Ensemble Fund Investor Letter – Third Quarter 2019

16 October 2019 | by Ensemble Capital

Below is the Q3 2019 quarterly letter for the ENSEMBLE FUND (ENSBX)This quarter’s Company Focus is on Mastercard Inc. Class-A (MA) and Tiffany & Co (TIF). 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 approximately in line with the overall market. The Fund was up 1.48% vs the S&P 500 up 1.70%. On a year to date basis, this brings the Fund to up 27.01% vs the S&P 500 up 20.55%.

As of September 30, 2019

3Q19 YTD 1 Year 3 Year Since Inception*
Ensemble Fund 1.48% 27.01% 6.95% 14.84% 12.82%
S&P 500 1.70% 20.55% 4.25% 13.39% 11.56%

*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.

Fund Fees: No loads; 1% gross expense ratio.

One of the more important drivers of equity returns recently has been something that did not happen. The US did not go into a recession. Back in the 4th quarter of 2018, many investors began to fear that a recession was near at hand after strong levels of economic optimism had characterized the first nine months of 2018. But as we pass the one-year anniversary of these fears exploding into the public consciousness, the unemployment rate has remained at low levels, solid rates of economic growth continues, even as the US laps quite strong levels of growth last year, and corporate revenue and earnings continue to grow.

Notably, the decline in home sales that began last summer and was a key sign of potential economic weakness, has now reversed and returned to growth. As we discussed in a blog post in November of last year examining the housing weakness, even indicators like declining home sales that have a decent historical record of predicting recessions, are not by themselves actually strong evidence that a recession is coming.

While the overall US economy has not gone into a recession, the manufacturing and industrial segments of the economy have slowed to a crawl and are running at near recessionary levels. This is actually the third such slowdown over the last ten years. During both of the past slowdowns, as well as so far this time, consumer spending, which makes up 70% of the US economy, has remained resilient.

In the fund, we have Mastercard (6.2% weight in portfolio) trading near all-time highs as the company directly benefits from consumer spending with management saying they see continued growth. On the other hand, we have Landstar Systems (4.7% weight in portfolio), which facilitates transportation of goods shipped via big rig trucks. The company’s flatbed segment specializes in moving heavy equipment used in manufacturing and industrial industries and the slowdown in these end markets is evident in the company’s financial results.

But as is normal, the drivers of the Fund performance this past quarter were primarily company specific items, rather than macro trends. Notable areas of strength in the Fund during the third quarter included TransDigm (3.3% weight in portfolio) up 14%, Google (7.2% weight in portfolio) which rallied by 13% and First American Financial (4.7% weight in portfolio) which gained 11%. TransDigm’s gains were driven by positive updates from the company on the integration of a large acquisition they completed recently. The strength in Google came from a strong earnings report, which calmed market concerns related to the previous quarter in which the company missed earnings expectations. And First American’s stock benefit from the rebound in housing sales.

The primary source of weakness in the Fund was Netflix (6.0% weight in portfolio), which fell 27%. We also saw modest declines of 5% and 3% respectively in Ferrari (6.6% weight in portfolio) and Oracle (4.5% weight in portfolio). The decline in Netflix’ stock was caused by weaker than expected new subscriber additions in the most recent quarter and investor concerns about competition from Disney Plus, launching in November. We’ve written extensively about Netflix, but in short, we believe that the weaker than expected subscriber results was within the range of normal volatility seen when the company raises prices and we believe that Disney Plus will do well, but a slate of blockbuster movies and kids TV shows will be an addition to, not a replacement for, a Netflix subscription. The declines in Ferrari and Oracle were relatively modest, with Ferrari’s decline more a consolidation of gains earlier in the year (the stock is still up over 50% this year) while Oracle declined some on renewed concerns about their shift to a software-as-a-service business model, and yet the stock remains up over 20% so far this year.

Later in the letter, we will be discussing two of the holdings in the Fund in more depth. However, in addition to investors being interested in the positions in the Fund, we are often asked why we don’t own certain companies. Given the Fund is a focused portfolio of 15-30 stocks, we spend a significant amount of time researching any company before it enters the Fund and then we continue to engage in rigorous research as long as we are shareholders. So, sometimes the answer to why we don’t own a certain stock is as simple as the stock in question has never made it to the top of our priority list. But we also research and ultimately pass on many potential investments that are perfectly good companies.



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.

Distributed by Rafferty Capital Markets, LLC Garden City, NY 11530.

For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please CLICK HERE.

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Past performance is no guarantee of future results. All investments in securities carry risks, including the risk of losing one’s entire investment. The opinions expressed within this blog post are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. All opinions are subject to change without notice and due to changes in the market or economic conditions may not necessarily come to pass. Nothing contained herein should be construed as a comprehensive statement of the matters discussed, considered investment, financial, legal, or tax advice, or a recommendation to buy or sell any securities, and no investment decision should be made based solely on any information provided herein. Links to third party content are included for convenience only, we do not endorse, sponsor, or recommend any of the third parties or their websites and do not guarantee the adequacy of information contained within their websites. Please follow the link above for additional disclosure information.