16 October 2018 | by Ensemble Capital

Below is the Q3 2018 quarterly letter for the ENSEMBLE FUND (ENSBX)This quarter’s Company Focus is on Trupanion (TRUP) and Booking Holdings (BKNG). You can find historical Investor Communications HERE and information on how to invest HEREEnjoy!

The performance of the Ensemble Fund (“the Fund”) this quarter was strong, but modestly trailed the broader market after our relatively strong first half. The fund was up 6.00% vs the S&P 500 up 7.71%. Year to date, that brings our performance to up 13.49% vs the S&P 500 up 10.56%.

As of September 30, 2018

3Q18 YTD 1 Year Since Inception*
Ensemble Fund 6.00% 13.49% 21.81% 14.90%
S&P 500 7.71% 10.56% 17.91% 14.19%

*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.

The performance in the quarter was fueled by 10%+ gains in Starbucks (3.2% weight in portfolio), Apple (3.3% weight in portfolio), Oracle (6.5% weight in portfolio), Broadridge (4.6% weight in portfolio), Mastercard (7.0% weight in portfolio), Verisk (3.6% weight in portfolio), and Landstar (7.0% weight in portfolio). Weakness was seen in declines from Broadcom, which was down 14% before we exited this investment. Netflix (4.9% weight in portfolio) and Trupanion (1.8% weight in portfolio) which were down mid-single digits after being our best performing investments in the first half of the year with Netflix up 105% and Trupanion up 35% during the six weeks after we purchased our initial position during the second quarter. Booking Holdings (8.8% weight in portfolio) and Charles Schwab & Company (4.5% weight in portfolio) were down a couple percentage points in the quarter.

The gains in Starbucks and Oracle were relief rallies as these out of favor stocks seem to have seen selling exhaustion and investors are starting to get more comfortable with the medium-term outlook. While investors have sold both stocks down on growth concerns, we would note that consensus estimates call for high single digit EBITDA growth at both companies, highlighting that while each company has seen headlines calling their growth potential into question, they are still both expected to continue to produce solid growth with very strong returns on capital.

Apple rallied strongly in the quarter on good Q2 results and the market’s growing comfort in the sustainability of both iPhone unit sales and the associated cash flow streams which increasingly include services and accessories that improve cash flow per iPhone user. After owning Apple as one of our largest holdings for much of the last nine years, we’ve trimmed our position over the course of this year so that it now ranks near the bottom of our holdings. This reduction in our position size does not reflect any downgrade in our assessment of the business. Instead it is simply the fact that with a market cap of over $1 trillion we think the current market value no longer represents a material discount to the underlying company value. That being said, the company demonstrated strong pricing power last year in raising the flagship X model starting price to $1000 last year and this year they are pushing ahead with broad price increases across their model lineup. With an iPhone still costing about $1 a day while commanding an average of three hours a day of usage, it may be that Apple still has more untapped pricing power than we are giving them credit for. On the other hand, there is no guarantee that they will be able to maintain and slightly grow unit volumes over the very long term. We think the current market price comes close to balancing the risks and potential that the company faces and so we’ve reduced our holding to reflect this outlook.

Meanwhile, Broadridge, Mastercard, Verisk, and Landstar, a group of companies that provide a mix of software, services and data processing, were all up 10% to 15%. These businesses serve very different customers and end markets, so there is no reason to think that the strong and tightly correlated performance of these stocks was due to a common fundamental driver. But each of them do benefit from improving economic conditions, which have been playing out in recent months, while also operating asset light business models that cushion the downside impact from a recession should one occur. As investors grapple with both improving economic conditions and increased worries that the current economic expansion may be nearing its end, these types of economically sensitive, but asset light business models may be coming into favor with investors.




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.

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