October 15, 2019

Dear Fellow Shareholders:

The Bretton Fund’s net asset value per share (NAV) as of September 30, 2019, was $36.72, and the total return for the quarter was 1.69%.

Total Returns as of September 30, 2019 (A)

3rd Quarter1 YearAnnualized
3 Years
5 Years
Annualized Since
9/30/10 Inception
Bretton Fund1.69%5.83%15.28%9.40%11.66%
S&P 500 Index (B)1.70%4.25%13.39%10.84%13.59%

(A) All 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 broad-based 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. The index shown is a broad-based, unmanaged index commonly used to measure performance of US stocks. The index does not incur expenses and is 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
In our last shareholder letter, we wrote about Alphabet being the fund’s worst performer, its stock dropping 10% on weak revenue and high expenses. This quarter, Alphabet’s stock promptly reversed course, increasing 11% and adding 1.0% to the fund as it returned to (slightly) faster growth and (slightly) better expense control. Despite the swing in share price, our assessment remained unchanged: the combination of its growth, defensibility, and relatively low valuation make it a bargain.

Ross Stores added 0.6% to performance this quarter, and homebuilder NVR also added 0.6%, as its share price continues to surge, up 53% this year. It is striking how quickly sentiment can change: the stock is up 82% from its low in October 2018, while the business remains relatively unchanged.

Our main detractor was Discovery, which took 0.4% off the fund, as sentiment for traditional media remains weak. As we’ve said in the past, we think Discovery will do just fine in a cord-cutting world, and meanwhile it trades for a mere six times free cash flow. Union Pacific took 0.3% off performance; rail traffic has been slow this year, partially due to trade worries. Carter’s shaved 0.3% off the fund. Slow growth and concerns over tariffs have hurt the stock.


Security% of Net Assets
Alphabet, Inc.9.3%
Mastercard, Inc.6.8%
Union Pacific Corp.6.6%
Ross Stores, Inc.6.4%
NVR, Inc.6.0%
Visa, Inc.5.3%
Bank of America Corp.5.3%
American Express Co.5.2%
AutoZone, Inc.5.1%
The TJX Companies, Inc.5.1%
Continental Building Products, Inc.5.0%
Wells Fargo & Company4.8%
The Progressive Corporation4.8%
JPMorgan Chase & Co.4.8%
Canadian Pacific Railway Limited4.4%
Berkshire Hathaway, Inc.4.2%
Carter’s, Inc.4.1%
Armanino Foods of Distinction, Inc.2.4%
Discovery, Inc.2.4%

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

The fund did not add or eliminate any positions in the quarter, and our assessment of the investment environment remains unchanged: stocks are a little expensive but not excessively so, the underlying US economy is solid, and the trade war and a weak international economy are headwinds.

Wells Fargo
After a long and drawn-out search, Wells Fargo hired BNY Mellon CEO Charlie Scharf as its new CEO. Prior to BNY Mellon, Charlie was not only the CEO of Visa, he was also a top executive at JPMorgan Chase. He’s been a valuable contributor to our portfolio companies for a while now, and we think he’ll do a great job at Wells.

Charlie’s appointment marks the end of a remarkably long chapter in American corporate governance: Dick Kovacevich became the CEO of the then-Norwest Bank in 1993, acquired Wells Fargo and its name in 1998, handed over the reins in 2007 to John Stumpf (who had been at Norwest since 1982); Stumpf ran Wells until being forced out in 2016, only to be replaced with COO Tim Sloan (who had been with Wells since 1987), who himself was forced out this year. The hallmark of this team was a focus on the customer, a rarity in American finance. Kovacevich and Stumpf wanted to know that they were meeting their customers’ financial needs and thought that the marker of this was how many Wells products each customer had. This approach led to a quarter century of profitable growth. It also led local managers to falsify records to meet unrealistic expectations, and the slow-moving culture was tragically unable to respond on an acceptable timeframe.

Charlie comes from an entirely different banking culture, the Sandy Weill/Jamie Dimon line that built Citigroup and JPMorgan, and his first act as CEO was putting his office in New York, far away from Wells’s official headquarters in San Francisco. It’s less than ideal from an operational standpoint, but was necessary to attract Charlie. He left San Francisco–based Visa in 2016 to move back to New York to be with his family. The change should also give some comfort to regulators, who have pressed Wells to make a clean break from the culture that allowed the fake account saga. The bigger challenge for Wells will be finding a way to restart growth in a competitive, rate-compressed banking landscape. At 10 times earnings, we are hopeful that we are being compensated for the risk.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager