Chuck Akre - Investing in the Era of the Constrained Consumer
Chuck Akre, manager of the Akre Focus Fund, believes that high unemployment, tight credit and rising food and energy costs will put a damper on consumer spending. Yet his fund’s largest holding, at 9.7 percent, is MasterCard Inc., the consumer credit card-servicing giant. The reason? Akre sees a growing trend towards paperless transactions, which he says will pay-off for MasterCard over the long-term.
Such thinking serves Akre’s fund well. The fund’s 23 percent return over the past year has bested 99 percent of its peers in the mid-cap growth fund category and done so with less volatility than the stock market. The Akre Focus Fund got its start in August 2009. It owns 29 stocks, with 70 percent of its $1 billion in assets in its top 10 positions -- mostly holdings of large and midsized companies. While Akre's fund is relatively new, he managed the FBR Focus Fund from 1997 through 2009, delivering a 12.4 percent annualized gain, compared to a 4.4 percent return for the S&P 500-stock index over the same period. Lewis Braham recently spoke with Akre who is based in Middleburg, Virginia.
Q: What is your outlook for the U.S. economy?
A: In the U.S. today, unemployment is over 8 percent. If you look at unemployment numbers that include those no longer collecting unemployment benefits and those who have given up looking up for jobs, the real unemployment level is somewhere in the mid-teens. With an economy where gross domestic product is two-thirds driven by consumer spending, you can’t have robust growth with that level of unemployment. Also, access to credit is improving, but it’s still not like it was in the 1990s or 2000s. Third, the experience of 2008’s credit crisis put people on guard and they do not want to have as much leverage as in the past. Those circumstances define a more difficult environment. We've used the phrase, “the constrained consumer.” Periodic increases in food and energy costs exacerbate the problem.