October 21, 2022

Dear Fellow Shareholders:

With the S&P 500 down 23.87% year-to-date—the Bretton Fund is down 21.64%—we appear to be on our way toward the worst market downturn since 2008 when the market declined 37%. Given how high the stock market got in 2021, things aren’t as bad as they may appear, and we are starting to see hints of interesting opportunities in sectors that have fallen the most.

Total Returns as of September 30, 2022

3rd Quarter1 Year3 Years5 Years10 YearsSince 9/30/10 Inception
Bretton Fund-4.12%-12.91%6.30%9.94%9.24%10.29%
S&P 500 Index-4.88%-15.47%8.16%9.24%11.70%12.21%

(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 at https://brettonfund.com 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 1.35%.The fund’s principal underwriter is Arbor Court Capital, LLC.

Contributors to Performance
As is often the case, the largest impact on our portfolio was our largest holding, Alphabet, colloquially known by its largest division, Google. Its stock dropped by 12% in the quarter as technology companies continued to see their values shrink.

Visa and Mastercard hurt performance by 0.5% each as shares in both declined by about 9%. Investors were concerned about a broader slowdown in spending and a greater risk of government intervention in their business model. The last time the US government intervened in the payments market was in 2010 with the Dodd-Frank Act’s Durbin amendment, which regulated fees from debit transactions. It had a negative impact on Visa and Mastercard, but left the core economic model intact. We suspect something similar might happen again, but given how much the world is increasingly relying on card payments, we don’t think the ecosystem will be upended.

On the other side of the ledger, our off-price retailers, Ross Stores and TJX, added 0.8% and 0.5% as their results weren’t as bad as investors were expecting. Ross and TJX shoppers tend to be more price sensitive and have been impacted by the broader rise in gas and consumer prices. Long term, we think these businesses will continue to thrive, but we’ll likely see a little bumpiness as they adjust to rising costs and price-sensitive customers.

Portfolio

Security% of Net Assets
Alphabet, Inc.9.98%
AutoZone, Inc.7.80%
The Progressive Corporation7.07%
UnitedHealth Group Incorporated6.62%
Union Pacific Corp.5.44%
Ross Stores, Inc.5.32%
The TJX Companies, Inc.5.32%
American Express Co.5.18%
Microsoft Corporation5.09%
Visa, Inc.4.95%
S&P Global, Inc.4.95%
NVR, Inc.4.86%
Mastercard, Inc.4.86%
Bank of America Corp.4.31%
JPMorgan Chase & Co.3.96%
Berkshire Hathaway, Inc.3.65%
Moody's Corporation3.19%
PerkinElmer, Inc.2.41%
Dream Finders Homes, Inc.2.40%
Armanino Foods of Distinction, Inc.1.60%
Cash*1.06%

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

We don’t make macroeconomic prognostications and aren’t going to start now, but it is worth noting how unusual the macro environment is. Just a few years ago, it seemed like investors in our generation would never see high-single-digit inflation or 30-year mortgage rates near 7%, and yet here we are. Parts of the economy are clearly struggling, but we’re also seeing a tight job market with unemployment rates near record lows and robust household balance sheets. There are increasing political risks we have not seen in a long time—a large-scale land war in Europe, threats across the Taiwan Strait, increasing authoritarianism—even as we benefit from a level of material abundance that makes the past seem like a foreign country.

In our little microeconomic patch, we continue to invest in businesses that are relatively well positioned to withstand turbulence. Each of our non-financial companies is cash flow positive and has modest debt. We feel all of our companies have a competitive advantage of some type, with most having a significant cost advantage: Google search is the cheapest way to reach customers, the card networks are the cheapest way to transact securely, railroads are the cheapest way to transport goods over land, Progressive and GEICO are usually the cheapest ways to insure a car, and buying a part from Autozone will typically be the cheapest way to get that car back on the road promptly.

We own a collection of resilient, growing businesses at compelling values. This does not grant us immunity from the world’s challenges. Higher interest rates will cool housing demand, regulators can change the rules under which businesses operate, and the market may value prospects differently. We simply expect that better businesses at better valuations will better weather the storms.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager