Ensemble Fund

Annual Letter

October 31, 2022

 The Ensemble Fund (the “Fund”) returned -29.33% for the fiscal year ended October 31, 2022. For comparative purposes, the S&P 500® Index, which is the Fund’s benchmark, had a total return of -14.61% over the same time period.

The Fund underperformed the S&P 500® Index very sharply from the beginning of the fiscal year through mid-May. The Fund then outperformed the market through the end of the fiscal year as many of the holdings that most dramatically underperformed earlier in the year, such as Netflix, Illumina, and our housing related investments, reversed their relative performance.

During the fiscal year, we owned 28 different companies of which all but two (Costco and Old Dominion, which we sold out of early in the year) generated negative returns.

Significant detractors from the Fund’s total return included the following:

  • Netflix (6.96%* weight in the Fund): Netflix declined 57.72% during the Fund’s fiscal year, contributing -5.42% to the Fund’s relative After reporting strong growth in new subscribers for the fourth quarter of 2021, the company lost 0.9% of their sub- scribers during the first two quarters of 2022. While investors have worried that these sub- scriber losses are due to competition, we believe the company’s sudden stall in growth is due primarily to surging inflation and weak economic conditions around the globe. In October, the company announced that subscriber growth had returned and guided to an expected acceleration of subscriber growth for the 4th calendar quarter of 2022.
  • Masimo (4.43%* weight in Fund): Masimo fell 59%, contributing -2.56% to the Fund’s relative performance. In February, Masimo announced the surprising acquisition of consumer audio company Sound United causing the stock to fall 35% on the day of the announcement. While Masimo has long communicated their intention to bring their hospital based, health sensor technology into the home as part of their mission to lower the cost of health care and improve patient outcomes, their acquisition of Sound United was an unexpected approach to executing this strategy. Compounding investors’ concerns, Masimo declined to offer a detailed explanation of the Sound United acquisition, stating that in order to avoid alerting competitors to their intentions they would explain the deal at an Investor Day currently scheduled for December 2022.
  • Illumina (5.17% weight in the Fund): Illumina’s stock price declined 44.87% during the Fund’s fiscal year, detracting 2.01% from relative performance vs the S&P 500. In addition to extraordinary strength in the US dollar detracting from growth in their significant foreign revenue, as well as COVID lockdowns limiting sales in China, the company’s already closed acquisition of the cancer test maker GRAIL was thwarted by European Union After paying approximately $8 billion to acquire GRAIL despite EU regulator’s warning that the deal may violate antitrust rules, Illumina will likely need to divest their ownership of the company taking a loss of nearly $4 billion as estimated by the company.

Significant contributors to the Fund’s total return included the following:

  • Mastercard (8.43%* weight in fund): Mastercard declined just 1.61% during the Fund’s fiscal year, adding 1.30% to relative performance. After worries last year about Buy Now, Pay Later lenders being disruptive to Mastercard’s payment network provided to be misguided, Mastercard avoided much of the decline in the broader stock market this year. In addition, with inflation worries being the main driver of the market selloff, the company’s inflation resistant business model calmed worried investors.
  • Charles Schwab & Co (3.87%* weight in the Fund): Even after being the Fund’s best performing stock in fiscal year 2021, Schwab declined just 1.85% this year, adding 0.67% to the Fund’s relative performance. While Schwab is known as a brokerage company, the majority of the company’s earnings power is derived from the net interest income they earn on client cash balances held in brokerage accounts. Rising interest rates increase the company’s net interest margin insulating it from the decline in demand triggered by rising interest rates that so many other companies are experiencing this year.
  • Nintendo (3.97%* weight in the Fund): Nintendo began the fiscal year as one of the cheapest stocks on a price to earnings ratio basis within our portfolio. With such a pessimistic outlook for earnings growth already priced into the stock it declined just 5.35% this year, adding 0.46% to the Fund’s relative performance. We believe that changes to the company’s strategy for launching new gaming consoles, paired with the rise of parents who played Nintendo games as children themselves, will lead to a far better long term earnings outlook than the stock’s valuation contemplates.

The strong economic expansion experienced during 2021 gave way to heighted inflation and a sudden stop to real economic growth in 2022. With the Fed suddenly forced to rapidly increase interest rates to ward off inflation, even if doing so may throw the US and global economy into a recession, financial markets became gripped by a panic over fears of stagflationary forces similar to those seen in the 1970s taking hold. While we acknowledge that such fears have merit, we also believe that the pandemic fueled inflation of today is due to very different reasons than what was experienced in the 1970s. We believe that the depth of the selloff in many of the stocks in our portfolio is excessive, causing these stocks to now trade at levels that offer unusually attractive risk adjusted return potential.

You can read more about our views on the economy and markets, as well find in depth pro- files of our portfolio holdings, in our quarterly letters posted to, as well as by following the Intrinsic Investing blog, published by Ensemble Capital Management, the Advisor to the Fund, at


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.

The Ensemble Fund’s prospectus contains important information about the Fund’s investment objectives, potential risks, management fees, charges and expenses, and other information and should be read and considered carefully before investing. You may obtain a current copy of the Fund’s prospectus by calling 1-800-785-8165. Distributed by Arbor Court Capital, LLC.