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Fund Watch

This Midsize-Company Growth Fund Keeps Beating the Market

Akre Focus' "three-legged stool" approach seems to be working.


It’s been a rough year for the U.S. stock market, but Akre Focus (AKREX) is hanging tough. The fund’s one-year return of 4.3% outpaced Standard & Poor’s 500-stock index by 4.9 percentage points and the average midsize-company growth fund (the category to which Morningstar assigns Akre) by 3.4 points. If Akre finishes the year ahead of the S&P 500, it will mark the fifth time in its six full years of existence that it topped or matched the market (Akre nipped the index by 0.04 percentage point in 2012).

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The secret to the $3.9 billion fund’s success is a three-legged stool. No, it’s not a chair that managers Chuck Akre, John Neff and Tom Saberhagen occupy at the firm’s Middleburg, Va., office. Rather, it’s a metaphor they invoke to describe their stock-picking process. The first leg of the stool involves finding high-quality businesses that can earn an above-average return on capital. Next comes spotting firms with skillful and honest executives. The final leg is identifying companies with a record of wisely re­investing in the business.

If a company passes those tests and if the share price is right, the managers buy. But they don’t buy too many stocks; Akre Focus held shares in just 27 companies recently. Annual turnover, at 30%, is low, implying that the managers hold on to a stock for more than three years, on average. That’s twice as long as the typical holding period for funds that invest in midsize companies.


Akre Focus has owned shares of insurer Markel (MKL), which some consider a poor man’s Berkshire Hathaway, since the fund opened in September 2009. The stock soared 26% over the past year, which Saberhagen partially attributes to the smooth integration of insurer Alterra Capital Holdings, a 2013 Markel acquisition. “It showed that there’s potential for Markel to continue to do well with acquisitions and grow the firm over time,” he says. At last report, Markel accounted for a hefty 9.3% of the fund’s assets.

Saberhagen says he and his comanagers like com­panies that acquire other firms and improve them. Dollar Tree Stores (DLTR), a holding since 2010 and 5.8% of the fund’s assets at last word, recently completed the purchase of rival Family Dollar. The deal seals Dollar Tree’s position as a leading national discount retailer, with more than 13,000 stores. Over the past year, Dollar Tree’s stock has jumped 19%.

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