Akre Focus Joins the Kip 25
We give a nod to the crusty manager who previously ran FBR Focus.
It’s hard to find fault with FBR Focus (symbol FBRVX). From its launch in December 1996 through October 8, the fund, which invests in small and midsize companies, returned an annualized 12.5%. That trounced the Russell 2000 Growth index (a measure of small, fast-growing companies) by ten percentage points per year, on average, and edged Standard & Poor’s MidCap 400/Citi Growth index (a similar barometer of medium-size firms) by one point per year. Moreover, despite allotting nearly two-thirds of assets to its ten biggest positions, the fund achieved those impressive returns with less volatility than the indexes.
The fund is the brainchild of Chuck Akre, whose firm ran FBR Focus from its launch until last August. At that point, Akre quit and started his own fund, Akre Focus (AKREX). The three new co-managers of FBR Focus -- David Rainey, Brian Macauley and Ira Rothberg -- all served as analysts at Akre Capital before switching allegiance to join FBR.
Not surprisingly, Akre and his proteges go about their stock-picking chores in similar fashion. They seek small and midsize businesses that produce high and sustainable returns on equity (a measure of profitability) and have the ability to generate earnings growth of at least 15% annually over the long haul. The aim is to purchase stocks of these “compounding machines,” as Akre calls them, at attractive prices and hold tight for many years.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Akre and his students describe the process as a three-legged stool. First, they identify businesses with a strong competitive advantage and the ability to produce copious amounts of free cash flow. Next, says Akre, they ascertain whether these businesses are run by managers who “conduct business with integrity and act in the interests of shareholders.” The final leg is to determine whether those managers have abundant opportunities to plow excess cash back into expanding the business. Says Rainey: “We hunt for elephants, not rabbits.”
Competitive advantages often derive from valuable licenses or patents, or a superior distribution network. For instance, FBR’s largest holding, American Tower, is the leading operator of cell towers for the wireless-phone industry. Rainey calls these towers “vertical real estate” because they benefit from long-term contracts with built-in price escalators and are shielded from predators by zoning barriers. So we’re faced with the dilemma of picking between two fine funds, FBR Focus and Akre Focus, that are run on identical principles. Akre’s successors at FBR are no doubt talented analysts with much potential as fund managers. But fund management is all about instincts and skills that have been honed by years of experience. Unlike an NFL running back who peaks in his twenties, managers tend to improve with age -- unless they burn out, get too greedy or lose their wits.
So, we’ve decided to replace FBR Focus in the Kiplinger 25 with Akre Focus. Annual fees for both funds’ low-minimum share classes are so close -- 1.43% for FBR, 1.49% for Akre -- as to be a nonissue. But longtime investors in FBR Focus who are sitting on large capital gains in taxable accounts should consider holding on to their shares.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Is a Phased Retirement Right for You?
Want to keep working, just not as hard? A phased retirement may just be the answer.
By Kimberly Lankford Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
-
The Kiplinger 25: Our Favorite No-Load Mutual Funds
The Kiplinger 25 The Kiplinger 25 is a list of our top no-load mutual funds that have proven capable of weathering any storm.
By Nellie S. Huang Last updated
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2024.
By Kyle Woodley Last updated
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
-
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
-
I-Bond Rate Is 5.27% for Next Six Months
Investing for Income I-Bonds issued November 1, 2023 through April 30, 2024 will have a rate of 5.27%.
By David Muhlbaum Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated
-
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy Published