Ensemble Fund Investor Letter – First Quarter 2018
Below is the Q1 2018 quarterly letter for the Ensemble Fund (ENSBX). This quarter’s Company Focus is on Netflix (NFLX) and NOW, Inc (DNOW). You can find historical Investor Communications here and information on how to invest here. Enjoy!
The performance of the Ensemble Fund (“the fund”) this quarter was modest on an absolute basis, while being relatively strong when compared to the broader market. The Fund was up 1.93% vs the S&P 500 which was down -0.76%.
As of March 31, 2018
|1Q18||1 Year||Since Inception*|
*Inception Date: November 2, 2015
Performance data represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Performance data current to the most recent month end are available on our website at www.EnsembleFund.com.
Last quarter, in reviewing our performance for 2017, when we slightly trailed a very strong level of market performance, we discussed that we expect our strategy to deliver a better downside capture ratio than upside capture ratio, meaning that we expect to perform better on a relative basis during down markets than during up markets.
After a strong first few weeks of the quarter when the S&P 500 rallied 7.6% and the fund continued to trail slightly, the market experienced its first real bout of selling pressure since early 2016. From the market high on January 26th, the S&P 500 declined by 7.72% through quarter end while the fund declined by 4.87% for a downside capture ratio of 63%.
While we seek to produce strong, long-term absolute returns, we know that losing less during market declines is an important element of reaching our long-term goal. Since it takes a 100% gain to reverse a 50% loss, a solid defense leaves us in a better position to play offense when the tide turns.
The most notable driver of the fund’s performance in the quarter was the over 50% rally in Netflix, which we’ll discuss later in this letter. We also saw positive performance in 14 of our 24 holdings, with double digit positive performance from Broadridge Financial, Mastercard, Ferrari, Transdigm and our new position in Booking Holdings (previously named Priceline), which we initiated during the last week of December.
On the negative side, we saw continued negative performance from Prestige Brands (which we added to in February after the stock declined sharply on a weak quarterly earnings report), as well as L Brands, which unfortunately reversed much of the very strong gains it posted in the second half of last year, and in DistributionNOW, which we exited after their disappointing earnings report which we will discuss in more depth…
As of the date of the post, clients invested in Ensemble Capital Management’s core equity strategy own shares of Netflix (NFLX), Broadridge Financial (BR), Mastercard (MA), Ferrari (RACE), Transdigm (TDG), Booking Holdings (BKNG), L Brands (LB), Prestige Brands (PBH). These companies represent only a percentage of the full strategy. As a result of client-specific circumstances, individual clients may hold positions that are not part of Ensemble Capital’s core equity strategy. Ensemble is a fully discretionary advisor and may exit a portfolio position at any time without notice, in its own discretion.
Ensemble Capital employees and related persons may hold positions or other interests in the securities mentioned herein. Employees and related persons trade for their own accounts on the basis of their personal investment goals and financial circumstances.
Each quarter we file a 13F report of holdings, which discloses all of our reportable client holdings. Please refer to our current 13F filing or contact us for a current or past copy of such filing.
Investors should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the Fund. You may obtain a prospectus at www.EnsembleFund.com or by calling the transfer agent at 1-800-785-8165. The prospectus should be read 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 mid-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 may invest 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 non-diversified fund and therefore may be subject to greater volatility than a more diversified investment.
Fund Fees: No loads; 1% gross expense ratio.
Distributed by Rafferty Capital Markets, LLC Garden City, NY 11530.
While we do not accept public comments on this blog for compliance reasons, we encourage readers to contact us with their thoughts.
The information contained in this post represents Ensemble Capital Management’s general opinions and should not be construed as personalized or individualized investment, financial, tax, legal, or other advice. No advisor/client relationship is created by your access of this site. Past performance is no guarantee of future results. All investments in securities carry risks, including the risk of losing one’s entire investment. If a security discussed in this blog entry is owned by clients invested in Ensemble Capital’s core equity strategy you will find a disclosure regarding the security held above. If reviewing this blog entry after its original post date, please refer to our current 13F filing or contact us for a current or past copy of such filing. Each quarter we file a 13F report of holdings, which discloses all of our reportable client holdings. Ensemble Capital is a discretionary investment manager and does not make “recommendations” of securities. Nothing contained within this post (including any content we link to or other 3rd party content) constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instrument. Ensemble Capital employees and related persons may hold positions or other interests in the securities mentioned herein. Employees and related persons trade for their own accounts on the basis of their personal investment goals and financial circumstances.