This shareholder letter is part of the Bretton Fund 2022 Semiannual Report (pdf).

August 25, 2022

Dear Fellow Shareholders:

This was going to happen eventually. After years of running hot, the markets contracted by 20% this year. While that seems like a lot—and it is—it’s important to keep a little perspective. The S&P 500 is now back to the same level as it was 18 months ago, which is much higher than the pre-Covid highs of early 2020.

The worst of the market excesses (SPACs, cryptocurrencies named after pets) have been rooted out, valuations that were way ahead of themselves (Carvana, Twilio) have moderated, and Covid-era darlings (Zoom, Peloton) have fully retraced their ascent and then some. It may take a while, but the market figures these things out eventually. We’re guessing we’ll see fewer crypto ads at the next Super Bowl.

Total Returns as of June 30, 2022 (A)

First Half 20221 YearAnnualized 3 YearsAnnualized 5 YearsAnnualized 10 YearsAnnualized Since Inception
Bretton Fund-18.27%-10.77%8.41%11.94%10.07%10.92%
S&P 500 Index (B)-19.96%-10.62%10.60%11.31%12.96%12.96%

(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 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

Alphabet, née Google, had the biggest impact on performance, taking 2.8% off performance in the second quarter. It’s been the largest contributor to performance over the life of the fund, so we’ll find a way to forgive Google for the quarter. And to be clear, the business at Google is going swimmingly. Revenue is growing ~20% a year, and its market position seems better than ever despite some regulatory challenges. Its shares are now priced around the market average, which raises the eyebrows given how great a business it is.

American Express and Union Pacific had the second largest impacts on the fund, taking off 1.6% and 1.5%, respectively. Investors tend to view these stocks as economically sensitive, and their share prices dropped as the chances of a recession increased.

We did have a handful of stocks that went up this quarter. AutoZone added 0.3% to the fund, its share price increasing 5%. It’s possible investors were looking for more “recession proof” businesses, though it’s hard to say. UnitedHealth added 0.1%, possibly for the same reason, and Progressive added 0.1% as higher rates will boost its investment income.


Security% of Net Assets
Alphabet, Inc.10.93%
AutoZone, Inc.7.54%
The Progressive Corporation6.81%
UnitedHealth Group Incorporated6.49%
Union Pacific Corp.5.74%
Microsoft Corporation5.41%
Visa, Inc.5.28%
S&P Global, Inc.5.26%
Mastercard, Inc.5.26%
American Express Co.5.13%
NVR, Inc.4.71%
The TJX Companies, Inc.4.60%
Bank of America Corp.4.28%
Ross Stores, Inc.4.27%
JPMorgan Chase & Co.4.11%
Berkshire Hathaway, Inc.3.59%
Moody's Corporation3.43%
PerkinElmer, Inc.2.74%
Dream Finders Homes, Inc.2.32%
Armanino Foods of Distinction, Inc.1.53%

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

The fund did not eliminate or initiate any new positions in the second quarter.

Investing Climate

As our longtime investors know, we try to avoid making macroeconomic predictions. This isn’t to diminish macroeconomics: if we had superior insight into the performance of the overall economy, that would be fantastic. We don’t, and we work with our limitations.

There are a few macroeconomic environments that need to be considered, however, and this is one of them.

This is the history of inflation in the US in the floating-exchange-rate era. A good summary of the past 50 years might be “inflation declined.” All sorts of reasons have been suggested, from improvements in monetary policy to increased global trade, and until a couple years ago they all seemed to work together. We have two generations of citizens—and multiple generations of Wall Street investors—who have no more experienced inflation than scurvy.

Then we hit a perfect storm: a global pandemic shut production of physical goods; governments implemented unprecedented stimulus; consumers rushed to spend that stimulus once lockdowns ended; pandemic stresses ignited already-strained labor relations; and a war in Ukraine ignited oil prices. In the blink of an eye, inflation went from essentially zero to 9% annualized.

All countries are currently experiencing elevated inflation. There are many bold actions the US government could do to ease household costs (investing in a stronger domestic electric grid, retrofitting homes for energy efficiency, reducing housing costs by overruling zoning restrictions, lowering our globally anomalous infrastructure costs), but none of these things will happen in the scale and time frame to be useful. Instead, the government will use the bluntest and most effective instrument it has to combat inflation: raise interest rates to cool the economy.

Each of our companies is vulnerable to an economic slowdown. Two categories are particularly exposed to rate increases, and these deserve special mention: banks (we own Bank of America and JPMorgan) and homebuilders (we own NVR and Dream Finders).

Higher interest rates should mostly help banks since they profit by borrowing money via deposits and then lending it out at a higher rate. As rates go up, many of their loans immediately get repriced, but the interest they pay on deposits doesn’t increase nearly as much. But higher rates also slow down an economy, which hampers loan growth and increases default rates. We think the benefits significantly outweigh the costs, and the banks are—once again—extraordinarily cheap.

The other side of the rate coin is the homebuilders. The immediate impact of rate increases on builders is bad. Mortgage rates are not particularly high by historical levels, but they have nearly doubled in the past year; houses that were built using labor and materials from three months ago are going to be difficult to sell as profitably in today’s environment. However, we believe the prospects for our “capital light” builders are promising. Neither NVR nor Dream Finders owns land, so they have limited exposure to a legacy cost structure. As demand for houses declines, so too will the prices of lumber and appliances and even entitled land. The defining characteristic of American housing is that decades of underbuilding have left us with too few units, especially in markets where people want to live.

Overall, we think we own a nice collection of good businesses at discounted prices, which we believe is a formula for attractive future returns. As the markets have shifted so much this past year, we are actively looking for additional bargains. Investors have given up on a lot of stocks this year, and it’s likely some babies got thrown out with that bath water.

As always, thank you for investing.

Stephen Dodson            Raphael de Balmann
Portfolio Manager         Portfolio Manager