Ensemble Fund
Annual Letter
October 31, 2018
The Ensemble Fund returned 6.49% for the fiscal year ending October 31, 2018. For comparative purposes, the S&P 500, which is the Fund’s benchmark, had a total return of 7.35% over the same time period.
After generating returns similar to the S&P 500® Index during the first three months of the fiscal year, the Fund’s performance began to exceed its benchmark in February. This outperformance persisted for the balance of the year until early October. During the month of October, the Fund underperformed during the steep market selloff, declining 9.98% while the benchmark declined 6.84% for the month.
Last year, we observed that “stocks trading at a discount to what we believe is their intrinsic value could be most readily found in economically sensitive sectors such as industrials, technology and consumer discretionary. From our perspective, stocks in less cyclical sectors such as utilities and consumer staples generally offer much less value and appear to be trading at steep valuations.” For the first eleven months of the fiscal year, stocks in the Technology and Consumer Discretionary sectors outperformed the broader market, while Utilities and Consumer Staples underperformed.
In October, investors became worried that economic growth may start slowing, even as the Federal Reserve seemed to communicate that they believed the economy could handle materially higher interest rates. This combination led to a reversal of the performance trends that drove the market in the first eleven months of the fiscal year, with Utilities and Consumer Staples not just outperforming but rising in value even as the broader market declined sharply.
During the fiscal year, we owned 30 different companies of which 17 generated a positive return for the Fund.
detractors from the Fund’s total return included the following:
Significant contributors to the Fund’s total return included the following:
As we discussed last year, the Ensemble Fund does not have a mandate to focus on economically sensitive sectors of the stock market. We strive instead to seek out the most attractively priced, high quality companies that exhibit significant competitive advantages. With interest rates moving up to multiple year highs and economically sensitive stocks outperforming for the first eleven months of the fiscal year, we believe that many of the fundamental and valuation conditions we identified previously have played out as expected.
However, despite relatively attractive valuations, economically sensitive stocks will still react negatively to growth scares such as the one that hit financial markets in October. Our goal is not to forecast the exact timing of the next recession, but instead to invest under the assumption that a recession will indeed happen at some point during our investment time horizon and identify stocks that are undervalued based on a conservative outlook for economic conditions and corporate fundamentals. Today, this strategy continues to identify economically sensitive stocks as offering the most attractive risk-return tradeoff.
Over the longer-term, we do not expect the Fund to have such a strong tilt towards economically sensitive sectors. Despite the economically sensitive positioning of the portfolio, the Fund’s beta, or its volatility relative to the S&P 500, was just 1.02 during the period. Over the longer term we seek to build a portfolio which we think will outperform, while being less volatile than the market. But in today’s market, we think risk-adjusted outperformance can be best achieved by accepting the cyclical economic risk that other investors are avoiding while refusing to overpay for companies that offer more defensive fundamental outlooks.
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 by calling 1-800-785-8165.
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.
Fund Fees: No loads; 1% gross expense ratio. Distributed by Rafferty Capital Markets, LLC Garden City, NY 11530.
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 on this website 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 Arbor Court Capital, LLC member FINRA/SIPC.