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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"YCG added FICO to their portfolio of global champions with enduring pricing power. FICO dominates U.S. credit scoring with 90% market share among large lenders, benefits from network effects and institutional risk aversion, and has significant untapped pricing power after keeping prices flat for 30 years."
YCG maintains their strategy of owning global champions with enduring pricing power, exemplified by their new investment in FICO during Q2 2024. The firm trimmed positions in recent outperformers Alphabet, Progressive, and Amazon to increase holdings in MSCI and CME Group while initiating a position in FICO. FICO owns the dominant credit scoring algorithm used by 90% of large U.S. lenders and benefits from powerful network effects, institutional risk aversion, and significant untapped pricing power. The company has kept mortgage division prices flat for nearly 30 years until 2018, suggesting substantial room for price increases. FICO operates with a conservative balance sheet and ownership-minded management, while the current mortgage market weakness masks the company's true earnings power. YCG believes FICO exemplifies all six characteristics they seek: dominant networks, competitive barriers, GDP-linked growth, untapped pricing power, conservative balance sheet, and ownership-minded management. This diversified approach positions the portfolio to generate attractive risk-adjusted returns across various economic environments.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction evidenced by detailed, multi-page analysis of FICO with specific investment thesis covering six distinct characteristics. Manager names specific positions, describes sizing decisions (trimming three names to fund FICO and increase two others), and provides falsifiable catalysts with quantified upside potential. The systematic framework and willingness to act on conviction despite market uncertainty demonstrates strong belief in their approach.
Growth Outlook
The manager acknowledges a strong quarter but notes it was driven by a narrow group of companies, with concerns about a weakening economy. They describe slowing consumer demand impacting some holdings, showing mild caution about market conditions while remaining constructive on their strategy.
Risk Appetite
YCG actively rebalanced by trimming outperformers and adding to existing positions while initiating a new position in FICO. This shows selective risk-taking and capital deployment, indicating a moderately positive risk appetite despite economic concerns.
Capital Deployment
Moderate deployment activity through portfolio rebalancing - trimming three outperformers to increase positions in two existing holdings and initiate one new position. This represents rotation rather than net new capital deployment, as proceeds from sales funded the purchases.
Forward Guidance
The manager expresses confidence in their long-term strategy and believes FICO's addition increases potential risk-adjusted returns. However, they acknowledge uncertainty about timing of mortgage market recovery, showing measured optimism about deployment opportunities.
Language Signal
Language includes positive terms like attractive returns, enduring pricing power, and global champions, balanced against concerns about weakening economy, slowing consumer demand, and market timing uncertainty. Slightly more constructive than cautious overall.
Perceived Risk
Manager acknowledges a weakening economy, slowing consumer demand impacting some holdings, and market concentration risks. However, these concerns are discussed matter-of-factly rather than as major threats, with risk mitigation through diversification emphasized.
Opportunity Density
Manager identifies selective opportunities, adding a new position they've long admired while increasing existing positions. They describe using market divergence as rebalancing opportunities, suggesting a reasonably rich but selective opportunity set requiring patience and discipline.
Time Horizon
Strong emphasis on long-term value creation with multi-year thesis for FICO. Manager discusses enduring characteristics, long-term business value growth, and explicitly states they don't try to predict short-term market gyrations. The focus on permanent competitive advantages and recession-resistant toll collectors indicates a multi-year investment horizon.
