April 26, 2016

Dear Fellow Shareholders:

The Bretton Fund’s net asset value per share (NAV) as of March 31, 2016, was $23.97. The fund’s total return for the quarter was -0.08%, while the S&P 500 Index returned 1.35%.

Total Returns as of March 31, 2016

1st Quarter1 YearAnnualized
3 Years
5 Years
Annualized Since
9/30/10 Inception
Bretton Fund-0.08%-5.75%6.14%9.38%10.33%
S&P 500 Index1.35%1.78%11.82%11.58%13.73%

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 here or by calling 800.231.2901.

All returns include change in share prices, reinvestment of any dividends, and capital gains distributions. Indices shown are broad-based, unmanaged indices commonly used to measure performance of US stocks. These indices do not incur expenses and are not available for investment. The fund’s expense ratio is 1.50%.

Contributors to Performance

The largest impact on performance during the quarter was our bank investments (Wells Fargo, Bank of America, and JPMorgan), which took 2.0% away from performance. Investors became less optimistic about the level of interest-rate increases the Federal Reserve will implement in 2016 given economic weakness and ultra-low rates outside the US. We think rates will rise eventually, and the values the banks present are highly compelling even with a slow rise in interest rates.

The largest positive contributor was paint manufacturer Valspar, which announced it was being acquired by its larger competitor Sherwin-Williams for between $105–$113 per share, compared to our average cost of $81.53. The performance impact to the fund was 1.5%. Carter’s stock price jumped in the quarter as it announced strong results, adding 0.9% to the fund.


Security% of Net Assets
Wells Fargo & Company6.4%
Alphabet, Inc.6.3%
Valspar Corp.6.1%
MEDNAX, Inc.5.8%
Union Pacific Corp.5.6%
HD Supply Holdings, Inc.5.5%
Carteru2019s, Inc.5.3%
Ross Stores, Inc.5.1%
MasterCard, Inc.4.7%
AutoZone, Inc.4.7%
American Express Co.4.7%
Bank of America Corp.4.0%
Discovery Communications, Inc.3.9%
Flowserve Corp.3.8%
Centene Corporation2.6%
Nordson Corp.2.5%
Armanino Foods of Distinction, Inc.2.3%
PGT, Inc.2.2%
JPMorgan Chase & Co.2.0%
Realogy Holdings Corp.1.7%
Verisk Analytics, Inc.1.5%
Whole Foods Market, Inc.1.4%
Community Health Systems, Inc.1.1%
T-Mobile US, Inc.0.8%

*Cash represents cash equivalents less liabilities in excess of other assets.

The fund did not sell any securities in the quarter and made one new investment: Realogy Holdings.


Realogy has four housing-related businesses: a real estate agent franchising company, a network of its own real estate brokerages, a relocation service provider, and a title insurance company.

The largest and most important of these businesses is the Realogy Franchise Group (RFG), which licenses the use of many familiar agency names: Coldwell Banker, Better Homes and Gardens, Century 21, Sotheby’s International Realty, Corcoran, ERA, and ZipRealty. In exchange for the infrastructure and credibility of a recognized brand name, independent real estate agencies pay RFG a commission—roughly 4.5%—on each transaction. Since the buyer’s broker and the seller’s broker typically each receive 2.5% of the purchase price of a house, RFG receives as revenue 0.1125% (4.5% of 2.5%) of the purchase price of each house its franchised agents sell. It is a tiny fraction—but a tiny fraction of a very large number, for independent RFG agents were involved in $290 billion of transactions in 2015. Realogy also directly runs its own agencies, typically in coastal locations with more expensive real estate, and these brokers paid RFG a 6% royalty on their 2.5% commissions of the $165 billion of real estate they sold.

RFG commits to spending 12% of revenue on advertising, but apart from this, the costs of running the platform are essentially fixed. For each additional dollar of revenue, more than 80¢ falls to operating income. This makes the company especially sensitive to the pace and value of house sales. The US currently has about 124 million households, and 4.2% of these homes changed hands during 2015. We expect this ratio to creep up closer to 4.5% in the coming years, back to historical levels. The household formation rate, which had languished in the 0.6% range since the financial crisis, is finally rebounding toward the 1.0–1.5% rate that demographics would imply. And low interest rates and coastal zoning regulations continue to push house prices.

Realogy generated $2.98 of free cash flow per share in 2015. We think it has the potential to increase to $5 over the course of our investment horizon, and believe the opportunity is attractively priced at the current $36.

As always, thank you for investing.

Stephen Dodson ?         ? Raphael de Balmann
Portfolio Manager         Portfolio Manager