The fund:

Manager:

The call:

Does it make sense to you that you could profit from following the real-life choices of the professionals in your life?  What hospital does your doctor use when her family needs one?  Where does the area’s best chef eat when he wants to go out for a weeknight dinner?  Which tablet computer gets Chip and her IT guys all shiny-eyed?

If that strategy makes sense to you, so will the Bretton Fund (BRTNX).

Bretton Fund (BRTNX) is managed by Stephen Dodson.  For a relatively young man, he’s had a fascinating array of experiences.  After graduating from Berkeley, he booked 80-100 hour weeks with Morgan Stanley, taking telecom firms public.  He worked in venture capital, with software and communications firms, before joining his father’s firm, Parnassus Investments.  At Parnassus he did everything from answering phones and doing equity research, to co-managing a fixed-income fund and presiding over the company.  He came to realize that “managing a family relationship and what I wanted in my career were incompatible at the time,” and so left to start his own firm.

In imagining that firm and its discipline, he was struck by a paradox: almost all investment professionals worshipped Warren Buffett, but almost none attempted to invest like him.  Stephen’s estimate is that there are “a ton” of concentrated long-term value hedge funds, but fewer than 20 mutual funds (most visibly The Cook and Bynum Fund COBYX) that follow Buffett’s discipline: he invests in “a small number of good business he believes that he understands and that are trading at a significant discount to what they believe they’re worth.”    He seemed particularly struck by his interviews of managers who run successful, conventional equity funds: 50-100 stocks and a portfolio sensitive to the sector-weightings in some index.

I asked each of them, “How would you invest if it was only your money and you never had to report to outside shareholders but you needed to sort of protect and grow this capital at an attractive rate for the rest of your life, how would you invest.  Would you invest in the same approach, 50-100 stocks across all sectors.”  And they said, “absolutely not.  I’d only invest in my 10-20 best ideas.” 

And that’s what Bretton does.  It  holds 15-20 stocks in industries that the manager feels he understands really well. “Understands really well” translates to “do I think I understand who’ll be making money five years from now and what the sources of those earnings will be?” In some industries (biotech, media, oil), his answer was “no.” “Some really smart guys say oil will be $50/bbl in a couple years. Other equally smart analysts say $150. I have no hope of knowing which is right, so I don’t invest in oil.” He does invest in industries such as retail, financial services and transportation, where he’s fairly comfortable with his ability to make sense of their dynamics.

When I say “he does invest,” I mean “him, personally.”  Mr. Dodson reports that “I’ve invested all my investible net-worth, all my family members are invested in the fund.  My mother is invested in the fund.  My mother-in-law is invested in the fund (and that definitely sharpens the mind).”   Because of that, he can imagine Bretton Fund functioning almost as a family office.  He’s gathering assets at a steady pace – the fund has doubled in size since last spring and will be able to cover all of its ‘hard’ expenses once it hits $7 million in assets – but even if he didn’t get a single additional outside dollar he’d continue running Bretton as a mechanism for his family’s wealth management.   He’s looking to the prospect of some day having $20-40 million, and he suspects the strategy could accommodate $500 million or more.

Bottom Line: The fund is doing well – it has handily outperformed its peers since inception, outperformed them in 11 of 11 down months and 18 of 32 months overall.  It’s posted solid double-digit returns in 2012 and 2013, through May, with a considerable cash buffer.  It will celebrate its three-year anniversary this fall, which is the minimum threshold for most advisors to consider the fund. While he’s doing no marketing now, he’s open to talking with folks and imagines some marketing effort once he’s got a three year record to talk about.  Frankly, I think he has a lot to talk about already.

The conference call (When you click on the link, the file will load in your browser and will begin playing after it’s partially loaded.)

The profile:

Bretton has the courage of its convictions.  Those convictions are grounded in an intelligent reading of the investment literature and backed by a huge financial commitment by the manager and his family.  It’s a fascinating vehicle and deserves careful attention.

The Mutual Fund Observer profile of BRTNX, updated June 2013.

The BRTNX audio profile

Web:

The Bretton Fund website

2013 Q3 Shareholder Letter

Fund Focus: Resources from other trusted sources