Akre Focus Fund Q4 2025 Commentary

Performance Overview - The Akre Focus ETF's fourth quarter 2025 performance was -2.80%, underperforming the S&P 500 Total Return, which was 2.66% [2] - For the trailing 12-month period ending December 31, 2025, the ETF returned 1.23%, compared to 17.88% for the S&P 500 Total Return [2] Market Context - 2025 exhibited a significant performance disparity between the S&P 500 and the S&P 500 Quality Index, the largest since 1999, with a difference of 445 basis points [5] - The S&P 500's gains were largely driven by "Magnificent 7" mega-cap stocks, which rose nearly 25% in aggregate during 2025, contributing to over half of the S&P 500's return over the past three years [3] Historical Comparison - The performance disparity in 2025 mirrors the market conditions of 1999, where the S&P 500 benefitted from the inclusion of internet companies that did not meet quality markers [4] - From 1998 to 2025, the S&P 500 Quality Index had an annualized return of 10.2%, compared to 8.2% for the S&P 500, illustrating the long-term benefits of quality investing [6] Portfolio Insights - The portfolio faced drawdowns in several holdings, including Constellation Software (down 22.00%), Roper Technologies (down 13.84%), and CCC Intelligent Solutions (down 32.23%), primarily due to valuation multiple compression linked to AI concerns [8] - The narrative surrounding AI has favored tool providers over users, but the company believes that established software businesses will ultimately benefit from AI advancements [9] Investment Philosophy - The company emphasizes a long-term investment approach, focusing on businesses with durable competitive advantages and strong fundamentals, despite short-term market pressures [12] - The strategy involves maintaining cash for high-return opportunities rather than a pro-rata distribution across existing positions, which is a common practice among ETFs [14][15] Sector and Holdings - As of December 31, 2025, the top five holdings included Mastercard (13.3%), Brookfield Corp. (11.2%), and Constellation Software (10.2%) [26] - The sector weightings were heavily concentrated in Financials (56.1%) and Information Technology (20.6%), with cash and equivalents making up 3.1% of the fund [26]