This shareholder letter is part of the Bretton Fund 2016 Semiannual Report (pdf).

August 8, 2016

Dear Fellow Shareholders:

The Bretton Fund’s net asset value per share (NAV) as of June 30, 2016, was $24.10. The fund’s total return for the second quarter was 0.58%, while the S&P 500 Index returned 2.46%.

Total Returns as of June 30, 2016

2nd QuarterFirst Half 20161 Year (A)Annualized 3 Years (A)Annualized 5 Years (A)Annualized Since Inception (A)
Bretton Fund0.58%0.50%-6.52%3.84%9.38%9.97%
S&P 500 Index (B)2.46%3.84%3.99%11.66%12.10%13.57%

(A) 1 Year, 3 Years, 5 Years and Since Inception returns include change in share prices and, in each case, include reinvestment of any dividends and capital gain distributions. The inception date of the Bretton Fund was September 30, 2010.

(B) The S&P 500® Index is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the US stock market, as determined by Standard & Poor’s, and captures approximately 80% coverage of available market capitalization.

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%.The fund’s principal underwriter is Rafferty Capital Markets, LLC.

Contributors to Performance

MEDNAX was the largest contributor to the fund, adding 0.7%. As often is the case, nothing material occurred with the company that caused the lift in the stock price; Mr. Market just decided he liked MEDNAX 12% more than he did at the beginning of the quarter. Union Pacific’s stock price rebounded from its multi-year lows when it reported better cost controls and pricing than investors were expecting, adding 0.6% to the fund. Centene’s stock jumped 16% in the quarter, adding 0.4%.

The largest detractor to the fund was Alphabet, Inc. (aka Google) which pulled down performance by 0.5%. Antitrust and tax investigations by European authorities weighed on the stock price; meanwhile, its earnings continued to grow rapidly. Despite potential fines and settlement with regulators, we believe the world will increasingly rely on Google to parse the vast quantity of information on the Internet. Most importantly, we think the stock is a value compared to how fast its cash flows are growing. Discovery Communications continues to grow its earnings, but investors continue to be concerned about the future of the pay TV ecosystem. As we’ve discussed, we are a bit wary of the future economics of traditional pay TV, but given Discovery’s content’s strong appeal to a growing international audience, we are optimistic about its ability to grow its overall viewership. Also, the drop in the British pound after the “Brexit” vote didn’t help given Discovery’s large UK operations. Its stock decline took 0.5% off of performance.


Security% of Net Assets
Alphabet, Inc.7.5%
MEDNAX, Inc.6.4%
Wells Fargo & Company6.2%
Valspar Corp.6.1%
Union Pacific Corp.6.1%
HD Supply Holdings, Inc.5.8%
Carter's, Inc.5.3%
AutoZone, Inc.5.0%
Ross Stores, Inc.4.9%
American Express Co.4.6%
MasterCard, Inc.4.3%
Bank of America Corp.3.9%
Flowserve Corp.3.8%
Discovery Communications, Inc.3.8%
Centene Corporation3.0%
Nordson Corp.2.7%
Armanino Foods of Distinction, Inc.2.5%
PGT, Inc.2.3%
JPMorgan Chase & Co.2.1%
Verisk Analytics, Inc.1.6%
Whole Foods Market, Inc.1.5%
Realogy Holdings Corp.1.4%
Community Health Systems, Inc.0.7%

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

We exited our investment in T-Mobile during the quarter. We initially believed its spectrum and customer base would make it a valuable acquisition target to a larger telecom company, and while we still believe that’s a likely long-term outcome, we lost confidence in our assessment of its value and the timing of a potential transaction. We achieved a gain of 4.5% over the year we owned it.

The fund did not add any new investments during the quarter.

Investing Climate

As we write this letter, the market is hitting its all-time highs, and the valuations of pretty much all asset classes—stocks, bonds, real estate, etc.—are fairly expensive compared to their underlying values. Long-term returns from stocks are comprised of companies’ earnings growth (which roughly equals GDP growth) plus how much those companies pay out to shareholders, the total of which has historically been about 7% after inflation. The mid-teens returns we’ve seen the past six years aren’t, we believe, sustainable; we may not see an epic crash like we did in 2008, but we think we’re likely to see lower returns in the future.

So what does this mean for the fund? Our orientation as a family wealth vehicle with a long-term perspective allows us take a more cautious stance and not chase unsustainable returns. As always, we are looking for good businesses at attractive prices, and while that might be harder to find these days, we believe the investments in the fund present much better risk-reward ratios than the rest of the market.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager