Abstract

• The Akre Focus Fund invests in a small variety of what we consider to be extraordinary companies which can be run by proficient and trustworthy managers who correctly reinvest free money circulation.
• Based mostly on inner evaluation, the Fund’s 2022 efficiency was pushed nearly completely by valuation multiples declining from report highs reached in 2021.
• In brief and in mixture, the Fund’s companies grew per-share earnings in 2022, however the valuations ascribed to these earnings declined by roughly 25%.
• There may be nothing surprising or insidious about 2022’s widespread valuation declines given the backdrop of excessive beginning valuations, rising inflation and rates of interest, and a hawkish Federal Reserve.
• We don’t view the backdrop of 2022 as presenting enough proof of getting entered a “new period” of investing.
• Nothing in regards to the expertise of 2022 has triggered us to rethink both our funding method or the kind of companies we want to personal. Inventory market valuations fluctuate and rate of interest ranges and expectations play an essential position in that course of. However that has no bearing on our wanting to pay attention our buyers’ capital in what we contemplate to be durably advantaged companies with distinctive administration and lengthy runways for reinvestment.
• Inside our Fund, numerous holdings are extra attractively valued in the present day versus a 12 months in the past, and there are a handful of names we contemplate compelling bargains. Total, nonetheless, we stay comparatively defensive within the face of persistent, but manageable, internet outflows and valuations remaining stubbornly above our purchase targets for a lot of current and potential new names.
• As we enter 2023, we stay as agnostic about near-term market route as we’re assured within the long-term prospects of the companies we personal.

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Greetings and Pleased New Yr from Middleburg.

The Akre Focus Fund’s fourth quarter 2022 efficiency for the Institutional share class was 9.33% in contrast with S&P 500 Complete Return at 7.56%. Efficiency for the trailing 12-month interval ending December 31, 2022, for the Institutional share class was -22.73% in contrast with S&P 500 Complete Return at -18.11%.

2022 marked the Fund’s first unfavorable efficiency interval measured over the course of a calendar 12 months. It additionally marked the fourth calendar 12 months out of the Fund’s thirteen-year historical past when the Fund’s return trailed that of the S&P 500. By way of relative efficiency, the primary quarter of 2022 proved decisive. The Fund’s 1Q22 return of unfavorable 11.18% was a lot worse than the S&P 500’s unfavorable 4.60%, a 658 foundation level differential. That deficit shrunk to 462 foundation factors by year-end, however proved an excessive amount of to beat inside the 12 months.

Based mostly on inner evaluation, the Fund’s 2022 efficiency was pushed nearly completely by valuation multiples declining from report highs reached in 2021. This decline in valuation multiples greater than offset what we estimated to have been a low-to-mid-single digit enhance in free money circulation per share on a weighted-average foundation throughout the Fund’s holdings. In brief and in mixture, the Fund’s companies grew per-share earnings in 2022, however the valuations ascribed to these earnings declined by roughly 25%.

What to make of this? What may be realized from the expertise of 2022? For us, the reply to each questions is “remarkably little.” There may be nothing surprising or insidious about 2022’s widespread valuation declines given the backdrop of excessive beginning valuations, rising inflation and rates of interest, and a hawkish Federal Reserve. Disagreeable? Definitely. Unreasonable? In no way. We don’t view the backdrop of 2022 as presenting enough proof of getting entered a “new period” of investing. The Federal Reserve was climbing rates of interest as lately as 2018, and a 10-year US Treasury yield of three.5% to 4.0% doesn’t represent a brand new period of excessive rates of interest, besides compared to the very lows of 2019-2021.

Efficiency	Common Annual Complete Returns as of 12/31/22
Web Belongings	QTD	YTD	1 YR	3 YR	5 YR	10 YR	SinceInception8/31/09
Retail Share Class (MUTF:AKREX)	9.25	-22.93	-22.93	4.83	10.36	13.80	13.93
Institutional Share Class (MUTF:AKRIX)	9.33	-22.73	-22.73	5.11	10.66	14.10	14.23
S&P 500 TR	7.56	-18.11	-18.11	7.66	9.42	12.56	12.65

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Efficiency information quoted represents previous efficiency and doesn’t assure future outcomes. The funding return and principal worth of an funding will fluctuate in order that an investor’s shares, when redeemed, could also be price kind of than their unique price. Fund efficiency present to the newest month-end could also be decrease or greater than the efficiency quoted and may be obtained by calling 1-877-862-9556. The Fund’s annual working expense (gross) for the Retail Class shares is 1.30% and 1.04% for the Institutional Class shares. The Fund imposes a 1.00% redemption price on shares held lower than 30 days. Efficiency information doesn’t replicate the redemption price, and if mirrored, whole returns could be diminished. Mutual fund investing includes threat. Principal loss is feasible. The Fund is non-diversified, that means it might focus its belongings in fewer particular person holdings than a diversified fund. Due to this fact, the Fund is extra uncovered to particular person inventory volatility than a diversified fund. The Fund invests in small- and medium- capitalization corporations, which contain further dangers similar to restricted liquidity and better volatility than bigger capitalization corporations.

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This isn’t to recommend that nothing has modified nor that extra substantial change could not happen. However nothing in regards to the expertise of 2022 has triggered us to rethink both our funding method or the kind of companies we want to personal. Inventory market valuations fluctuate and rate of interest ranges and expectations play an essential position in that course of. However that has no bearing on our wanting to pay attention our buyers’ capital in what we contemplate to be durably advantaged companies with distinctive administration and lengthy runways for reinvestment. Vitality shares could have been the darlings of 2022 however have by no means met our standards for long-term possession. We won’t abandon what works to chase what’s working.

We consider 2022 served to blow the froth off the inventory market as an entire. Within the extra profitless and speculative corners of the market, complete “mugs” have been overturned! Inside our Fund, numerous holdings are extra attractively valued in the present day versus a 12 months in the past, and there are a handful of names we contemplate compelling bargains. Total, nonetheless, we stay comparatively defensive within the face of persistent, but manageable, internet outflows and valuations remaining stubbornly above our purchase targets for a lot of current and potential new names.

The highest 5 optimistic contributors to efficiency throughout the quarter have been Mastercard (MA), Moody’s (MCO), O’Reilly Automotive (ORLY), Visa (V), and Roper Applied sciences (ROP). Nothing noteworthy to name out. The 5 largest detractors from efficiency this quarter have been Salesforce (CRM), CarMax (KMX), Brookfield Company (BN), Snowflake (SNOW), and Brookfield Asset Administration (BAM). Once more, nothing noteworthy.

As we enter 2023, we stay as agnostic about near-term market route as we’re assured within the long-term prospects of the companies we personal.

Thanks on your continued assist.

John & Chris

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High Ten Holdings as of 12/31/22

Title	% of internet belongings
Mastercard, Inc. (MA)	14.4%
Moody’s Corp. (MCO)	12.0%
American Tower Corp. (AMT)	10.8%
Visa, Inc. (V)	8.4%
Constellation Software program, Inc. (OTCPK:CNSWF)	8.1%
O’Reilly Automotive, Inc. (ORLY)	6.3%
KKR & Co., Inc. (KKR)	5.7%
Roper Applied sciences, Inc. (ROP)	5.6%
Brookfield Corp. (BN)	4.4%
CoStar Group, Inc. (CSGP)	4.4%

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Sector Weightings as of 12/31/22

Title	% of internet belongings
Info Expertise	42.3%
Financials	23.4%
Actual Property	10.8%
Shopper Discretionary	8.6%
Industrials	4.4%
Well being Care	3.8%
Money & Equivalents	6.7%

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The composition of the sector weightings and fund holdings are topic to vary and are usually not suggestions to purchase or promote any securities. Money and Equivalents embody asset backed bonds, company bonds, municipal bonds, funding bought with money proceeds for securities lending, and different belongings in extra of liabilities. The S&P 500 TR is a broad-based unmanaged index of 500 shares, which is widely known as consultant of the fairness market on the whole. It isn’t attainable to speculate straight in an index. The Fund’s funding goals, dangers, prices, and bills have to be thought of rigorously earlier than investing. The abstract and statutory prospectus accommodates this and different essential details about the funding firm and it might be obtained by calling (877) 862-9556 or visiting www.akrefund.com. Learn it rigorously earlier than investing. The Akre Focus Fund is distributed by Quasar Distributors, LLC.

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Unique Put up

Editor’s Observe: The abstract bullets for this text have been chosen by In search of Alpha editors.

Editor’s Observe: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.