| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 0% | 8% |
Ensemble Capital's strategy returned 8.02% in the first half of 2024 versus 15.29% for the S&P 500, with the massive disconnect driven by extreme concentration in a handful of mega-cap stocks. The five largest S&P 500 companies now comprise nearly a quarter of the index, the highest concentration in at least half a century, driven by stocks like Nvidia trading at 70x PE. This mirrors the Dot Com bubble when incumbent leaders captured outsized returns before reverting. The manager maintains their two-decade track record of generating just below 10% annual returns by focusing on individual stock selection rather than index concentration. Recent positions include Analog Devices benefiting from semiconductor cycle recovery, Illumina's undervalued genomics platform, and Veeva Systems' expanding life sciences software moat. They sold Chipotle after 370% gains due to excessive valuation. The strategy expects average stocks to outperform as mega-cap valuations normalize, consistent with historical precedent.
Market concentration has reached extreme levels with mega-cap stocks trading at record valuations, creating unprecedented performance dispersion that will eventually revert to historical norms, benefiting the manager's diversified approach focused on average stock performance rather than index concentration.
The manager expects average stocks to outperform the S&P 500 as valuations normalize, consistent with historical patterns. They plan to maintain their long-term approach that has generated just below 10% annual returns for over two decades. The goal remains to exceed the long-term stock market return rate and outperform over most long-term timeframes.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 16 2022 | 2024 Q2 | AAPL, ADI, AMZN, BKNG, CMG, CSCO, DELL, FAST, GOOGL, ILMN, INTC, META, MSFT, NFLX, NVDA, NVR, RACE, TSLA, TXN, VEEV | AI, Biotechnology, Concentration, large cap, Mean reversion, semiconductors, valuation | - | Ensemble underperformed due to extreme S&P 500 concentration in mega-cap stocks trading at record valuations. The manager maintains conviction in their two-decade approach, expecting mean reversion as historical precedent suggests. Recent moves include adding semiconductor and biotech exposure while trimming overvalued positions, positioning for eventual normalization of performance dispersion. |
| Apr 15 2024 | 2024 Q1 | AAPL, AMZN, BR, CMG, FAF, FAST, GOOGL, HEI, IEX, MASI, META, MSFT, NFLX, NKE, NOW, NTDOY, NVDA, NVR, RACE, TDG | growth, industrials, large cap, Luxury, Quality, technology, value |
RACE IEX |
Ensemble Capital matched the market's strong 10.56% Q1 return, arguing the rally reflects genuine economic strength rather than speculation. The portfolio showed broad diversification with nine holdings gaining over 30%, led by Perimeter Solutions, Netflix, and Ferrari. The firm maintains conviction that current market gains are justified by exceptional economic fundamentals reminiscent of the 1990s expansion. |
| Jan 17 2024 | 2023 Q4 | BKNG, BR, DIS, GOOGL, ILMN, MA, MASI, NFLX, NKE, NOW, NTDOY, PAYX, WBD | AI, earnings, growth, Streaming, technology | AAPL|MSFT|NFLX|NVDA|UNH | Ensemble Fund posted strong Q4 returns of 16% as economic conditions normalized from stagflation fears to a 'Goldilocks' environment. The portfolio emphasizes AI adoption across holdings like ServiceNow, Booking, and Netflix, which successfully pivoted its business model. With Fed rate cuts planned and inflation normalizing, the fund is positioned for continued outperformance through technology-enabled growth companies. |
| Oct 31 2023 | 2023 Q3 | ADI, BKNG, BR, GOOGL, ILMN, MA, MASI, NFLX, TXN | growth, interest rates, large cap, payments, semiconductors, technology, value | - | Ensemble Capital underperformed in Q3 due to activist-targeted holdings Illumina and Masimo, but believes their core businesses are dramatically undervalued. Rising treasury yields reflect improved economic outlook rather than inflation concerns, creating supportive conditions for equities. The portfolio focuses on high-quality businesses like Analog Devices and Mastercard positioned for secular growth trends. |
| Jan 17 2023 | 2022 Q4 | CMG, FRC, GOOG, ILMN, MA, MASI, NFLX, NKE, PAYX | - | - | |
| Oct 17 2022 | 2022 Q3 | MASI, NVR, SCHW | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q2 |
AIThe letter extensively discusses artificial intelligence as a transformative technology similar to the internet. The manager believes AI enthusiasm is correctly recognizing massive potential, but incorrectly assumes incumbent market leaders will capture all profits. AI is described as complementary to genomic sequencing, enabling automation of complex data analysis and accelerating discoveries in digital biology. |
Artificial Intelligence Digital Biology Automation Data Analysis Innovation |
SemiconductorsThe semiconductor industry is experiencing cyclical weakness following post-pandemic inventory corrections. Analog semiconductor companies like ADI are seeing revenue declines but stock prices have bottomed ahead of fundamentals. Recent improvements in order bookings suggest the cycle may be turning, with potential for revenue and earnings growth resumption. |
Semiconductor Cycle Inventory Correction Analog Semiconductors Cyclical Recovery Order Bookings | |
BiotechnologyGenomic sequencing costs have declined 99% since 2009, enabling explosive growth in applications and volumes. AI is accelerating discoveries in digital biology, with potential for tens of millions of genomes to be sequenced annually. Multi-cancer early detection screening represents a significant commercial opportunity in a market affecting hundreds of millions of adults globally. |
Genomic Sequencing Cost Reduction Clinical Applications Cancer Screening Digital Biology | |
ConcentrationMarket concentration has reached extreme levels with the five largest S&P 500 companies comprising nearly a quarter of the index. This concentration is driven by a small number of mega-cap stocks trading at record valuations, creating the most dramatic performance deviation in at least half a century. Historical precedent suggests this concentration will eventually revert. |
Market Concentration Mega Cap Valuation Extremes Performance Dispersion Mean Reversion | |
| 2024 Q1 |
LuxuryFerrari demonstrates exceptional pricing power with average selling prices approaching €400,000, up €100,000 over five years. The company successfully expanded its appeal through new form factors like the Purosangue SUV while maintaining exclusivity. Management has built one of the strongest luxury brands with a robust business model that plays to these strengths. |
Pricing Power Exclusivity Brand Veblen Premium |
AutomationIDEX Corporation operates as a successful serial acquirer specializing in niche industrial automation components and technology. The company focuses on mission-critical parts that help larger systems run smoothly, creating switching costs for customers who rely on trusted, reliable supply. IDEX's 80/20 optimization system helps maximize efficiency across its portfolio companies. |
Serial Acquirer Industrial Components Mission Critical Optimization | |
StreamingNetflix shocked investors with remarkable subscriber growth, adding 13.1 million new subscribers in the most recent quarter - the largest quarterly addition outside of COVID periods. For all of 2023, the company added nearly 30 million new subscribers, making it the largest annual gain in Netflix history other than the first year of COVID. |
Subscribers Growth Recovery Content Platform | |
| 2023 Q4 |
AIThe fund extensively discusses artificial intelligence adoption across portfolio companies. Booking Holdings rolled out an AI trip planner using natural language processing. Broadridge deployed BondGPT and OpsGPT for bond trading and operations. ServiceNow launched Now Assist for workflow automation. |
Machine Learning Natural Language Automation Productivity Data |
StreamingNetflix represents a major focus with detailed analysis of its business model evolution. The company pivoted from pure subscription to incorporating advertising revenue and password sharing monetization. Legacy media competitors like Disney and Warner Bros Discovery have scaled back streaming investments. |
Subscription Content Advertising Competition Revenue | |
| 2023 Q3 |
RatesThe 10-year treasury yield rose 0.73% in Q3 as investors recalibrated long-term interest rate expectations. The Fed shifted from expecting recession to a more positive economic outlook, forecasting they would not need to cut rates as soon or by as much. Higher rates driven by real economic growth rather than inflation have mixed but generally positive impacts on equity valuations. |
Interest Rates Federal Reserve Treasury Economic Growth Inflation |
SemiconductorsAnalog and mixed-signal semiconductors are positioned for accelerated growth as devices become more intelligent and connected. Companies like ADI benefit from longer product cycles, higher margins, and switching costs. The industry is at an inflection point with growth expected to accelerate from mid-single digits to 10%+ annually. |
Analog Chips Mixed Signal IoT Automotive Industrial | |
PaymentsMastercard benefits from the global shift from cash to digital payments and steady consumer spending growth. The company has a competitive moat through network effects and benefits from the hidden costs of cash acceptance that drive merchant adoption. Payment innovation continues to make card acceptance easier rather than replacing the underlying networks. |
Digital Payments Network Effects Consumer Spending Fintech Cash Displacement |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Dec 31, 2023 | Fund Letters | Ensemble Capital | AAPL|MSFT|NFLX|NVDA|UNH | Netflix | Communication Services | Entertainment | Bull | NASDAQ | advertising, Content, entertainment, Global, growth, media, Streaming, Subscription, technology, turnaround | Login |
| - | Fund Letters | Ensemble Capital | RACE | Ferrari N.V. | Consumer Discretionary | Automobile Manufacturers | Bull | NYSE | automotive, Brand Exclusivity, collectibles, High Net Worth, Hybrid, Italian, Luxury, Pricing power, SUV, Veblen Good | Login |
| - | Fund Letters | Ensemble Capital | IEX | IDEX Corporation | Industrials | Industrial Machinery | Bull | NYSE | 80/20 System, Decentralized, Fire Safety, Free Cash Flow, healthcare, Industrial, M&A, Mission-Critical, Niche markets, serial acquirer | Login |
| TICKER | COMMENTARY |
|---|---|
| ADI | We initiated a position in Analog Devices (ADI) in May 2023 and then further increased our position in September 2023 as our conviction grew. Since May 2023, the stock is up about 25% despite quarterly revenue declining by 33% in the most recently reported quarter. At the time we started buying, the analog semiconductor market was at the front end of cyclical weakening coming off of the post-pandemic inventory corrections. Recently, both ADI and TI reported that they are seeing improvements in net new order bookings across most segments and geographies, which gave the management teams the confidence to offer an improving outlook for the next quarter. |
| CMG | Finally, we'd like to discuss Chipotle, a nice long term success story in our client portfolios that we recently sold out of due to its high valuation after holding for over 4 years. This was an exit that was driven by the strong performance of the stock, increasing about 370% over the past 4 years from March 2020 to June 2024. We first bought the stock in client portfolios in March 2020 on the thesis that there was substantial growth runway and margin leverage in the business as it scaled. However, the stock price has now gotten to a point where it more than reflects all those targets, meaning that even more aggressive targets need to be incorporated in order to rationally pay the premium valuation it now commands. |
| ILMN | Next, we'd like to discuss our position in Illumina. Despite its poor stock performance over the past two years, we believe it's an important competitively advantaged company and has become very undervalued for two reasons. First, its acquisition of GRAIL - the first multi-cancer early detection screening technology, one that has required huge amounts of investment and meaningfully diluted earnings while coming under fire from regulators for being anti-competitive. Second, a slowdown in its core genetic sequencing business due a slowdown after the COVID pandemic subsided, tighter capital markets for customers during 2022 and 2023, exacerbated by an important product cycle transition that ultimately improves its competitive positioning and business outlook. |
| VEEV | Lastly, Ensemble has recently taken a position in Veeva Systems, which we believe is expanding its lead in the life sciences software market. As pharma, biotech, medtech and contract research organization (CRO) companies buy more of Veeva's applications that tie together on its cloud-based Vault platform, the more efficient and stickier those customers become. We expect this to fuel above-average growth in revenue and profits for Veeva over the next decade. |
| NVDA | Nvidia is up a shocking 345% while the average stock in the S&P 500 is up just 16%. And so, we get Nvidia behaving just like Cisco did during the Dot Com bubble, up 2,926% over the past five years vs the S&500 up 101%, while the average stock is up just 68%. Nvida trades at a PE of 70. |
| GOOGL | Google has generated returns nearly as good as the Magnificent Seven average. Google is up 172%. |
| NFLX | Netflix is up 109%. |
| RACE | Ferrari is up 155%. |
| NVR | NVR has doubled. |
| BKNG | Booking is up 94%. |
| FAST | Fastenal is up 92%. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
|---|---|---|---|---|---|
| No Recent Buys Data | |||||
| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
|---|---|---|---|---|---|---|
| No Recent Sells Data | ||||||
| Industry | Prev Quarter % | Current Quarter % | Change |
|---|---|---|---|
| No industry data available | |||
