can see that it is possible.
The majority of their assets are bought early on and represent undervalued companies that have a strong competitive position and a chance to last long. They are often relatively unknown companies that are not advertised as a great investment opportunity. That is why Broad Run’s success comes with a high dose of respect. They had a tough 2022, but are already showing great success potential in the near future.
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