| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 0% | 0% |
Willis Cap delivered strong 2023 returns that reversed 2022 losses, with cumulative two-year performance showing modest gains. The manager significantly reduced equity allocation from historical 75-80% to approximately 60%, increasing treasury holdings due to elevated market valuations. Key holdings including Constellation Software, Transdigm, Amazon, and Google delivered strong returns as businesses performed better than feared. The manager made one large new investment in life science tools companies (Danaher, Thermo Fisher, Sartorius) following temporary cyclical weakness. Current market environment shows stocks at 20-year valuation highs with compressed risk premiums over treasuries. The manager emphasizes patience over chasing returns, positioning portfolios to benefit from future volatility. Forward outlook anticipates lower returns of 5-8% annually versus historical 11-12%, with treasury holdings providing optionality for deployment during market weakness. Strategy focuses on preserving wealth for clients who have achieved financial goals while maintaining selective equity exposure in quality businesses.
Focus on high-quality businesses trading at reasonable valuations while maintaining significant treasury holdings to capitalize on future market volatility and opportunities.
Manager expects lower forward returns than the historical 14-15% on stocks and 11-12% on whole portfolios. Portfolio-level returns of 5-8% per year over next 10 years are anticipated if current holdings are maintained, with treasury holdings limiting returns to 4-5% and equity portfolios expected to generate 8-10% annually. The manager emphasizes patience and waiting for better opportunities rather than chasing returns in the current high-valuation environment.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Sep 3 2024 | 2023 Q4 | AMZN, BRK-B, CHTR, CRM, CSU.TO, DHR, EPD, GOOGL, MA, MSFT, SPGI, SRT3.DE, TDG, TMO, V | Concentration, long-term, Quality, risk management, Treasuries, Valuations |
DHR ADI|BDX|FI|FND|HAS|META|MSFT|MSI|ORCL|TMO SRT3.DE |
Willis Cap reduced equity allocation to 60% from historical 75-80% after strong 2023 recovery, citing elevated valuations and compressed risk premiums. Portfolio holds high-quality businesses like Constellation Software and Amazon while building treasury position for future opportunities. Manager expects lower forward returns of 5-8% annually, emphasizing patience over chasing performance in expensive markets. |
| Dec 1 2023 | 2022 Q4 | AMZN, BRK/A, CHTR, CSU CN, EPD, FRC, GOOG, MA, RADI, TDG, V | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2023 Q4 |
ValuationsManager extensively discusses how stock valuations have moved from undervalued to fair value throughout 2023, leading to position trimming. Current market valuations are described as high relative to historical levels, with P/E ratios at 20-year highs excluding 2021. |
P/E Ratios Fair Value Market Multiples Pricing Risk Premium |
Risk AppetiteThe letter emphasizes reduced risk appetite due to high market valuations and limited compensation for taking equity risk over treasuries. Manager discusses the importance of being compensated for risk and current environment not providing adequate risk premiums. |
Risk Premium Treasury Yields Credit Spreads Market Risk Compensation | |
QualityFocus on high-quality businesses with strong competitive positions, consistent execution, and cash generation. Holdings like Constellation Software and Berkshire Hathaway exemplify this quality focus with their proven business models and conservative management. |
Business Quality Competitive Moats Cash Generation Execution Consistency |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Mar 9, 2024 | Fund Letters | Concentrated Compounding | DHR | Danaher Corporation | Health Care | Life Sciences Tools & Services | Bull | NYSE | Bioprocessing, contrarian, Cyclical Recovery, Life Sciences Tools, Manufacturing Equipment, pharmaceuticals, Value | Login |
| Mar 9, 2024 | Fund Letters | Concentrated Compounding | ADI|BDX|FI|FND|HAS|META|MSFT|MSI|ORCL|TMO | Thermo Fisher Scientific Inc. | Health Care | Life Sciences Tools & Services | Bull | NYSE | Analytical instruments, contrarian, Cyclical Recovery, Laboratory Equipment, Life Sciences Tools, pharmaceuticals, Value | Login |
| Mar 9, 2024 | Fund Letters | Concentrated Compounding | SRT3.DE | Sartorius AG | Health Care | Life Sciences Tools & Services | Bull | XETRA | Bioprocessing, contrarian, Cyclical Recovery, Germany, Laboratory Technologies, Life Sciences Tools, pharmaceuticals | Login |
| TICKER | COMMENTARY |
|---|---|
| CSU.TO | Our largest position, Constellation Software, was up 63% in 2022. Constellation continues to consistently execute its playbook of running its large stable of software companies well, generating ample cash, and using that cash to acquire more software companies and drive earnings growth. We have owned Constellation for 6 years and its earnings have grown 21% per year over that time frame. |
| TDG | Transdigm's stock returned 67% this year as the company continued to execute well and capture incremental volumes and profits from the continued global travel recovery. Its earnings in 2022 were above its pre-pandemic peak, even with sales volumes still below peak levels, and the outlook over the next few years is strong as travel continues to grow at elevated rates as it normalizes towards its pre-pandemic trends. |
| AMZN | Amazon had a good year this year, as it made significant progress in better aligning costs in its retail business to current levels of demand, which has led to a sharp increase in profitability. While AWS's growth rate is still relatively low due to customers rationalizing spend, growth appears to have bottomed and should reaccelerate in the future. Outcomes for both of these businesses were better than the market feared at the end of last year, which sent shares up 81% this year. Amazon is a good example of this dynamic. Last year the stock closed at $84 and I argued that I thought it was worth around $140-150, which is the price from which I think you'd make roughly a 8-9% return. The company had a good year operationally, and at this point I believe it's worth around $150-165. But the stock ended the year at $152, so it's close to my estimate of its value. |
| GOOGL | Similar to Amazon, Google's stock saw a large return of 59% this year as its results came in better than feared at the end of 2022. Google's core business grew, and that growth accelerated throughout the year. Additionally, the company showed significant cost control, which reversed the weak margins from last year and a major cause of the stock's weakness. |
| CHTR | Charter, put simply, continues to struggle. Last year I noted that the company is facing increased competition, which has slowed its growth and led to more uncertainty as to its true value. Not much has changed in the last 12 months – it has grown its earnings and subscriber counts slightly although it is clearly feeling the effects of that increased competition. While I wish there could be a quick resolution here, the truth is that business results aren't always linear or easy. While the future is more uncertain at Charter than at our other investments, its valuation is much cheaper. There is uncertainty and risk in every potential investment. My job is to only own an investment when the risk/reward skews favorably and to diversify enough that a bad outcome in any one place doesn't ruin the whole portfolio. I believe the current risk/reward here is, in fact, quite favorable, but I'll continue to closely monitor the situation to make sure that our entire portfolios aren't harmed too much if some of the risks play out. |
| BRK-B | Berkshire Hathaway returned 15% this year as the company continues to create value consistently and conservatively. Berkshire should continue to be a relatively safe way to make a good long-term return. |
| V | Going through some of our smaller investments, Visa and Mastercard continued their steady growth in revenue and earnings and the stocks returned 26% and 23%, respectively. |
| MA | Going through some of our smaller investments, Visa and Mastercard continued their steady growth in revenue and earnings and the stocks returned 26% and 23%, respectively. |
| SPGI | S&P Global returned 33% as the outlook for the economy, and therefore its core credit ratings business, improved. |
| MSFT | Microsoft started the year at a relatively low valuation, had an excellent year, and has enjoyed a 58% return due to strong profit growth and multiple expansion. |
| CRM | Salesforce is up 25% from our purchase price as it has continued to grow at a decent rate and more importantly has exhibited strong expense control and margin expansion. |
| EPD | Enterprise Products Partners had another profitable year without much of particular note and returned 18%. |
| DHR | I made one large new investment this year, which was into a group of companies that sell tools used in the manufacturing of a specific type of prescription drugs. We bought stock in Danaher, Thermo Fisher Scientific, and Sartorius. This investment follows a pattern that has worked well for us historically – these companies saw a contraction in revenues and profits in 2023 due to well-understood, temporary, cyclical factors. There are no new major worries about their competitive positions, their ability to generate profits, or their ability to grow over time. |
| TMO | I made one large new investment this year, which was into a group of companies that sell tools used in the manufacturing of a specific type of prescription drugs. We bought stock in Danaher, Thermo Fisher Scientific, and Sartorius. This investment follows a pattern that has worked well for us historically – these companies saw a contraction in revenues and profits in 2023 due to well-understood, temporary, cyclical factors. There are no new major worries about their competitive positions, their ability to generate profits, or their ability to grow over time. |
| SRT3.DE | I made one large new investment this year, which was into a group of companies that sell tools used in the manufacturing of a specific type of prescription drugs. We bought stock in Danaher, Thermo Fisher Scientific, and Sartorius. This investment follows a pattern that has worked well for us historically – these companies saw a contraction in revenues and profits in 2023 due to well-understood, temporary, cyclical factors. There are no new major worries about their competitive positions, their ability to generate profits, or their ability to grow over time. |
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