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By Alec Lucas | 02-06-2015 10:00 AM

Akre Focus Does More With Fewer, Better Picks

This Silver-rated fund holds a compact, low-turnover portfolio of sturdy companies that meet its three-pronged quality criteria.

Silver-rated Akre Focus (AKREX) shows that less is sometimes more. Manager Chuck Akre and his comanagers Tom Saberhagen and John Neff stick to their best investment ideas and hold a compact portfolio of roughly 20 to 30 stocks. The team aims to compound capital at an above-average rate while incurring a below-average level of risk.

To do that, they use the metaphor of a three-legged stool to illustrate the kind of sturdy businesses they're looking for. The first leg of the stool is a business model that produces high free cash flow and has sustainable competitive advantages. The second leg of the stool is strong shareholder-oriented management. And the third leg of the stool is the ability to reinvest cash at a superior rate of return. 

Once they find such firms, they tend to hold on to them for the long haul. The fund's low turnover approach combined with management's preference for firms that reinvest their earnings rather than pay them out in dividends make the fund quite tax-efficient. Plus, it boasts a fantastic track record. Its three- and five-year annualized returns through January 2015 both rank in the mid-cap growth category's top decile, and they look even better when adjusted for risk.

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