Best mutual funds: stocks that make Akre Focus a winner
The $ 17 billion Akre Focus Fund (AKRIX) is one of the best mutual funds. But don’t bother asking the fund managers if they are trying to maintain this elite position by capitalizing on the recovery in the US economy or on the measures taken by the Biden administration to help improve infrastructure.
Co-managers John Neff and Chris Cerrone research different drivers of the relatively small number of stocks they buy. Their approach requires a long-term perspective, they stress.
“We seek to compound our shareholders’ capital at the highest rate for the longest time possible,” said Neff. “We are not playing quarterfinals. We are not trying to adapt to changing political winds or the landscape.”
Cerrone added, “We start with a bottom-up perspective for every action. And we stick with that.”
Best Mutual Funds: This One is Lean and Mean
One of the results of their approach is that their portfolio was lean and average, mirroring the name of the fund, with just 22 holdings as of March 31. Holdings ranged from recent IBD ranking member Adobe (ADBE), publisher of design, imaging and publishing software, to the manager of alternative assets KKR (KKR), a recent member of IBD 50.
The ranking is the list organized by IBD of the main stocks that stand out for their technical and fundamental perspectives. The IBD 50 is IBD’s flagship display of major growth stocks that exhibit strong relative strength in prices and blue-chip fundamentals.
The wallet also includes a wireless tower owner American Tower (AMT) and bond appraiser Moody’s (MCO).
Adobe’s three product lines
Adobe’s various offerings help Akre Focus stay a member of the top mutual funds.
“The way we think of Adobe is that they are three fast growing software franchises with independent advantages,” Cerrone said. “The first part is the creative cloud. This accounts for almost all of their profits. It consists of products like Photoshop (for manipulating images) and Lightroom (for organizing and processing images). These are standards of the industry, for the most part unchallenged by competitors. “
The second key step is Adobe Document Cloud. Its reader is a tool for viewing PDF documents. Its Acrobat allows you to create and edit documents. “It’s a small part of their business, but dominant” in its market segment, Cerrone said.
The third franchise is Adobe’s suite of ad technology applications, including Adobe Analytics. “It lets you see things like how customers are interacting with your website,” Cerrone said. “You can see where customers move their mouse and how long they keep it there. This segment does not contribute much, if at all, to profitability. But this is an important area in which they are investing. Most businesses want to understand their customers. “
He added: “In the future, we expect Adobe to increase its revenue in the middle of adolescence. We expect them to increase their long-term profits at the same rate or faster as they increase their margins and reduce outstanding shares through buybacks.
How KKR Can Help Focus Fund Remain Among the Top Mutual Funds
How does KKR help Akre Focus fight to be among the best mutual funds? By helping large institutional investors move money from stocks and bonds to alternative investments, including private equity and private credit.
KKR’s overall assets under management are expected to grow at least double-digit rates over the next five years, according to Cerrone. This will cause book value per share to grow at a mid-teens pace. It’s as if a company’s return on equity increases with the pace of adolescence, he says.
One thing that sets KKR apart is that it has a much smaller dividend than that of its main rivals. “KKR is reinvesting a lot more of its free cash flow,” Cerrone said. “This means that the capital of KKR shareholders is invested alongside their clients.”
American Tower Rules A key bottleneck
American Tower is helping Akre Focus fight to maintain its place among the top mutual funds by owning something that is rare and in high demand: wireless tower space.
And the demand is increasing. “Wireless data usage is increasing on average about 30% per year,” said Neff. “And we have the best company that owns the bottleneck in all of the growth in wireless data consumption.”
Wireless towers are the bottleneck in the industry. American Tower has more than 200,000 in the United States and about 160,000 outside the United States, says Neff.
By owning the company that controls this bottleneck, Focus Fund does not have to try to choose the company that will produce the best performing smartphone. “We don’t have to choose the dominant carrier either,” he said. “Neither the dominant chipset. Or which apps will be the most popular.”
American Tower’s earnings per share have increased 1%, 15%, 9% and 24% in the past four quarters.
By the Numbers: One of the Best Mutual Funds
Akre Focus became one of the winners of the IBD Best Mutual Funds Awards, surpassing the S&P 500 in 2020 and in the three, five and 10 years ended December 31.
This year through Wednesday, it’s one eyelash ahead of the S&P 500, 15.11% versus 15.10%, and 12.72% for its large-cap growth rivals tracked by Morningstar Direct. You can buy Akre Focus Retail Class (AKREX) shares with a minimum initial investment of $ 2,000.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for advice on retirement planning and active mutual fund managers who consistently outperform the market.
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