Dear Fellow Shareholders:
With the market stacking two back-to-back years of ~25% returns-and 15 years of mid-teens returns-we thought this would be a good time to remind investors that they shouldn’t expect these types of returns forever. Historically, the average stock market return is around 9-10% per year (~7% after inflation), which is roughly how fast corporate earnings grow plus what companies pay out in dividends and buybacks. When returns are much higher than that, it means you’re either catching up from low returns in the past or borrowing from future returns. We believe the 20 companies we own-at the prices we own them at-are going to do well and are well positioned regardless of what the markets may look like over the near term.
Total Returns as of December 31, 2024
| 4th Quarter | 1 Year | Annualized 3 Years | Annualized 5 Years | Annualized 10 Years | Annualized Since 9/30/10 Inception (A) | |
| Bretton Fund | -0.98% | 20.27% | 10.67% | 13.43% | 11.78% | 12.86% |
| S&P 500 Index (B) | 2.41% | 25.02% | 8.94% | 14.53% | 13.10% | 14.35% |
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(A) 1 Year, 3 Years, 5 Years, 10 Years, and Since Inception 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 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 1.35%. |
Calendar Year Total Returns
| Year | Bretton Fund | S&P 500 Index |
| 2024 | 20.27% | 25.02% |
| 2023 | 28.91% | 26.29% |
| 2022 | -12.56% | -18.11% |
| 2021 | 27.76% | 28.71% |
| 2020 | 8.44% | 18.40% |
| 2019 | 35.39% | 31.49% |
| 2018 | -1.94% | -4.38% |
| 2017 | 18.19% | 21.83% |
| 2016 | 10.68% | 11.96% |
| 2015 | -6.59% | 1.38% |
| 2014 | 9.79% | 13.69% |
| 2013 | 26.53% | 32.39% |
| 2012 | 15.66% | 16.00% |
| 2011 | 7.90% | 2.11% |
| 9/30/10 – 12/31/10 | 6.13% | 10.76% |
| Cumulative Since Inception | 460.61% | 576.38% |
4th Quarter
The major culprits for the fund’s underperformance during the fourth quarter were our homebuilders, Dream Finders and NVR, who took off 1.5% and 1.1% from performance. Despite the Federal Reserve’s lowering short-term interest rates toward the end of the year, long-term rates went up, spooking investors that higher rates would hurt demand for new homes. Eagle Materials took off 0.7%.
Alphabet was the major contributor for the quarter, adding 1.3%, while Visa and JPMorgan each added 0.7%.
Contributors to Performance for 2024
Alphabet’s stock followed up a strong 2023 with another strong year, adding 2.7% to the fund as our top contributor. Progressive added 2.6% as it continues to benefit from higher premiums and interest rates. American Express added 2.5%.
The main detractor was Dream Finders, taking 1.5% off the fund, and Union Pacific was a minor detractor with a -0.2% impact.
Taxes
The fund issued a long-term capital gains tax distribution of $0.798764 per share, amounting to roughly 1% of the fund’s net assets value.
Portfolio as of December 31, 2024
| Security | % of Net Assets |
| Alphabet, Inc. (GOOG)(GOOGL) | 10.39% |
| The Progressive Corporation (PGR) | 7.66% |
| American Express Co. (AXP) | 6.56% |
| AutoZone, Inc. (AZO) | 6.13% |
| JPMorgan Chase & Co. (JPM) | 5.51% |
| The TJX Companies, Inc. (TJX) | 5.44% |
| NVR, Inc. (NVR) | 5.40% |
| Visa, Inc. (V) | 5.39% |
| Bank of America Corp. (BAC) | 5.30% |
| Microsoft Corporation (MSFT) | 5.17% |
| Ross Stores, Inc. (ROST) | 5.03% |
| UnitedHealth Group Incorporated (UNH) | 4.75% |
| Mastercard, Inc. (MA) | 4.73% |
| S&P Global, Inc. (SPGI) | 4.43% |
| Moody’s Corporation (MCO) | 3.76% |
| Union Pacific Corp. (UNP) | 3.35% |
| Eagle Materials, Inc. (EXP) | 3.31% |
| Berkshire Hathaway, Inc. (BRK.A)(BRK.B) | 3.25% |
| Dream Finders Homes, Inc. (DFH) | 2.77% |
| Revvity, Inc. (RVTY) | 1.18% |
| Cash* | 0.58% |
*Cash represents cash equivalents less liabilities in excess of other assets.
Financials
We believe Progressive is, by far, the savviest auto insurer out there. They’re able to tweak their policies in response to industry changes and shifting driver behavior faster than the competition. When it recognized insurance rates were too low for the increasing number of crashes and higher repair costs post-pandemic, it was one of the first to raise rates significantly, making it an outlier and losing customers. It took its foot off the gas pedal of its powerful marketing machine; Flo was grounded for a bit. But now that industry rates have caught up, Progressive’s prices are once again low by comparison, and they’ve dialed the marketing back up. It grew policies by 18% last year and earnings per share by 71%, while the stock returned 51%.
American Express was our best performing stock last year, returning 60%, which was on top of 2023’s 29%. Its premium credit cards are more popular than ever, and its moderately affluent customer base continues to spend. American Express did especially well signing up younger cardholders, a great sign that its growth can be sustained for years to come. The combination of healthy revenue growth and tight expense control led to an earnings-per-share growth of 25%.
JPMorgan and Bank of America had good years, as higher interest income and more active financial markets boosted revenue and earnings. Their stocks returned 44% and 34%, respectively, while earnings per share increased 22% and 4%.
Rating agencies S&P Global and Moody’s benefited from a better bond issuance market, which increased earnings per share by an estimated 21% and 42%. S&P Global’s stock returned 14% and Moody’s 22%.
Technology
Alphabet’s revenue in 2024 was $350 billion, which was $43 billion more than the previous year. That’s the equivalent of adding the entire revenue of a company like Coca-Cola, Oracle, Starbucks, or our very own Visa in a single year. Users’ demand for more internet video and information-and the demand for advertisers to get in front of them is massive and still growing fast. YouTube is the world’s most-watched streaming video platform and accounts for 10% of Americans’ time in front of a TV, more than any traditional TV channel.
Despite growing much faster than the average company, Alphabet continues to trade at roughly the same price-to-earnings multiple as the rest of the market. Earnings per share grew 39% last year, and we expect it will grow in the mid-teens for the next few years. If it comes anywhere close to that, the shares today are a bargain.
We’re also trying to be clear-eyed about the real risks ahead. Dozens of new artificial intelligence companies like OpenAI, Anthropic, and DeepSeek now offer products that provide users a compelling way to access the information they’re looking for, a service that was effectively a monopoly for Google for two-plus decades. Google’s been able to create an excellent AI app, Gemini, that is on par with anything out there, but it’s not the dominant platform the way Google is in search. While we are personally active users of AI chatbots (Stephen uses ChatGPT many times a day), it hasn’t put that much of a dent in our search activity. Many of the most monetizable searches (highly specific recommendations for, say, a local lawyer or current rates on savings accounts) are more fruitful through a Google search than an AI app. Given Alphabet’s growth rates, the strength of its franchise, and the stock’s valuation, we’re calculatingly optimistic about how the stock will do. It returned 36% last year.
Microsoft has become the go-to provider of computing services for many emerging AI companies, and its franchise is much more diversified than Alphabet’s, making it a net beneficiary of the AI arms race. Demand for its cloud computing services continued to grow, and the rest of its business (Office, Windows, Xbox, GitHub, LinkedIn) are also thriving, sending earnings per share up 22% while the stock returned 13%.
Visa and Mastercard kept doing their thing, increasing earnings per share by 15% and 12%, respectively, with their stocks returning 22% and 24%. We continue to closely watch the evolving payments space as it seems like everyone’s always trying to displace the card networks. For now, we don’t see anything gaining much traction.
Consumer
AutoZone hits the Bretton Fund sweet spot in many ways: it appears to be a somewhat sleepy business, but it has excellent economics and shareholder-oriented management. That combination has led to wonderful returns. Since we first invested in it in 2015, the stock has returned 362%, more than 120% points over the S&P 500. Its return on invested capital-a key measure of profitability-is 50%, over three times the 15% average of the large companies. Selling aftermarket auto parts is a deceptively challenging business. The average part will sit on the shelf for an entire year, and AutoZone’s larger stores will stock over 100,000 unique items, a massive amount of slow-moving inventory to hold. It’s a complex business, and smaller, less-sophisticated stores have a tough time competing. Recently, the business has focused more on international expansion, and that’s been fruitful. Earnings per share increased 13%, and its stock returned 24%.
Pre-pandemic, TJX and Ross were usually in lockstep operationally and performance-wise. The main difference is TJX is much larger and has more divisions: TJ Maxx has higher-end goods; Marshalls has lower price points and is very similar to Ross; HomeGoods and Homesense offer furniture and household goods. But as inflation spiked up, TJX was better able to push through price increases, helped in part due to its relatively higher-income shoppers being less sensitive to inflation. TJX’s earnings growth and share price have outperformed Ross the past few years, but we expect that to converge in the near term. TJX’s and Ross’s earnings increased an estimated 9% and 11%, respectively, and their stocks returned 31% and 10%.
Thirty-year traditional mortgage rates were over 6% for all of 2024, the highest they have been since the 2008 financial crisis, a sharp change from 2021 when they were below 3% for part of the year. Existing house sales hit their lowest levels since 1995, and new housing starts were down 4% from 2023. Lean times for the real estate industry.
NVR seems to have not noticed these market trends. They sold 22,560 houses in 2024, 21,540 in low-interest-rate 2021, and 19,668 in pre-Covid 2019. They keep grinding away with their basic business model, and they keep driving their earnings and buying back stock. In 2019, NVR earned $221 per share; in 2024, selling only 15% more houses, they earned $507 per share. NVR stock gained 17% on the year.
Our other builder, Dream Finders Homes (DFH), sails a bit closer to the wind than NVR. While also an “asset-light” model that uses purchase options to minimize the capital tied up in undeveloped land, DFH is more willing to experiment and grow by acquisition. In a decade, it has gone from the 103rd largest builder in the US to the 12th largest. But a focus on growth-and growth markets such as the southeast-has also exposed the company to more swings. Return on equity has dropped and so did the stock, losing 35% to be the worst performer in our portfolio. Earnings per share increased an estimated 14%.
Looking forward, we should bear in mind that the primary competition for new houses is existing houses. Whether mortgage rates are high or low does not impact the competitive dynamic for new production; all transactions face the same pricing dynamics. What does impact the competitive dynamic is changes to an input faced by only one category. If the costs of building supplies and labor increase-for example, due to lumber tariffs or immigration restrictions-new houses will be relatively less competitive with existing houses. If regulatory barriers to production-zoning rules, permitting timelines, etc.-are reduced, new houses will be relatively more competitive. We are five decades into a world of steadily decreasing real costs of construction inputs and steadily increasing barriers to production. Both trends are under tremendous pressure today. We take some comfort that the US has dramatically underbuilt during this time and are millions of houses short of our needs, but this comfort is mixed with some trepidation that the comfortable rhythms of our builders might be in for some volatility.
Industrials
The rail industry has seen tepid revenue growth the past few years as higher-revenue coal volume declines and is replaced by lower-revenue intermodal volume sourced from ocean and truck carriers. Despite the growth challenge, Union Pacific managed to cut costs and grow earnings per share by 6%. The stock returned -5%.
Our most recent addition, Eagle Materials, saw strong demand in divisions. The cement industry in the US continues to be severely capacity constrained, leading to cement being effectively “sold out” each year and cement prices rising 12%. Its wallboard business declined slightly from the slower real estate market. Overall, earnings per share increased 9%, and we are up 8% so far on the stock.
Berkshire Hathaway is a portfolio of businesses that has some similarities to the Bretton portfolio: Berkshire owns a large western railroad (BNSF), a direct-to-consumer auto insurer (GEICO), and has a large position in American Express. There are also a handful of differences: Berkshire has large positions in Apple and Occidental Petroleum, and its two largest operating divisions are a regulated electric utility (now known as Berkshire Hathaway Energy, BHE) and a reinsurance company. BHE struggled for several years, squeezed between the emergence of lower-cost distributed renewables such as rooftop solar panels and a challenging regulatory landscape. Utilities had a resurgence last year as prospects for AI data centers with enormous electricity needs caused investors to reconsider their views of traditional power infrastructure. Meanwhile, the reinsurance business enjoyed higher interest rates: insurance policies are paid up front even as claims occur over time, so higher rates make this “float” more valuable. Berkshire’s share price increased 25%.
Healthcare
First, the elephant in the room. On December 4, Brian Thompson, who ran UnitedHealth’s insurance business, was assassinated in New York City. Shell casings had the words “deny” and “depose” written on them, a bullet was inscribed with “delay.” Five days later, Luigi Mangione was arrested in Pennsylvania with what appears to be the murder weapon and a manifesto criticizing the American healthcare system. Mangione has since become a cult celebrity.
Healthcare is not a normal market. Governments have decided that healthcare is worth intervening in to achieve noneconomic outcomes, most notably providing care for people who can’t afford it. Each country’s regulatory system designs its system and rations healthcare in its own way: the UK employs providers directly and attempts a central triage function to allocate care; continental European systems typically have private providers but some version of all-payer rate setting; and the US has a decentralized model where providers can charge whatever they want, but payers can choose not to pay it, plus government-run systems like Medicare and Medicaid that cover about 35% of Americans. Every system implements some type of brake on costs, usually a combination of the government and private companies, and the US system leans more on the private sector for this than others.
Our system is not without its benefits. It is vastly more lucrative for providers like surgeons and medical device companies. It also allows for some measure of money signal; if you are a rich weekend warrior with an orthopedic issue, the American system will offer a dizzying array of cutting-edge specialists where the UK would suggest getting used to the feeling of aging and stiffening one’s upper lip. However, our system violates the social expectation of the word “insurance.”
If you forget to set the parking brake on your car and it rolls into the ocean, the friendly Progressive adjuster will not attempt to rebuild the corroded vehicle. He will commiserate with you, hand you a check for the replacement value of the car, and move on. At no point will Progressive pay more than its policy limits. If, however, the car rolls over your foot on its way to the ocean, and your foot gets infected, and the infection becomes chronic, and you develop a cascade of conditions afterwards, you do not expect your UnitedHealthcare representative to offer your spouse some money to find a new partner. You expect to be repaired, whatever the cost. The tools that limit the cost-the prior approvals and step therapies and bureaucratic rigmarole-are seen as a violation of the core insurance deal.
For all this, the core product costs are so high that most people would prefer a narrower-but cheaper-range of options than a broader range of more expensive ones. Each year, a few million Americans turn 65 and are faced with an important medical decision: which Medicare plan should I enroll in? There’s traditional Medicare with 20% co-pays and no out-of-pocket cap, but gives access to almost all doctors, or Medicare Advantage, which consists of privately run plans offered by companies like UnitedHealth with narrow options that require prior authorizations, but have minimal out-of-pocket expenses. Each year, more and more seniors choose Medicare Advantage.
We invest in UnitedHealth because we believe this revealed preference is real. The regulatory landscape changes constantly, there is plenty of noise in the system, and it is possible to imagine a world where health insurers would not be necessary. However, the massive healthcare system we’re in today structurally relies on private companies to play the crucial role of managing care and negotiating prices, and we don’t think the US government is prepared to take all that over. It was a bad year for our investment, as the stock returned a negative 2.4%, but it trades for a meaningful discount to the market despite consistently delivering double-digit earnings growth for years, including 10% last year.
Revvity-the former PerkinElmer-has been on a roller coaster ride the last few years. It generated windfall profits from its testing business during Covid, disposed of its food testing business (along with its corporate name), plowed all that money into cutting-edge diagnostics and reagents acquisitions, and watched as the entire healthcare industry went into a post-Covid hangover.
After all the comings and goings, its portfolio has simplified a bit. Revvity owns two major businesses: a reagent business, selling a catalog of 75,000 products to academic and corporate medical researchers, and an immunodiagnostics business, selling machines and consumables to diagnose autoimmune diseases, infectious diseases, and allergies. There are also two smaller businesses: a software company for lab workers who use their reagents, and the global leader in newborn baby screening.
Revvity gained 2.4% last year and trades for about 23x earnings.
Investments Initiated in 2024 – Eagle Materials
Investments Exited in 2024 and Internal Rate of Return – Armanino Foods of Distinction, 21.5% (OTCPK:AMNF)
After 11 and a half years and many excellent returns, it was tough to say goodbye to our Armanino investment. We expect the company to continue to do well, but the stock was too illiquid for our fund as we’ve grown, so we took advantage of a jump in the stock price to let go of our shares. A 21.5% annualized return is always great, but over 11 years in a single investment, for an overall return of 579%, it is really something. The foodservice pesto business is hardly glamorous, but Armanino executed and delivered a money multiple that would be the envy of a lot of hot industries.
As always, thank you for investing.
Stephen Dodson, Portfolio Manager | Raphael de Balmann, Portfolio Manager
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The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained here or by calling 800.231.2901. Read it carefully before investing. An investment in the fund is subject to investment risks, including the possible loss of the principal amount invested. There can be no assurance that the fund will be successful in meeting its objectives. The fund invests in common stocks which subjects investors to market risk. The fund invests in small and micro-cap companies, which involve additional risks such as limited liquidity and greater volatility. The fund invests in undervalued securities. Undervalued securities are, by definition, out of favor with investors, and there is no way to predict when, if ever, the securities may return to favor. The fund invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. More information about these risks and other risks can be found in the fund’s prospectus. The fund is a nondiversified fund and therefore may be subject to greater volatility than a more diversified investment. Distributed by Arbor Court Capital, LLC – Member FINRA / SIPC |
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