Below is the Q2 2021 quarterly letter for the ENSEMBLE FUND (ENSBX). You can find historical Investor Communications HERE and information on how to invest HEREEnjoy!

2Q21 1 Year 3 Year 5 Year Since
Ensemble Fund 6.93% 45.58% 21.86% 21.63% 18.05%
S&P 500 8.55% 40.79% 18.67% 17.65% 15.70%

*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

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

The second quarter of 2021 saw an explosion of growth in the United States as our country successfully gave at least one COVID vaccination shot to an incredible 88% of adults over age 65, those most vulnerable to the worst COVID outcomes, and provided the same to two thirds of all adults. 95% of people who were employed pre-COVID are now back to work. Importantly, US household checking and savings accounts contain over $4 trillion more than they did pre-pandemic due to huge stimulus payments and household saving rates running at record high levels during COVID. Consumer spending is now running at all time high levels. In fact, consumer spending, which makes up 70% of the US economy, is likely higher today than it would have been if COVID had never happened.

But while the US economy avoided the worst case recessionary or even depressionary scenarios that we were all rationally worried about a year ago, the full economic impact of COVID is still yet to be seen.

During earlier phases of the pandemic, policy actions by Congress and the Federal Reserve were designed to build a “bridge” that would keep households and businesses economically whole during the period they were limited or unable to conduct business and go to work. Unlike a more typical recession, which is triggered after years of over investment and/or overspending that requires a reset to return to a more sustainable level of activity, COVID hit at a time when economic activity was still running below full capacity.

Therefore, unlike the painful but necessary, and ultimately positive, retrenching that businesses and households go through during a typical recession, Congress and the Federal Reserve rightly recognized that American businesses and households were in relatively healthy economic shape going into COVID and that it was within the collective best interest of the US economy and society to build this “bridge” to the other side. Their hope was that providing this support would allow the economy to return quickly to pre-pandemic levels and begin growing again. And that’s exactly what has played out.

Regardless of our, or any other investor’s, point of view on whether policy makers should have done what they did, it is objectively true that they accomplished their goals. The US economy returned to pre-COVID levels of activity less than 12 months after the pandemic began and is currently growing at an unprecedented rate.

The greatly feared COVID depression was avoided.

But the story of COVID’s impact on the economy is far from over. During the decade between the Great Financial Crisis and COVID, US economic growth was abnormally weak. Rather than seeing an average annual growth rate in real GDP of 3% a year as had occurred for the half a century prior to the financial crisis, real GDP grew at 2% a year. This led to a $4.7 trillion reduction in economic activity compared to where our country would have been if we had continued growing at the old 3% trend.




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 or by calling the transfer agent at 1-800-785-8165. The prospectus should be read carefully before investing.

 Important Risk Information

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.


In 2007, during the credit-fueled boom that swept across housing and financial markets, former Citigroup CEO Chuck Prince famously – or infamously – said about his company’s lending practices:

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

We don’t need the benefit of hindsight to see the risks inherent in this logic. Prince himself admitted that the environment was unsustainable, yet Citigroup and other institutions pressed on regardless.

For long-term investors like us, you want to avoid companies trying to do unsustainable things sustainably. The longer the practice continues, the larger the off-balance sheet liability becomes. And when the bill comes due, watch out.

The challenge is that few unsustainable trends stop on a dime. Some last a year, others can drag out for a decade or more.

It’s our job as business analysts, then, to identify unsustainable practices and understand how the company is responding to them.

Here are a few examples of unsustainable practices.

We’ve written extensively about the importance of stakeholder analysis in our process. When a company takes advantage of a stakeholder to reward shareholders, we call this “mortgaging the moat.” In other words, the company is pressing its advantage too far, whether it be on excessive pricing for customers or damaging its community through poor environmental practices. Eventually, that stakeholder fights back or walks away.

We’re seeing this play out in the labor markets today, particularly in businesses that rely on lower-wage labor. We can debate the right level of minimum wage in the U.S., but it’s hard to argue that the federal minimum wage has kept up with both inflation and GDP per capita growth.

Many U.S. food service and retail operations have built their business models on a steady supply of minimum and near-minimum wage workers. So plentiful was the labor pool that their business models worked despite employee turnover rates being multiples of the national average.

This tweet from user “fed_speak” perfectly captures why this stakeholder deficiency should be a concern for long-term investors.

Restaurants and retail stores are typically low-margin operations to begin with, so now that the market clearing price for starting wages has jumped, many restaurants and stores are in crisis mode. Their ability to capitalize on plentiful and cheap labor likely masked rotting businesses underneath.

Some economic commentators argue credibly that temporary COVID-related matters like unemployment pay or remote schooling are the reason filling jobs in these industries is difficult. While this may be the case, these are both just explanations for why the current market price for minimum wage type labor is rising. It does not change the fact that restaurants are frustrated they can’t hire people at previously lower wages.

We own four companies in these industries – Starbucks, Costco, Chipotle, and Home Depot. Each of them has long been considered employers of choice due to generous pay and benefits packages. We also believe they have pricing power and can pass on the costs of higher wages to customers without losing demand.

Turning to healthcare, we’ve long argued that the U.S. healthcare system status quo is unsustainable. Relative to spending per capita, the U.S. has far worse outcomes than it should. Whether by government mandate, free market forces, or a combination of both, this will change.

As such, any healthcare company we would consider for the portfolio has to show improved patient outcomes and reduce system-wide costs.

Indeed, improving patient outcomes and reducing system-wide costs is explicitly stated in Masimo’s mission statement. Its non-invasive medical sensors provide better results than the alternatives and thanks to its superior accuracy, reduces false alarm costs. Intuitive Surgical’s minimally-invasive robotic surgery tools reduce recovery times and costs related to infections, blood loss, and readmission risks.

While it may take a lot longer for the U.S. healthcare system to change than we think, we also think that owning companies reliant on the status quo to persist adds risk to our portfolio.

Finally, we look to avoid unsustainable business plans. Companies that successfully developed a crown jewel product that’s throwing off gobs of free cash flow may naturally get too comfortable with their present situation. This opens the door for competitors and can lead to moat erosion.

As Clayton Christensen wrote in his book How Will You Measure Your Life:

 “If you study the root causes of business disasters, over and over you’ll find a predisposition toward endeavors that offer immediate gratification over endeavors that result in long-term success. Many companies’ decision-making systems are designed to steer investments to initiatives that offer the most tangible and immediate returns, so companies often favor these and shortchange investments in initiatives that are crucial to their long-term strategies.”

It’s easy to see how this can happen. Boards establish financial incentives for management to produce better results each year and salespeople know the crown jewel product sells and the next generation’s product is uncertain. A big bet on a next generation product that flops is not great for executive job security or the salesperson’s commission check.

We noticed this happening with Time Warner in 2016 and exited the position once we realized they were unwilling to make the necessary changes to better compete with Netflix on streaming.

Speaking of Netflix, the company has reinvented itself three times, starting out as DVD-by-mail, followed by streaming video, and now as a content[…]

Value Investor Insight is one of a small number of publications dedicated to profiling top performing investors that our team reads regularly as a way to learn from our peers. The interviews focus on the subject’s overall investment approach through the lens of company specific analysis. So we were thrilled to recently be approached by the publication to profile Ensemble Capital.

In the interview, our investment team discusses:

  • Why businesses with competitive advantages that protect high returns on invested capital generate persistent outperformance in the stock market, despite most investors recognizing them as high quality companies.
  • The types of setups that lead to opportunities to buy these companies at a discount.
  • How we are incorporating the current economic boom into our investment thinking.
  • And we profile our investments in Home Depot, NVR, Masimo, Netflix, and more.

Click on the image below to download the full interview.

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.

You don’t have to be an economic expert to recognize that very, very big things are happening in the US economy. While our economic outlook does not typically play a big role in our investment process, as we’ve written about in the past, (see here and here) we think it is critically important for investors to understand the economic context in which they are investing.

For much of the last decade, the key question investors needed to ask themselves to understand growth prospects was “by how much might demand increase over time?” But with the economy growing at historically unprecedented speed, the critical question has now been turned on its head so that investors need to understand “by how much might this company be able to increase supply?”

This key question, and its new mirror image, are a microeconomic expression of the macroeconomic question on everyone’s mind, “Can America expand our economic output capacity fast enough to meet the rapidly rising demand? Or, will demand overshoot supply leading to inflation?”

Without making any forecast about the future, investors can still seek to understand the critical aspects of the current economic context.

For instance, Americans have never made so much money! While the recession that struck in March 2020 was the fastest economic decline in history and very deep, American households brought in more income in 2020 than any year on record. That this was achieved due to massive transfer payments from the government is important for understanding context. But regardless, income received via wages or transfer payments represents American consumers’ purchasing power. And in the first quarter of 2021, income shot even higher.

This 30-year chart shows just how dramatic and historically unprecedented the surge in income has been.

Consumers have been both restricted in their ability to spend money and have likely desired to hold higher levels of savings due to the high levels of economic uncertainty. But this delay in spending means that American households currently have approximately $3 trillion more in their checking and savings accounts than they did pre-pandemic. And now, as those savings are starting to be spent even while wages begin to accelerate, consumer spending has rocketed to new all time highs. Indeed consumer spending today is almost certainly higher than it would have been if COVID had never happened.

With pre-pandemic consumer spending running at about $15 trillion a year, the $3 trillion in excess savings would fuel a 20% jump in spending. Or, if released slowly over the next 3-5 years, would be sufficient to provide a 4%-7% annual boost to consumer spending, which makes up 70% of the US economy.

While the stimulus bills passed during COVID were focused on helping households and businesses survive the COVID shock so that they could continue operating once the pandemic passed, the $4 trillion in infrastructure bills currently being debated are not meant to support the economy during COVID, but to invest the equivalent of nearly 20% of annual GDP into the physical and human capital of the United States.

Since this money is expected to be spent over eight years, it is better understood as a 2.5% of GDP ongoing investment for most of the next decade. While the full $4 trillion is unlikely to be passed, even just the Republican counteroffer of nearly $1 trillion still qualifies as a large, ongoing driver of additional demand. And don’t lose site of the fact that the Senate just voted on a bipartisan basis to approve $250 billion of new spending over the next five years to invest in scientific research and development. In any other year, a $250 billion research and development bill passing on a bipartisan basis would have been big news, but in today’s economic context, it is given only passing attention by many observers.

So, you don’t need to make any sort of forecast to simply observe that a tidal wave of money is going to be coursing through the US economy, not just in 2021 but for an as yet unknown period of time. A truly macro agnostic investor would simply ignore all of this and thus, implicitly assume that the most likely state of the economy in the years ahead would be the historically “normal” economic trends we’ve seen in the past. But to us, ignoring multi-trillion dollar tidal waves of money is not the mark of an investor who understands the difficulty of economic forecasting, but rather is a myopic point of view that ignores the unprecedented reality of the current US and global economy.

At the macroeconomic level, the amount of excess output capacity in the US economy to absorb increased demand is simply unknown. Up until the Financial Crisis, the Congressional Budget Office and other nonpartisan economic observers believed that the capacity of the US economy to deliver output increased by about 3% a year. This was made up of roughly 1% from population growth and 2% from enhanced productivity.

However, in the decade after the Financial Crisis, economic observers watched real economic output increase by just 2%, rather than 3%, per year and over time came to the conclusion that something structural had changed, which meant that the US economy was now permanently unable to increase our economic output in the ways that generations of Americans had done successfully ever since we emerged as a developed economy and global world leader in the wake of World War II.

In this chart, the red line shows the actual GDP of the united states. The other lines are the nonpartisan Congressional Budget Office’s (CBO) estimates of what potential GDP – our countries capacity to produce goods and services – would be over time. Each of the other lines are marked with a year, which is the year in[…]

Columbia Business School is where Ben Graham, the father of value investing, taught Warren Buffett how to invest. In the decades since, the school’s MBA program with its value investing program has established itself as one of the very best graduate programs for aspiring investors. One offering of the program is their Graham & Doddsville newsletter (named after Warren Buffett’s classic essay “The Super Investors of Graham and Doddsville”) in which they feature long form interviews with top investors. In the most recent issue, they profile Ensemble Capital’s CIO, Sean Stannard Stockton.

In the interview, Sean discusses:

  • The mistakes he made early in his career and how they shaped his investment philosophy.
  • The evolution of Ensemble’s approach over the years and why it is so critical for investors to constantly improve and adjust their approach.
  • Why companies that pay employees well and do not exploit their customers can yield the best long term results for shareholders.
  • A deep dive on Home Depot explaining the key elements that have made it one of our top holdings.

You can read Sean’s full interview here and learn more about the Graham & Doddsville newsletter here.

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.