Ensemble Fund Investor Letter – Fourth Quarter 2020
As of December 31, 2020
*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.
We want to begin this letter by saying thank you to our long-time investors who stuck with us this year and our new investors who saw fit to invest with us in the midst of a pandemic. While we are pleased with how we navigated the unprecedented events of 2020, we know that it is the trust our investors place in us and their willingness to maintain that trust through panic inducing times like those witnessed in March, that allows us to pursue our long-term oriented investment strategy. We know that trust is hard earned and can be easily lost, so we appreciate the role that our investors play in enabling us to succeed.
Every year offers lessons for investors who are open to learning them. The lesson this year was a reminder of just how unpredictable financial markets can be. In mid-February, just weeks before the Coronavirus began killing Americans by the thousands on a daily basis, the market was trading at what was then all time highs. On March 23rd, the US stock market bottomed, after a sickening 34% decline, as the Federal Reserve and Congress began to make clear that they would provide a level of financial support to the economy that dwarfed anything seen in the post WWII era. After an initial strong bounce, the market surprised many investors by continuing to rally for much of the year, turning positive in August and finishing the year with a gain of 18.40%.
If on January 1st of 2020, a crystal ball had revealed that a deadly pandemic would sweep the globe killing nearly two million people and sending every major economy into the sharpest recession ever recorded, not a single informed investor would have suggested that market returns for 2020 would be double the historical average annual return. Understanding why this unexpected result occurred is of critical importance in thinking about the investment opportunities and risks ahead.
At the big picture level, the market displaying very strong performance in the midst of a terrible recession is explained primarily by the fiscal stimulus provided on a bipartisan basis by Congress. The reason recessions are so bad for the stock market is because during recessions, household income declines, people spend less money, and so companies generate less profits. But the Coronavirus recession featured rising household income. While income from employment did decline by approximately $4,100 per household, the direct economic transfer payments authorized by Congress totaled $9,500, leading to a net increase in household income.
So, while the longer-term costs of Congressional action (i.e. potential concerns about debt levels and/or increased inflation) will not be known until later, 2020 actually saw the fastest ever growth in household income.
Now imagine looking at that crystal ball on January 1st and rather than mentioning the pandemic, it had told you that American households, whose spending makes up 70% of the US economy, were going to see their income supercharged to new all-time high levels. The idea that the market might go up wouldn’t have seemed so farfetched.
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.
While we do not accept public comments on this blog for compliance reasons, we encourage readers to contact us with their thoughts.
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.