The Akre Focus Fund takes the buy-and-hold strategy seriously, according to an article in The Wall Street Journal.
John Neff, one of the $9.8 billion fund’s portfolio managers, explains that investment decisions are made based on four criteria:
- Analysis of a company’s business model, which involves looking for a “significant competitive advantage, high return on capital and attractive growth prospects.”
- Strong leadership in the form of “management teams with equal parts skill and integrity, because one without the other doesn’t do you any good.”
- Free cash flow—they look for a “significant reinvestment of free cash flow back into the business and high rates of return on that reinvestment.”
- Attractive share price.
According to Neff, a company that meets all of these criteria can become a “compounding machine,” and such investments have resulted in a concentrated portfolio with low turnover. He explains further that the fund doesn’t set price targets at which it will sell and will keep a position in a strong business even if prices go up. The article notes, “It will often go years between altering its positions as it waits on the best opportunities.”
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