The story of Ensemble Capital begins in 1997 when Curt Brown founded Curt Brown & Company in San Francisco. Sean Stannard-Stockton became a shareholder in 2004 triggering a rename of the company to Ensemble Capital Management. Today, Stannard-Stockton is a president and chief investment officer. He and his team manage the Ensemble Capital portfolio valued at $1.21 billion.
Their portfolio is divided among 23 holdings. The top ten holdings take 68.6% of the entire portfolio, while the largest holding is Netflix. Other major holdings include Mastercard Class A and Booking. They recently exited from their Blackrock Inc (NYSE:BLK) and Costco (NASDAQ:COST) holdings.
In November 2022 Ensemble Capital became a B Corporation earning the highest standards regarding transparency and legal accountability in the industry. This certificate also guarantees high social and environmental standards in investing. They have a loyal group of investors showing an open relationship between the firm and their clients, and that is one of the reasons why we decided to put a focus on them and their work.
Key Holdings
- Netflix Inc (NASDAQ:NFLX) with 10% of the portfolio
Netflix has been among the companies that Ensemble Capital recognized a potential for long-term growth. For now, Netflix justified this belief and delivered solid returns. Since they started investing in Netflix they brought $55.9 million to play, and they got $121 million today. This trade brought them 116% gains so far. They own 195 thousand shares and during 2023 they slightly reduced this holding. The latest trade was in Q4 when they sold 3.6 thousand shares.
- Mastercard Inc Class A (NYSE:MA) with 8.06% of the portfolio
In 10 years while they were trading Mastercard stocks Ensemble Capital was very active. They sold on 21 and bought on 22 occasions. Today they have 204 thousand shares valued at $97.4 million, while their stake cost $51.6 million. This trade generated a gain of 89% so far. The two latest trades were during Q3 and Q4 2023 when they sold 56.2 thousand shares and immediately bought 5.2 thousand shares.
- Booking Holdings Inc (NASDAQ:BKNG) with 7.88% of the portfolio
Ensemble Capital owns 27.2 thousand shares valued at $95.3 million. Some of the recent trades included selling 761 shares at $3,027.00 and buying 1,630 shares at $2,641.00 and 446 shares at $3,118.00. Their total investment into this holding is $56.4 million netting the fund a gain of 69%.
- Home Depot Inc (NYSE:HD) with 7.77% of the portfolio
The fund owns 244 thousand shares at the moment while the entire holding is valued at $93.9 million. In Q4 2023 they bought 27.6 thousand shares at $309.69 coming right after a sell of 58.4 thousand shares at $321.60. Ensemble Capital invested $61.5 million in the Home Depot holding generating a gain of 53% in 5 years of trading.
- Alphabet Inc Class A (NASDAQ:GOOGL) with 7.39% of the portfolio
Alphabet is a classic long-term investment dating back to 2015. The waiting was worth it since the fund invested $36.8 million, while their holding is now valued at $89.4 million. This comes as a gain of 143% so far. In 2023 they trimmed this holding on three occasions selling almost 200 thousand shares at $115, $129, and $134 respectively.
- Broadridge Financial Solutions Inc (NYSE:BR) with 5.81% of the portfolio
BR is one of the holdings dating back to the foundations of the fund. Since 2013 Ensemble Capital invested $29.4 million in the fund while they now own 344 thousand stocks valued at $70.2 million. This proved to be a good long-term investment decision generating a gain of 139%. These days their price has peaked when we look at the last 4 years exceeding $204 per share.
- Chipotle Mexican Grill Inc (NYSE:CMG) with 5.8% of the portfolio
When the fund started trading Chipotle stocks in 2020 they were worth $790. With precisely timed trades, this holding generated a return of 101%. The fund invested in its stake $34.6 million, while its current 25.9 stocks are valued at $69.6 million. In 2023 they did more selling than buying, with offloading 14 thousand stocks on 3 occasions and buying 6 thousand in a one-time trade.
- ServiceNow Inc (NYSE:NOW) with 5.42% of the portfolio
ServiceNow is one of the holdings that are showing exceptionally good performance in 2023, and pushing even better in 2024. Ensemble Capital owns 84.7 thousand shares which they paid $44.3 million, while their value rose to $65.5 million. Just from the beginning of the year, their stock price skyrocketed from $675 to $775 announcing a good year for their shareholders. In three years of investing Ensemble Capital generated a 48% gain.
Take A Look At Ensemble Capital Presentation on First American Financial:
Sector Allocation
Like many other funds, Ensemble Capital has recognized the drive and innovation in the tech sector, and that is why the majority of its holdings are grouped in that industry. But, they also pay attention to products and services that customers have a stable need for, so they keep solid stakes in the Consumer Staples and Discretionary sectors. Their sector allocation at the moment looks like this:
- Technology with 45.2% of the portfolio valued at $547 million
- Consumer DIscretionary with 15.5% of the portfolio valued at $188 million
- Consumer Staples with 13.7% of the portfolio, are valued at $166 million
- Industrials with 11.4% of the portfolio valued at $138 million
- Healthcare with 8.3% of the portfolio valued at $101 million
- Finance with 3.8% of the portfolio valued at $46.1 million.
Overview of Ensemble Capital Management
The story of Ensemble Capital started before the inception of the company. Curtis Brown has managed Curtis Brown Management since 1996. In 2004 Sean Stannard-Stockton became a major shareholder and at that time the company got the new name – Ensemble Capital.
In 2015 Sean Stannard-Stockton became the President and CIO, while Matt Pearson became COO and CCO. In 2017 Curtis Brown retired while his vision of serving clients with maximum transparency has remained a cornerstone of Ensemble Capital’s philosophy.
Ensemble Capital Management Investment Strategy and Philosophy
Ensemble Capital works as a long-term investment firm. They analyze companies and check for possible positive and negative developments at a time frame of 3 to 5 years, or longer if needed.
This also reflects the investor’s average holding time which is between 30 and 60 months. When we look at an average of 11 months of holding period in most funds, this shows trust in the management and their investment strategy.
The long-term performance of the stock is often heavily influenced by short-term volatility. That is why the company offers clients that prefer short or medium-term returns, bonds, and cash equivalents to their portfolios.
Ensemble Capital avoids over-diversification and constantly keeps its portfolio between 15 and 30 holdings. This number of holdings leaves enough space and time to focus on each security and get the best from it.
Their service model is designed to be as simple as possible. Less experienced investors are often caught in a web of terminology that they do not understand. In Ensemble Capital managers pay much of their attention to communication to their clients, allowing them to understand how they are investing, and what outcome they can expect.
The firm regularly sends reports, and clients have access to online conferences where they can get a grasp of things. Managers also work as educators, which results in clients having enormous trust in their work.
Ensemble Capital Management Portfolio Construction and Management
Risk Management
Like most value investing companies Ensemble Capital is basing its risk management strategy on understanding the companies they invest in. They combine that knowledge with buying below the intrinsic value providing a hedge against potential downturn or volatility of the market.
Combining the understanding of the business, daily operation procedures, and competitive landscape allows them to better understand the risks that come with owning a specific business. That is why they fortify their positions by choosing companies with strong, wide, and sustainable economic moats that can provide a boost against market turnings and competition.
Investment Selection Criteria
When choosing companies to invest in, Ensemble Capital aims to get the best of the established and emerging companies. Crucial elements of the company analysis include identifying economic moats, finding management teams that can lead the company in the right direction, and how predictable is their development in the future.
Managers from Ensemble Capital start by checking if the company has a sustainable and wide economic moat. In today’s volatile times, a good moat protects from sudden market downturns. It also provides an edge over the competition.
As a part of the moat also comes the quality of the product or service, and the unique elements that come with it. This includes the market share of the product and relevance in the competitive landscape.
A second pillar of their analysis is checking the management team. A good management team should be focused on maximizing economic value creation. Also, managers must be constantly putting the interests of the shareholders on top. To analyze how the company is performing the team is analyzing economic indicators including filings and transcripts, and news about the company.
As a part of the investment strategy, company executives often visit the company they intend to invest in. They are conducting extensive talks with the top management and their short and long-term plans. There they also go through the crucial data that can show the potential of the company in the long term.
Ensemble Capital Management Portfolio Performance Analysis
Historical Performance Evaluation
Since its inception, the fund annually generated 9.23% returns, when compared to the S&P 500 and its 9.21% return. In the last four quarters, performance was at 16.77%. The biggest underperformers in 2023 were Masimo Corp (NASDAQ:MASI) with -46.72% and IIllumina Inc with -26.78%. On the other hand Booking with 14.21%, Google (NASDAQ: GOOG) with 9.32%, and Broadridge Financial Solutions Inc with 8.56% returns were the best performers.
Notable Failure
- First Republic Bank (OTCMKTS:FRCB). Although they managed to exit this holding before the major downturn in Q1 2023 they still cannot brag about this trade. They sold the majority of their stocks at $102 while they have been buying them at a range between $105 and $210.
- Peloton Interactive Inc (NASDAQ:PTON). It took only two quarters to unfold this terrible trade. Ensemble Capital bought 300 shares at $61, and an additional 41 thousand at $28.67. In the next quarter, the price plummeted to below $20. They sold the entire stake at $16, while the stock price continued to fall to the current $4.5.
- Illumina Inc (NASDAQ:ILMN). Ensemble Capital put a lot of faith into this company and started pulling up their stocks between Q4 2020 and Q1 2022. They bought 250 thousand stocks for prices between $327 and $472. In late 2023 the price fell to $118 and now is valued at $140.
Notable Success
- Apple Inc (NASDAQ:AAPL). They started trading Apple shares in 2013 and bought the majority of the stake for $16 and $21. Later on, they exited from this holding whilst selling most of the remaining shares at prices between $33 and $52. Some of the remaining stocks went up for as high as $128.
- TransDigm Group Inc (NYSE:TDG). This win was played for a long time between 2013 and 2020. They have been piling stocks between 2013 and 2016 for prices ranging between $142 and $244. Later they were selling them at prices in the range of $270 and $360. Again they invested in the holding buying at $350 and $400 and later selling at $470 and $545.
Future Outlook
Companies focus based on their latest investor letter on Analog Devices Inc (NASDAQ:ADI) and Mastercard.
Analog Devices is a new holding dating to Q2 2023 and the firm has been stacking up its stocks. They are the manufacturer of semiconductors and analog chips. This sector is based on a couple of big players, while ADI has good competitive advantages and a high level of cash flow.
On the other hand, Mastercard is a giant in the payment-technology sector. Its well-earned reputation as an innovator and global leader secures them a major part of the market share. It created a competitive moat so wide that it is very difficult for any company besides Visa and Mastercard to get into this market race.
Their strategy is showing good results, and from the executives, we can hear that they are going to continue at the same pace. Their focus on quality and undervalued companies with strong long-term chances are still their priority. They are monitoring the developments in different sectors, specifically in the tech industry, and making their moves accordingly.
Final Thoughts
Ensemble Capital is one of those companies that offer a bit different approach to clients and services. Investing in Ensemble Capital allows a certain degree of customization of the portfolio, with the added value of a highly transparent approach of portfolio managers.
Besides working as a classic hedge fund Ensemble Capital is also turned to individuals looking to organize philanthropic solutions. Those include creating donor-advised funds and recommending charities.
Recently most of their big players like Mastercard, Booking, Broadridge Financial, Chipotle, ServiceNow, Ferrari NV (NYSE:RACE), and NVR Inc. (NYSE:NVR) have performed exceptionally. There are a couple of underperformers like Masimo Corp, First American Financial Corp (NYSE:FAF), Illumina Inc, and Nike Inc (NYSE:NKE), but their portfolio is overall in good shape.
They haven’t invested in new positions recently, and they prefer fortifying their current positions. Ensemble Capital also has a good track record, and they finished 2023 with 16.77% returns. Their AUM is also on the rise, which shows their good reputation and the trust of their clients.
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