Chuck Akre is the founder of Akre Capital Management which incorporates value investing principles. Chuck Akre has taken a lot from Warren Buffett’s letters to his shareholders and Tomas Phelps’s book “100 to 1 in Stock Market”.
He developed a unique investment approach, resulting in Akre Capital almost constantly outperforming the S&P 500 index. We will perform Chuck Akre’s Portfolio Analysis and sector allocation to better understand his investment concept.
His current portfolio is concentrated in 18 holdings valued at $13.3 billion. The largest holding is Mastercard, followed by Moody’s Corp and KKR & Co. The majority of Akre holdings are in the finance sector, followed by tech companies. In 2023 Akre Capital underperformed, generating a return of 14.77% when compared to 24% returns of the S&P 500. On the other hand, his flagship fund Akre Focus Group generated 28.39% returns.
Chuck Akre Portfolio Analysis
Portfolio Holdings
- Mastercard Inc. Class A (NYSE:MA) with 18.8% of the portfolio
Akre has been trading Mastercard stocks for 15 years with great success. He currently owns 5.06 million stocks valued at $2.32 billion. When we look at the figure of $890 million which he invested in Mastercard, we get a gain of 160% from this holding. During 2023 he sold about 800 thousand stocks for $401 and the price continued to rise. Now, MA stocks are at $457.
- Moody’s Corp (NYSE:MCO) with 15.67% of the portfolio
Another long-term Akre’s investment dates back to 2012. The value of his stake in the company is $1.94 billion for 4.78 million shares. His investment was a mere $395 million, making this a very lucrative deal for Akre and his partners. This holding produced a gain of 390% so far. Akre used 2023 to trim this holding, selling a total of 900 thousand shares for an average of $334. The value of stocks is on the rise, with the current price being at $405.
- KKR & Co Inc. (NASDAQ:KKR) with 13.08% of the portfolio
Akre started trading with KKR & Co stocks in 2018 and he invested $612 million since then. He now owns 16.6 million shares valued at $1.62 billion. This holding has brought a return of 162% in just 5 years making it a great pick. During 2023 he bought their stocks on three occasions – he bought 57 thousand shares for $52, 73 thousand shares for $53, and 1.68 million shares for $60. He conducted one sale of 262 thousand shares in late 2023 for $67.71.
- American Tower Corporation (NYSE:AMT) with 10.71% of the portfolio
Another long-standing holding that brought solid returns to Akre Capital Management. They invested $65 million in this holding so far, while their current 6.8 million shares stake is valued at $1.32 billion. This is equal to 96% in gains. In late 2022 the stock price plummeted from $265 to $185. Akre in 2023 conducted four buys of 84 thousand shares, whilst selling 254 thousand shares.
- O’Reilly Automotive Inc. (NASDAQ:ORLY) with 8.47% of the portfolio
O’Reilly Automotive is one of the best company picks that Akre made in the last two decades. His initial investments in 2011 were paid $56 and $59, while its value continued to rise. Now their stocks are valued at $1,025.82 and Akre turned his $172 million investment into $1.05 billion. Akre now owns 1.02 million shares and he is the biggest stake owner.
- Visa Inc Class A (NYSE:V) with 7.85% of the portfolio
Another Arke’s trademark holding. With investing in Visa he opted for a well-renowned company with the potential to rise. Since his first buy in 2010, the stock price skyrocketed, earning its stable place in Akre’s portfolio. He owns 3.51 million Class A stocks valued at $970 million, whilst his total investment in the holding is $276 million. This resulted in a gain of 251% in 14 years. He has been trimming the holdings in the last year, selling 1.4 million stocks.
- Roper Technologies (NASDAQ:ROP) with 7% of the portfolio
Akre currently owns 1.57 million Roper Tech shares valued at $865 million. He invested $294 million, netting a gain of 19% so far. The last major trade happened in 2021, and since then Akre kept almost completely silent about this holding, conducting only smaller trades. The stock price is on a steady rise and just during 2023 it jumped from $434 to the current $550.
- Brookfield Corporation Class A (NYSE:BN) with 6% of the portfolio
Akre’s new portfolio dates back to Q4 2022. He started with a major buy, acquiring 17.4 million shares, and during 2022 and 2023 he bought an additional million shares. The price didn’t move much, and the difference between the investment and current value is minimal. His investment of $715 is now valued at $737 with a gain of 3.2% so far.
Sector Allocation
Chuck Akre has a portfolio heavily concentrated in the finance and technology sectors. Besides those, there are smaller stakes in the Industrials and Consumer Discretionary sectors. The current sector allocation breakdown is:
- Finance with 47.5% of the portfolio valued at $5.87 billion
- Technology with 31.9% of the portfolio valued at $3.93 billion
- Industrials with 10.5% of the portfolio valued at $1.3 billion
- Consumer Discretionary with 10.1% of the portfolio valued at $1.25 billion.
Performance Analysis
Akre Capital Management’s flagship fund – Akre Focus Fund is constantly outperforming the S&P 500. Since its inception in 2009, it generated 14.88% returns when compared to the S&P 500 13.55% in the same time frame.
In the last 10 years, the fund generated 12.91% compared to 12.03% of the S&P 500.
When looking at the last 5 years Akre outperformed the S&P 500 in three years. In the last year, the Akre Focus Fund generated 28.39% returns, higher than the company overall, outperforming the S&P 500 with 24% returns.
Chuck Akre’s Investment Strategy
Chuck Akre uses value investing as his fundamental investment strategy. Unlike many famous investors and gurus, he didn’t major in economics or finance, but in English. He began his investing career in 1968 without any theoretical or practical knowledge. Akre’s first major influence was Warren Buffett, a value investing guru.
Since Akre didn’t have anything to begin with, he pondered about what a good investor would act and learn about. He was a blank canvas, and the Buffett influence was the first major investment breakthrough that Akre had in his career.
He gulped all the insights and thoughts Warren Buffett and Thomas Phelps put in writing. He found Buffett’s value in investing in something that could align with his inner feelings. He directly adopted some of Buffet’s approaches, specifically hanging on to his understanding of how to create a new shareholder value.
Like many other value investors, Akre opted for the contrarian approach. He looked at other famous investors and their attempts to predict market trends, and found it pointless and out of his reach. He opted for researching and impacting something much closer to his reach – the businesses he invested in.
Before he decides to buy a company he is willing to go the extra mile in detecting all the ins and outs, and how the company can fare in the long term. But, he is not one of those investors that buy and hold. His approach is to buy exceptional businesses and hold them until they are not exceptional.
But, he is not a buyer in the short term either. When he buys he buys to hold the share for a long term. Even if the company goes through a short rough patch, he doesn’t always see it as a signal to sell. If the company is fundamentally good, he uses that period to buy additional stocks at low prices.
Akre’s well-known metaphor of “compounding machines” comes regarding these successful and exceptional companies. These companies show a possibility to create major growth rates for a long period, resulting in compounding the capital for their shareowners at much higher rates.
Investment Approach
Chuck Akre has become famous for his “Three-Legged Stool” investment philosophy that revolves around evaluating investment opportunities. Akre has been using this strategy for a long period, almost from the beginning of his career, and it has shown exceptional results. It had a major impact on Chuck Akre’s portfolio selection, and it proved its worth.
The Three-Legged Stool works as a metaphor showing three crucial investment pillars. Those pillars are great businesses, talented management, and high reinvestment rates.
Take A Look At Chuck Akre: How To Find Compounding Machines ( Akre Capital Three-Legged Stool Investment Approach ):
Great Businesses
The first step in a successful long-term investment is identifying great business. By checking their fundamentals they must have a predictable and high return on equity (ROE) and free cash flow (FCF) generation.
He came out with this idea after his first investments in Berkshire Hathaway in 1977. He observed the book value per share growth and noticed that it was the drive of high shareholder returns.
He was sure that for a prolonged time, these high company returns were closely connected to constant return on capital. He emphasized the compounding and rate of return because he was confident that the compounding rate of returns is crucial for overall returns over the long investment horizon.
Akre from his experience and calculations decided to focus on businesses that can endure and produce high returns on capital. Also, he aimed to identify the qualitative factors that impact their resilience and quality.
Specific company characteristics like intellectual property, regulatory advantages, network effects, scale economies, and high customer switching costs are the ones that Akre is looking for. These characteristics are crucial in creating above-average returns on capital.
The final piece for finding exceptional businesses according to Akre is that they have real pricing power and low capital requirements. These factors can contribute to their resilience when going through different market cycles.
Talented Management
Having management that can capably run a business is a crucial factor when choosing an investment target. Akre prefers managers who are capable leaders and who have a positive track record regarding implementing successful business strategies.
When conducting company evaluations Akre and his team often visit the corporate headquarters, manufacturing facilities, and other locations which can give them detailed insight into how the company operates.
Akre dislikes managers who are primarily focused on share price, disregarding other key goals of their work. Also, he avoids dealing with leaders who show personal greed and prefers those who are focused on the good of shareholders.
High Reinvestment Rates
Akre’s final strategy pillar is the search for companies with high reinvestment rates. Companies that have the potential to become reinvestment machines can in the long term result in higher wealth creation.
These companies must consistently generate high returns on the capital and reinvest it at those elevated rates. But, Akre knows that those companies cannot come at low prices. So, he chooses companies that have fundamentals that can result in high reinvestment rates and buys them at modest prices.
After he finds them and buys them he is prepared to hold them for at least 5 to 10 years. He is willing to give them time to produce results.
Growth vs. Value Investing
Akre is combining the principles of growth and value investing. From value investing, he takes the search for the intrinsic value. He also takes high returns on equity and the potential for reinvestment from value investing.
He doesn’t take as much from growth investing, since he is not solely focused on buying distressed companies. However, he highly values companies with long-term growth potential with durable competitive advantages. Another take that he adopts from growth investing is his aim for companies described as compounders. These can reinvest their earnings at high rates of return.
Long-Term Outlook
Predicting a long-term outlook is an ungrateful task due to many factors that are difficult to assume. But, when looking at Akre Capital Management’s long-term historical performance and current market conditions, we can make some guesses and predictions.
Akre Capital Management with the use of Akre’s Three Legged Stool approach consistently delivered exceptional returns. Their flagship fund is always beating the S&P 500 index.
From the track record, we can see that Akre is very disciplined in his investment approach. He is always going through all the crucial steps when choosing an investment. That is a good sign and shows that the companies he chooses have a good chance of sustainability and growth in different market conditions.
Akre is never disregarding investigating a company’s fundamentals and finding adequate competitive advantages. He avoids investing in companies in deep debt which offers additional stability over the long term.
Although he is very disciplined in his approach Akre is also ready to adapt to different market cycles and trends which can be seen through his adaption of growth investing principles.
There are several issues that Akre’s strategy is susceptible to. Although he is usually buying good companies, they can all undergo bad spells on the market, resulting in lower returns. Akre often disregards this since he is focused on long-term returns.
His strategy proved to be resilient to changes but the influx of new technologies and strategies with it can prove to be a serious task. Adapting to them is crucial in the coming years.
When speaking of the future, Akre’s retirement is growing near, which points to an issue of a successor. Although he plays a big role in the fund’s operations, he stepped down from the position of portfolio manager in December 2021.
The current leading portfolio manager is John Neff who has been in this position since 2014. Neff played a big role in selecting stocks in the last decade, and he had a solid take on shaping the strategy and portfolio of the fund.
FAQs
What Is the Minimum Investment in The Akre Focus Fund?
The minimum investment in the Akre Focus Fund depends on the share class you are aiming to invest in. There are three share classes affordable to different types of investors:
- Akre Focus Fund Retail Class (MUTF:AKREX). The minimum initial and subsequent investments are at $2,000.
- Akre Focus Fund Institutional Class (MUTF:AKRIX). The minimum initial investment for this fund is $250,000. Every subsequent investment must be at least $25,000.
- Akre Focus Fund Supra Institutional Class (MUTF:AKRSX). This high-end investment requires $300 million as an initial and every other subsequent investment.
What Is Chuck Akre Buying?
Recent Chuck Akre buys are:
- SBA Communication Corp Class A (NASDAQ:SBAC). Akre exited from this holding in Q1 2022, but he started trading it again in Q$ 2023. He bought 181 thousand shares at $224.52.
- American Tower Corp. This is an enduring holding in which Akre increased positions in Q4 2023. He bought an additional 36 thousand shares at $188.99.
- Costar Group (NASDAQ:CSGP). In Q3 and Q4 Akre conducted additional buys and increased this holding. He bought 144 thousand shares at $82.
Conclusion
Chuck Akre is a giant and a veteran of value and growth investing. He implemented his unique approach to finding good businesses that can generate high returns and reinvest the capital. This resulted in a high-wealth generation, and it proved its resilience. Although Akre does not have a formal economic or business education, he is focused on learning, which can be seen from his investment approach.
His recent performances were mixed. While his prime fund outperformed the S&P 500, others reported lower returns. But, when you decide to invest in Akre funds you are not looking at short-term gains, but you have the patience to wait out the good in your investments.
Due to his age, his current role in the fund is not as pivotal as before, and the majority of decision-making is left to John Neff, the portfolio manager. Neff proved his mettle in the last decade and his stock picks showed that Akre Capital Management has a good future.
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