October 6, 2017

Dear Fellow Shareholders:

The Bretton Fund’s net asset value per share (NAV) as of September 30, 2017, was $27.70, and the total return for the quarter was 4.92%.

Total Returns as of September 30, 2017

3rd Quarter1 YearAnnualized
3 Years
5 Years
Annualized Since
9/30/10 Inception
Bretton Fund4.92%14.56%5.44%8.55%10.55%
S&P 500 Index4.48%18.61%10.81%14.22%14.38%

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

Mastercard announced financial results and estimates for future growth that were well ahead of expectations, boosting stock price and helping the fund by 0.8% this quarter. HD Supply, the previous quarter’s largest detractor, added 0.6% as it patched up some of its operational issues and improved results.

The share prices of Ross Stores and Carter’s had strong rebounds this quarter, adding 0.6% and 0.5%, respectively. The retail sector as a whole has been under duress this year from  Amazon.com fears, even businesses such as Ross and Carter’s that aren’t much impacted by Amazon. As Ross and Carter’s announced (continued) good earnings, the stocks snapped back. We took advantage of the temporary swoons by marginally adding to both positions.

MEDNAX had another poor quarter from stagnant revenue and creeping costs, hurting the fund by 0.6%. We underestimated the difficulty of the pricing/reimbursement environment, and as mentioned in our last letter, we have reduced our position. Discovery Communications pulled performance down by 0.6% as it announced lackluster earnings and that it’s acquiring Scripps Networks Interactive, known for its HGTV and Food Network channels. The glory days of cable TV are over, but we think the market has overreacted to its challenges: at its current distressed price, Discovery’s free cash flow yield is in the low teens, a level almost unmatched in today’s expensive market.


Security% of Net Assets
Alphabet, Inc.8.8%
Union Pacific Corp.6.5%
Bank of America Corp.6.4%
Wells Fargo & Company5.9%
Mastercard, Inc.5.6%
American Express Co.5.5%
JPMorgan Chase & Co.5.4%
Ross Stores, Inc.5.1%
Carter’s, Inc.5.1%
AutoZone, Inc.4.9%
Berkshire Hathaway, Inc.4.7%
Visa, Inc.4.5%
Continental Building Products, Inc.4.2%
PPG Industries, Inc.4.0%
HD Supply Holdings, Inc.3.8%
Canadian Pacific Railway Limited3.7%
Discovery Communications, Inc.2.6%
Armanino Foods of Distinction, Inc.2.0%
MEDNAX, Inc.1.6%
Verisk Analytics, Inc.1.3%

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

The fund did not eliminate any investments this quarter, and we initiated an investment in Canadian Pacific Railway Limited. The railroads in Canada share key similarities with their American counterparts: growing, entrenched duopolies with significant pricing power. Like the US, the Canadian railroad industry was historically a fractious, brutal business that eventually consolidated into a handful of entities, which has left Canada with two remaining major railways: Canadian Pacific and the much larger Canadian National Railway. Canadian National, with greater geographic coverage and historically much better management teams, ran circles around CP for years, offering faster, more reliable service, and did so at much better operating margins.

In today’s age of activist investors, a poorly managed business with significant unrealized potential is bound to draw attention, and in 2012 activist investor Bill Ackman succeeded in replacing CP’s management with the same team that propelled CN to North America’s most profitable railroad. The new executives took CP’s operating margins from under 20% to over 40%; the stock soared. Since then, an off year in railcar volumes and what we suspect was the inevitable dwindling of investor enthusiasm and momentum deflated the stock price to the point of being compelling again. We expect increasing volumes, price increases, and improving margins to grow earnings at an attractive rate for a long time, in addition to a substantial return of capital. Like many of our core holdings, CP is a growing business with a strong competitive advantage, and we expect it to compound in value over time.

Despite a relatively frothy market, we were pleased to be able to find a great business at a reasonable price. We continue our search for more.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager