This shareholder letter is part of the Bretton Fund 2019 Semiannual Report (pdf).

August 14, 2019

Dear Fellow Shareholders:

The Bretton Fund’s net asset value per share (NAV) as of June 30, 2019, was $36.11. The performance for the first half of the year was 20.33% and 5.71% for the second quarter.

Total Returns as of June 30, 2019 (A)

2nd QuarterFirst Half 20181 YearAnnualized 3 YearsAnnualized 5 YearsAnnualized Since Inception
Bretton Fund5.71%20.33%13.68%15.37%9.70%11.80%
S&P 500 Index (B)4.30%18.54%10.42%14.19%10.71%13.79%

(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
The largest contributor to the fund’s performance was NVR. Its stock price increased 22% in the quarter, adding 1.0% to fund performance.

Two of our payment companies, Mastercard and American Express, also were significant contributors in the quarter, adding 0.8% and 0.7%, respectively.

The main detractor this quarter was Alphabet, which has put up mixed results the past year and change. The stock dropped 10% in the quarter, taking 0.7% off our performance.


Security% of Net Assets
Alphabet, Inc.8.4%
Union Pacific Corp.7.1%
Mastercard, Inc.6.8%
Ross Stores, Inc.5.9%
American Express Co.5.6%
NVR, Inc.5.5%
Visa, Inc.5.5%
Bank of America Corp.5.4%
AutoZone, Inc.5.3%
The Progressive Corporation5.1%
Continental Building Products, Inc.4.9%
The TJX Companies, Inc.4.9%
Canadian Pacific Railway Limited4.8%
JPMorgan Chase & Co.4.7%
Wells Fargo & Company4.7%
Carter’s, Inc.4.5%
Berkshire Hathaway, Inc.4.4%
Discovery, Inc.2.8%
Armanino Foods of Distinction, Inc.2.3%

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

Toward the end of last year, home purchase activity—for both new and existing homes—slowed considerably when mortgage rates ran up. As our readers may recall from our 2018 Q3 letter describing our investment, we expected the rate shock to be more than counterbalanced over time by the overwhelming demographic need for new houses in the US. When combined with NVR’s cash flow–focused business model and the attractiveness of its primary market of metro Washington, D.C., we remained confident in the investment. Though NVR’s business performed reasonably, that did not save us from the market’s fear of rising rates, and NVR stock ended 2018 17% below our purchase price. We were pretty sure this would be temporary. House buyers were pausing, but they would eventually adjust, especially given that we were looking at historically low interest rates one way or another, and the competitive merits of new housing versus existing housing were not changing. We bought some more NVR at the beginning of the first quarter. We’ll need to wait some time longer for an answer on the rate question because the Federal Reserve has since reversed course, guiding rates downward. NVR’s stock is up 38% so far this year. We expect the stock to continue to be volatile on rate expectations, and we bear the movements with the equanimity that we have no idea what the Federal Reserve will decide to do. We believe NVR will continue to sell more houses and deliver more cash flow under reasonable rate expectations.

Alphabet (Google)
Alphabet is our largest position, and up until last quarter, revenue growth was exceptional: over 20% a year, which is pretty wild considering revenue is a whopping $140 billion, among the world’s largest. The problem was that costs were going up even faster, resulting in middling earnings growth. Historically, Alphabet’s costs are fairly lumpy, often surging and receding, and our assessment is that eventually most of that revenue growth will hit the bottom line. But in the first quarter of this year, revenue grew only 19%, which is still great, but down from the 23% of the previous few quarters. The company is tightlipped about its operations, so it’s not fully clear what exactly caused the deceleration or how temporary or permanent it might be. (They vaguely referenced a tweak in YouTube’s algorithms.) We still think its competitive position is excellent (it’s hard to see Bing becoming a better search engine than Google), and the world continues to spend more time online. The stock is cheap, even if that slower growth is permanent. But like all investments, it’s not without its blemishes.

The fund didn’t add or eliminate any positions in the quarter, and we added a bit to our Continental Building Products and Wells Fargo positions.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager