SBAC - Akre Focus Fund Q1 2024 Commentary
2024-04-12 08:40:00 ET
Summary
- The Akre Focus Fund invests in a small number of what we believe to be extraordinary businesses that are run by talented and honest managers who wisely reinvest free cash flow.
- The Akre Focus Fund’s first quarter 2024 performance for the Institutional share class was 8.15% compared with S&P 500 Total Return at 10.56%.
- The top positive contributors to performance during the quarter were KKR, Mastercard, Constellation Software, O’Reilly Automotive, and Topicus.
- The largest detractors from performance this quarter were American Tower, SBA Communications, and Brookfield Asset Management.
We have recently read some interesting research on the record concentration in the "Magnificent 7" stocks of the S&P 500 index ( SP500 , SPX ) and the implications for the stock market and active management. We offer special thanks to GMO's Ben Inker and John Pease for their recent piece on this subject. Our synthesized view consists of three key observations:
- The performance of the S&P 500 has been increasingly distorted over the past decade due to the record concentration in the Magnificent 7 stocks that have materially outperformed the other 493 stocks in the index in nine of the past ten calendar years.
- This unprecedented level of concentration has made it especially difficult for active managers to keep up with the S&P 500 over the past decade due to their natural bias to underweight the largest stocks in the index. Indeed, according to Morningstar, only 9.8% of US Large Cap managers beat the index over this period. Happily, the Akre Focus Fund is among this minority.
- Because of the extraordinary level of concentration, a better gauge of active manager performance may be the equal-weighted S&P 500 index. Before protesting that this argument amounts to "moving the goal post," note that the equal-weighted S&P 500 has performed better than the standard market-cap weighted index since 1990.